KPMG urges businesses to measure benefits of outsourcing properly

Posted by Maggie Holland at 8:37AM, Wednesday 28th February 2007

Recent research suggests that, while many companies are happy to outsource much of their operational activity, many businesses are still unsure exactly what benefits handing over the reigns is bringing them.

Despite the fact that many businesses are engaged in outsourcing activity, whether onshore of offshore, some 42 per cent of deals aren't supported by a formal way of measuring the benefits, research published today reveals.

Businesses around the globe are unable to properly quantify exactly what they're getting out of an outsourcing arrangement, according to the study conducted by KPMG.

But the overall consensus of many outsourcing contracts is that companies are happy with their lot, suggesting that they don't fully understand or are glossing over potential grey or problem areas, warns Shamus Rae, a KPMG IT advisory partner.

"Personally, I'm glad to hear that businesses feel that their sourcing arrangements are working as it was all too easy in outsourcing's formative years to dismiss it as something which never properly delivered. However, businesses have to be able to substantiate the benefits which outsourcing delivers. Simply going on a gut feel or anecdotal evidence is not enough."

"Significant opportunities do exist for organisations to capitalise on the strategic value of outsourcing. This potential can be unlocked by more consistent measurements of contract provisions and other metrics about the relationship with the service provider. Sadly, our survey shows that far too many businesses do not appear to have these processes in place, leaving them floundering in the dark somewhat when trying to establish the real value of outsourcing arrangements to their bottom line."

In addition to not being able to measure the benefits of outsourcing, some 79 per cent of businesses surveyed weren't completely sure of the cost involved in selecting a partner to work with.

Half of companies took longer than six months to complete the request for proposal (RFP) aspect of the deal, while six out of 10 respondents admitted that any problems they encounter are nearly always related to people, highlighting that cultural fit is often a secondary consideration when choosing who to work with.

While it is clear the outsourcing outlook isn't completely rosy, many businesses remain upbeat, with just 13 per cent agreeing with the doomsayers that up to half of all outsourcing deals are destined for failure.

"Upon analysing the survey responses, it became quite clear that businesses were struggling to determine exactly what constituted success within their outsourcing arrangements. Many respondents say they believe sourcing improves their financial performance; shareholder value and competitiveness yet a large percentage of sourcing relationships are not strategically monitored," added Rae.

"There is an obvious paradox at play here...In the long term, this sort of intuitive response - where they just 'feel' that sourcing is working - may not be good enough. Sourcing is increasingly regarded as a key component of an effective business strategy but companies need to insist on seeing the tangible benefits to continue to justify what is often a large-scale investment. Outsourcing is working but these survey results suggest a pressing need for a continuing evolution of current practices if outsourcing is to be universally accepted as an effective strategic business tool."