News

Jan 01, 2010
By PharmTech Editors

Seven steps to outsourcing success


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A major shift is required in the way outsourcing's contribution to a business is measured, as few European companies are currently extracting full value from their outsourcing investments, despite significant investments being made into outsourcing deals in 2008. To give companies a helping hand, a newly released report has outlined seven steps that can help firms realize "real benefits" from their outsourcing investments. These benefits will go beyond the one-time cost savings and will help businesses to gain a competitive advantage.

The report, prepared by Cognizant and Warwick Business School (UK), builds on earlier research into attitudes to outsourcing. As reported in previous issues of PTE (October and November 2008), many companies are incapable — or in some cases just not bothered — when it comes to measuring the value of outsourcing. In an exclusive interview with PTE, Ilan Oshri, one of the authors of the academic report, explained that most companies will not continue down this path and will eventually take steps to improve their understanding of outsourcing investments and ROI. "There is growing pressure by shareholders to understand the link between the firm's business strategy and ROI. Recent evidence indicates that approximately 40% of a firm's backsourced activities has put additional pressure on CEOs to answer shareholders about the real value of outsourcing," said Oshri.

This will drive businesses to seek more sophisticated ways to measure the Return on Outsourcing (ROO). But how can this be achieved? Unfortunately, there are no shortcuts as outsourcing excellence can only be achieved through a combination of methodology, industry expertise and the integration of business strategy into outsourcing objectives.

To help companies along the way, however, the report does offer some advice in the form of seven steps that the authors believe can help companies to realize the full value of their outsourcing investments:

  • figure out the context of the outsourcing activity
  • figure out the outsourcing strategy
  • figure out the benchmark
  • realize what is value over time
  • make the CIO a strategist
  • build the retained organization
  • invest in outsourcing learning capabilities.

Oshri explained that each step will involve challenges; however, one of the key hurdles will be understanding the dynamic nature of value. "Most firms conceptualize the value in the contract and rarely revisit it over time," said Oshri. "Putting together learning teams to reassess 'value' over the outsourcing project life is critical."

Another challenge will be making the CIO a strategist, as this will require changes in mindsets in the businesses, as well as structural changes that will enable the CIO to act as a strategist.

Although Oshri believes that most companies will correct the error of their outsourcing ways, what awaits those who don't? "Two things will happen. One, the companies that don't assess the value of outsourcing will fail to understand what they are getting in return and consequently will become frustrated when expectations will not materialize," explained Oshri. "Second, there will be a growing disconnection between a firm's sourcing strategy and overall strategy. Those firms who don't measure the ROO will continue to focus on the operational side of outsourcing, missing out on opportunities to use outsourcing as a strategic tool to transform their organization and improve their strategic position."

The full report can be read at: http://www.quantifyingoutsourcingbenefits.com/