WBS research commissioned by Cognizant offers CIOs and CFOs new seven-step route to achieving excellence and increased ROI from outsourcing.

Warwick Business School study looks at maximising value from outsourcing

Cognizant, a global provider of consulting, technology and business process services, and Warwick Business School, an international business school, are calling for a major shift in the way outsourcing’s contribution to the business is measured, to ensure that companies realise the true benefits from their outsourcing investments.

Published today, a Warwick Business School research paper by Dr. Julia Kotlarsky and Dr. Ilan Oshri challenges CIOs and CFOs to measure more effectively the business impact of outsourcing investments, in order to communicate clearly the long-term value of outsourcing deals to the boardroom.

The study, commissioned by Cognizant, builds upon quantitative research among over 250 CIOs and CFOs of Europe’s largest companies. Despite spending over $42bn on outsourcing deals in 2008 (Outsourcing Contracts Annual Review [2008]), less than half of CIOs and CFOs have actually tried to quantify the financial contribution of outsourcing to their businesses, the study found.

Warwick Business School proposes seven steps to achieving outsourcing excellence, providing an actionable route for C-levels executives. The research, which focused on understanding and measuring the real benefits of outsourcing beyond a one-time cost saving, investigates factors behind companies’ inability to systematically measure outsourcing’s benefits and examines the strategic role that outsourcing partners can play in achieving this goal. In addition to analysing the quantitative research findings, the WBS report includes in-depth conversations with C-level executives from leading multinationals.

“The business world is facing a new challenge: an outsourcing delivery system of high-value activities that demonstrates value over time and across business functions,” commented Dr. Julia Kotlarsky. “The methodology we have created in conjunction with Cognizant compels CIOs and CFOs to look to achieve business transformation and innovation in their present and future services. The steps we developed, from determining the context of the outsourcing activity to investing in learning capabilities, are aimed at providing a route map to outsourcing excellence.”

“Many firms do not know what exactly they have gained from their outsourcing arrangements, and at what price,” commented Sanjiv Gossain, UK Managing Director, Cognizant. “While the initial returns can always be associated with one-off cost cutting, outsourcing arrangements are complex, often involving inter-related high-value activities, which makes the measurement of long-term benefits from outsourcing challenging. Businesses will never see the true impact of outsourcing on their organisation – and the return on their spend – by ignoring these complexities. CIOs and CFOs have to get more proactive in measuring the value of outsourcing and promoting the benefits clearly to the board.”

The seven steps, which the report outlines in detail, are:

1. Figure out the context of the outsourcing activity

2. Figure out the outsourcing strategy

3. Figure out the benchmark

4. Realise what is value over time

5. Make your CIO a strategist

6. Build the retained organisation

7. Invest in outsourcing learning capabilitiesread more