CIOs failing to measure outsourcing value

Most CIOs have no idea of the financial value of their outsourcing deals

Less than half of chief information officers (CIOs) know the financial value of outsourcing to their business, according to research.

The study by Warwick Business School, on behalf of global IT services firm Cognizant, interviewed 263 CIOs and finance directors across Europe, and found that the majority lack the tools to effectively measure the return on investment (RoI) from such projects, despite spending millions each year on outsourcing.

The majority of respondents said they spend between $5m and $100m (£3m and £61m) each year on outsourcing, yet their calculation methods for RoI remain vague. Some said they rely on “manual calculation”, while others admitted: “You know what it costs but you don't really know the value.”

Just 43 per cent said they have attempted to calculate the financial impact of outsourcing on their bottom line, while a third said they do not try to measure RoI at all.

A further fifth said they do not know whether they have tried.

Of those who have tried to calculate RoI on outsourcing deals, less than 20 per cent said they are very confident in the figure they arrive at.

Julia Kotlarsky, associate professor of information systems at Warwick Business School, said there is a worrying gap in managerial knowledge.

"A combination of proven methodology, industry expertise and tight integration of businesses' strategy into outsourcing objectives to effectively measure, improve and communicate outsourcing's true impact, is required to ensure outsourcing delivers on its promises," she said.

"Outsourcers need to work closely with the CIO, finance director and their teams to reduce maintenance budgets and apply them to the proactive, revenue-generating activities the business demands in order to maximise the long-term business value of outsourcing engagements."