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Outsourcing sees over 25% ROI, but it’s not just about the money
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15/02/2008
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Outsourcing needs to evolve from simple cost reduction to business transformation to realise its potential, according to Deloitte.
Although the consultancy’s 2008 outsourcing report found that 89% of outsourcing initiatives are achieving a return on investment of more than 25%, key non-financial benefits are not being realised, it says.
Deloitte partner Peter Moller, points out that, with 64% of executives citing cost reduction as their primary motive for outsourcing, companies still perceive it as a tactic to reduce costs – although 56% say it’s to gain access to technology expertise.
However, only 37% said a primary driver was to improve customer value and just 27% said they hoped to gain competitive advantage through outsourcing. And only 34% reported that they had gained important benefits from their service providers’ innovative ideas or transformation of their operations.
“The true potential of outsourcing is not being achieved, and we are still seeing a focus on a narrow remit of labour arbitrage and cost reduction,” says Moller. “Overall, our survey shows that the emphasis on cost reduction and access to a vendor’s skilled workers reveals a procurement-oriented mind set that takes a narrow view of the potential benefits of an outsourcing relationship. In short, companies are aiming too low.”
Deloitte’s report ‘Why settle for less?’ suggests that, while outsourcing is still being used in its traditional form, companies and executives aren’t realising the full benefits. When asked what companies would do differently if they were able to start their outsourcing projects again, 49% of the executives surveyed said they would define service levels that aligned better with their companies’ business goals.
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Author
Brian Tinham
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