Businesses neglect to measure value of outsourcing

August 21, 2009
Stephanie Sutton

Stephanie Sutton was an assistant editor at Pharmaceutical Technology Europe.

Pharmaceutical Technology Europe PTE

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 in their sums, according to a study by Cognizant.

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 in their sums, according to a study by Cognizant. Meanwhile, more than a third (37%) of those interviewed have not attempted to measure the return on investment and 20% don't even know whether they have tried or not.

"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," Sanjiv Gossain, Vice President and Managing Director, UK and Ireland, of Cognizant, said in a company statement.

The survey was conducted in association with Warwick Business School (UK) across Europe's largest companies during April–July of this year. According to information from Cognizant, outsourcing is an integral part of all pharma operations; more than $42 billion was spent on outsourcing deals in 2008.

However, many companies do not know the real value of outsourcing and measurement methods cited by CIOs and CFOs were vague, for example: "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," Julia Kotlarsky, Associate Professor of Information Systems at Warwick Business School, said 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."

www.cognizant

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