Businesses in dark over outsourcing value

by 20 Feb 2007

While large numbers of businesses perceive their outsourcing arrangements to be working, many are unable to quantify properly what these benefits are, a report has found.

Despite the fact that outsourcing is now a widely accepted business practice, 42 per cent of outsourcing arrangements are not supported by a formal strategic measurement framework.

“Businesses have to be able to substantiate the benefits that outsourcing delivers. Simply going on a gut feel or anecdotal evidence is not enough,” said Egidio Zarrella, partner and global head of IT advisory for KPMG, which released the report.

Businesses were struggling to determine exactly what constituted success within their outsourcing arrangements, the report found.

Many companies believe sourcing improves their financial performance, shareholder value and competitiveness, yet a large percentage of sourcing relationships are not strategically monitored.

“There is an obvious paradox at play here. Businesses claim to be generally happy with the outsourcing they have in place, despite reeling off a list of issues,” Zarrella said.

“On top of this, they do not all have processes in place to measure effectiveness and may not be sure what would constitute success anyway. In the long term, this sort of intuitive response – where they just feel that sourcing is working – may not be good enough.”

The report found that 79 per cent of companies did not accurately know the cost of selecting an outsourcing provider, while 50 per cent said the request for proposal part of the outsourcing process took longer than six months.

Furthermore, 60 per cent of companies said that problems with their outsourcing provider were almost always people-related; something which could be explained by the fact that people and cultural fit were considered as secondary issues – if at all – during the selection process.

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