European Businesses Neglect to Measure Value of Outsourcing

Only 43% of European chief financial officers (CFOs) and chief information officers (CIOs) have tried to calculate the impact of outsourcing on their company, and of those that have tried, only 1 in 5 are confident about their calculations, according to a study by Cognizant, a global business technology company based in Teaneck, New Jersey. Meanwhile, more than one-third (37%) of those interviewed have not attempted to measure their return on investment from outsourcing, and 20% don't know whether they have tried to measure such a figure.

"Outsourcing has clear, long- and short-term benefits for businesses, but the research shows that many companies could be missing out by failing to adequately measure outsourcing's impact," said Sanjiv Gossain, vice-president and managing director for the UK and Ireland at Cognizant, in a company statement.

The survey was conducted in association with the United Kingdom’s Warwick Business School at Europe's largest companies between April and July of this year. According to Cognizant, outsourcing is an integral part of all pharmaceutical operations and more than $42 billion was spent on outsourcing deals in 2008.

However, many companies do not understand the real value of outsourcing. Measurement methods cited by CIOs and CFOs in the Cognizant survey were vague. Some comments, for example, included “manual calculation,” “You know what it costs, but you don't really know the value,” and "The accountants will use some formula for calculating return on investment."

"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," said Julia Kotlarsky, associate professor of information systems at Warwick, in the statement. "Outsourcers need to work closely with the CIO, CFO, and their teams to reduce the maintenance budgets and apply them to the proactive, revenue-generating activities the business demands to maximize the long-term business value of outsourcing engagements."

Stephanie Sutton is an assistant editor with PharmTech Europe.