Choose an area of interest:
Search 

Choose an area of interest:
Accounting | A & A | Corporate Finance | Ethics & Compliance | Financial Planning | HR & Training | International | Legal | Students | Tax | Tech


Deloitte: Outsourcing Delivers 25% ROI
Five Tips to Maximize Cost Savings

Feb. 19, 2008 (SmartPros) A new study from Deloitte reports that businesses entering into outsourcing arrangements are realizing cost savings, but are disappointed by poor strategy and lack of innovation.



The study, "Why Settle for Less," reported that 83 percent of companies surveyed had achieved an ROI of over 25 percent on their outsourcing projects.

However, 49 percent of the executives surveyed indicated they would have defined service levels that aligned better with their companies' business goals if they could start their outsourcing projects over. And only 34 percent of respondents reported that they had gained important benefits from their service providers' innovative ideas or transformation of their operations.

In addition, by a 3-to-1 margin, the outsourcing service providers polled reported that their client companies did not have a solid outsourcing plan, lacked the operational data needed to make sound decisions and did not understand how the to-be organization would really work.

Such contradictory findings could be the result of a failure to properly define the goals of the outsourcing projects as being more than saving money, the study suggests.

"Outsourcing is working financially for a majority of companies in this survey. However, executives' propensity to lead with cost reduction and labor arbitrage without emphasizing the need for overall optimization stymies their companies' chances to realize the full benefits of outsourcing," said Peter Lowes, a principal with Deloitte Consulting LLP and the leader of its Outsourcing Advisory Services group. "The themes of unrealized potential and lost opportunities to use outsourcing as an opportunity to innovate echo throughout this report."

Lowes noted that these lost opportunities may also be the result of the companies' setting their outsourcing goals too low. He said that companies may have initially perceived outsourcing primarily as a tactic to reduce costs as opposed to a means to fundamentally transform their operations and drive dramatic improvements in efficiency, productivity and reliability.

Lowes said that while there is no single right way to use outsourcing for each company, companies should examine the following aspects of an outsourcing deal to see if they need to correct their course even in mid-stream:

  • Clearly define the strategy. Companies need to ask themselves if they are outsourcing the right things for the right reasons. Transferring a dysfunctional operation to a vendor in hopes of saving costs through economies of scale or arbitrage can be a case of "your mess for less."
  • Build a solid foundation. Companies need to ask if they have defined and quantified what they expect from outsourcing. The creation of a business case and the establishment of effective service level agreements (SLAs) should not be given short shrift; but in practice this is too common.
  • Select the right service provider. Companies need to find a provider that is capable of delivering strategic process improvements as well as cost reductions. When things do not go well in outsourcing, most companies automatically scrutinize the service provider, but do not recognize that their decision to select a vendor on cost alone may be the actual root cause of their problems.
  • Strike the deal. Companies need to ask if their contracting process is mutual and flexible. Contract negotiation is a pivotal point in the outsourcing process.
  • Get what you paid for. It can be tempting to think the signing of the outsourcing contract is the culmination of the outsourcing process. But in reality, effective performance management, especially the insistence that service providers actively search for, develop and implement strategic improvements, is the crowning component of an effective outsourcing initiative.

The survey included more than 300 senior executives at mid-size and large companies. Interviews were also conducted with senior executives at 31 of the largest outsourcing providers and with senior partners and partners at several legal firms. The executives and legal firm partners came from the United States (42 percent), the United Kingdom (25 percent) Germany (25 percent) and Canada (8 percent).

2008 SmartPros Ltd. All rights reserved.

Related Stories
 
 
This Week in the SmartPros News & Insights Newsletter


 
Would you recommend this article?
5 (yes, highly)
4
3
2
1 (no, not at all)
Comments:


 
 
About SmartPros | Accounting Products | Professional Education | Marketing Services | Consulting | Engineering Products | PE Review Course | Contact Us
Copyright 2015 Kaplan, Inc. | All rights reserved.