Only 43% of CIOs and CFOs Try to Quantify Financial Benefits of Outsourcing
Less than half (43%) of chief information officers (CIOs) and chief financial officers (CFOs) surveyed have tried to quantify the financial contribution of outsourcing to their businesses, according to research by Warwick Business School and Cognizant. The study found that more than a third (37%) simply do not bother and 20% cannot remember if they have tried or not. Of those who have tried, only 19% are very confident in their calculation.
The survey of 263 CFOs and CIOs from large European corporates across five regions (the UK, Germany, Switzerland, Benelux, France and the Nordics) found that the majority of respondents spend between US$5m and US$100m annually on outsourcing (29% over US$50m). Of the 40% of companies which cut back on outsourcing last year, over three-quarters (78%) cited ‘unclear value for money’, but without any clear evidence or means to quantify the decision.
“[The results are] quite striking because the outsourcing industry as a whole is growing very fast,” said Dr. IIan Oshri, fellow at Warwick Business School, professor at the Rotterdam School of Management in the Netherlands, in an interview with gtnews. “The overall revenues are in excess of US$250bn in revenues for ITO [information technology outsourcing] and US$150bn for BPO [business process outsourcing], and yet only 57% actually try to find out if there is any financial benefits involved.”
The survey also found:
“The second important angle uncovered by this survey is the CFO’s perception of CIO when it comes to bringing the business value of an outsourcing activity to the board,” said Oshri. “Here we find that over 60% of the CFOs believe that CIOs are not doing a good job in conceptualising the financial benefits that can be gained from outsourcing activity and then delivering that to the board. The outsourcing industry as a whole, in our opinion, is showing that they need to do better in promoting the benefits and helping CIOs articulate them.”
In addition to reporting the findings of the survey, the study highlights seven questions for firms that are pursuing the outsourcing path, particularly if they consider that the CIO is a central figure in this activity. “They need to think of the CIO as a strategist and there are additional tools than just trying to figure out a one-off cost saving. A number of the CFOs we talked with pointed out that one of the real challenges for CIOs is to move beyond the one-off cost saving. That is not to say that all companies doing outsourcing do not understand this message, but the majority of them don’t and there are outsourcers out there that can help them improve their performance,” said Oshri.
The seven questions are:
Commenting on the last point, Oshri said: “This is where clients should be heading – they should be looking into learning from their vendors and should be focusing on those vendors that can provide them with advanced methodologies to help them to measure the financial benefits from the interactions they are getting into, as well as how to divert resources from focusing on service performance to improvements in innovation performance.”