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:
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.