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August 14, 2009

European C-suite lacks tools to measure ROI of outsourced business, says survey

Around $42 billion spent on outsourcing deals in 2008

By CBR Staff Writer

The European C-suite lacks the tools to measure the full return on investment of their outsourced business arrangements, despite spending millions of dollars on outsourcing business-critical operations each year, according to a research report by Cognizant, in association with Warwick Business School.

The research was conducted from April – July this year and is based on conversations with over 250 European CIOs and CFOs from the world’s largest companies across a variety of sectors.

The research results carried out among CIOs and CFOs across five regions (the UK, Germany, Switzerland, Benelux, France and the Nordics), highlight how business leaders are not getting to grip with measuring the full financial impact of the outsourcing contracts they commission.

The survey showed that less than half of all CIOs and CFOs (43%) have attempted to calculate the financial impact of outsourcing to their bottom line, more than a third admit they do not try to measure the returns, while a further fifth (20%) do not know whether they have tried. Of those who have tried to calculate the full value of outsourced business arrangements they commission, less than one in five of them polled are very confident in their quantification.

Around $42 billion was spent on outsourcing deals in 2008, according to Gartner. From 78% of those who have cut back on outsourcing last year cited ‘unclear value for money’, but without any clear evidence or means to quantify the decision.

The majority of respondents spend between $5m and $100m annually on outsourcing (29% over $50m), but measurement methods cited by the European CIO and CFO community around what has become an integral part of modern business remain vague.

The research also highlights that CFOs could be better served by increasing the awareness around outsourcing’s impact from their CIO colleagues. Only 37% respondents admit to being happy with their CIO’s ability to communicate the benefits back to the business.

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Sanjiv Gossain, VP and MD for the UK and Ireland at Cognizant comments: “Outsourcing has clear, long and short-term benefits for businesses, but the research shows many companies could be missing out by failing to adequately measure outsourcing’s impact.

“Senior executives appear to be making outsourcing decisions based upon short term cost cutting – which remains crucial – but outsourcing’s impact stretches well beyond the initial labour, skills and cost advantages. The best partnerships can deliver significant operational flexibility and business process improvements, but companies clearly need help in measuring and communicating the long-term value of these relationships.”

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