Less than half of all chief information and finance officers (43 per cent) bother calculating the financial impact of outsourcing on their bottom line, according to a research report by Cognizant and Warwick Business School.
The study, which surveyed Europe’s biggest companies in the UK, Germany, Switzerland, Benelux, France and Nordic region across a variety of sectors, revealed that more than a third (37 per cent) admit they “don’t even try” to measure the returns, and a fifth (20 per cent) “do not know” whether they have tried.
The majority of respondents said they spend between £3m and £60 million annually on outsourcing (29 per cent over £30m).
Of those who have tried to calculate the full value of outsourced business deals they commission, less than one in five said they are “very confident” in their sums.
Only eight per cent are “very confident” that they know what their companies are spending in terms of time and money on their outsourcing arrangements, while 37 per cent believe that the business value of outsourcing cannot be assessed beyond a one-time cost saving.
Cognizant reckons chief information and financial officers’ decision-making on future business strategies is being made without knowledge of the financial benefits: “78 per cent of those who to cut back on outsourcing last year cited ‘unclear value for money’, but without any clear evidence or means to quantify the decision.”
Sanjiv Gossain, vice president and managing director, UK and Ireland, Cognizant, says: “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.”
Julia Kotlarsky, associate professor of information systems, Warwick Business School, added: “The report flags a critical gap in managerial knowledge, and some businesses clearly have to do better in justifying their significant outsourcing spend to the board.”
The research surveyed 263 CIOs and CFOs across Europe from companies which all have revenues in excess of £300 million; 71 per cent more than £600m; and 22 per cent more than £3.5bn.