Nearly six in 10 chief information officers have failed to measure the financial impact of their outsourcing, according to research by Warwick Business School.
The news comes hot on the heels of a report by the National Outsourcing Association, which said British businesses spent 12 per cent more on outsourcing in 2008 than the previous year. It attributed the increase to attempts to cut costs in the recession.
Over half of those surveyed by Warwick Business School had high expectations from outsourcing, expecting to see a return on investment in only a year.
Of the businesses that tried to quantify the benefits of outsourcing, just one in five said they were confident of their sums. Nearly all businesses were unsure of the exact amount they spent on outsourcing.
A fifth of firms were also unsure if they had even tried to measure the effects of outsourcing. But CIOs got the blame, with 63 pe rcent of chief financial officers saying their CIO was unable to quantify the benefit of outsourcing to the business.
Many other firms even questioned the point of measuring the effects of outsourcing in the long run. Nearly four in 10 said the business value of outsourcing could not be assessed beyond a one-time cost saving.
Nevertheless, of those firms that cut back on outsourcing last year, 78 per cent blamed an “unclear value for money”.
Some 250 CIOs and CFOs from the UK, France, Germany, Switzerland, Benelux and the Nordics were interviewed for the research, commissioned by business process outsourcer Cognizant.
The companies were from a variety of sectors, all generating over £300 million revenue annually. They spent between £3 million and £60 million on outsourcing, and 61 percent plan to increase their expenditure next year.
Some of the businesses gave particularly uncertain responses to questions about value. “You know what [outsourcing] costs but you don't really know the value,” one said. Another hoped that “the accountants will use some formula” to calculate the effect on the bottom line.
Julia Kotlarsky, associate IT professor at Warwick Business School, said the research demonstrated a “critical gap in managerial knowledge”.
She added that CIOs and CFOs “clearly have to do better in justifying their significant outsourcing spend to the board”.
Proven methodology for making caluculations, the right expertise, and the alignment of business strategy with outsourcing, were crucial for making the services deliver, she explained.
But she said outsourcers also have their role to play in helping CIOs. They "need to work closely with the CIO, CFO and their teams”, in reducing costs, growing revenue and improving flexibility, she said.
For more information on outsourcing, visit the CIO UK Outsourcing Tech Toolkit