ceo, outsourcing

CEO involvement crucial to outsourcing success

03 Aug 2005 | (News)

Some revealing trends and insights regarding outsourcing and the role of the CEO can be found in a study by LogicaCMG.

They predict that global expenditure on outsourcing services will continue to rise, ‘back-sourcing’ will become minimal, client control will increase along with their ability to manage contracts, and any existing ‘fear’ of outsourcing will soon dissipate.

The study paid particular attention to the importance of the CEO in executing successful outsourcing initiatives and notes that one-third of outsourcing deals could fail due to lack of CEO involvement.

Dwelling on how crucial the role of CEO is in outsourcing, the study notes that ‘effective CEOs’ care about outsourcing because not only is it an increasingly large expenditure to a company, but it can also affect an organisation’s market valuation. It further observes that outsourcing can disable an organisation if not managed properly and if outsourcing is undertaken to drive down costs, it shouldn’t be at the expense of other strategic or operational benefits.

“The study illustrates that CEO involvement will help mitigate risk and enable an organisation to use the outsourcing deal to create a more competitive position,” said Simon Ormston, Outsourcing, LogicaCMG. “We are increasingly seeing leading organisations use a more blended service offering, enabling them to penetrate new markets more quickly, operate in new geographies, achieve greater agility and enhance strategic capabilities. It’s only logical for the CEO to be at the forefront of this sort of business transformation.”

Says Professor Leslie Willcocks: “For many organisations, outsourcing has become a major operational initiative. However, much of this is happening incrementally, in response to market conditions and specific opportunities to cut costs, rather than on the basis of long-term strategic thinking. CEOs, if they have not already done so, need to put a much more strategic footing in place to get the true benefits of outsourcing.”

The study made the following predictions on the outsourcing market:
-Outsourcing of IT and other business processes is likely to move from a 2005 average of 12 per cent of organisational costs to 20 per cent by 2008.
-Business Process Outsourcing (BPO) will overshadow and incorporate IT outsourcing (ITO).
-Mainstream BPO expenditure is likely to grow worldwide by 10 per cent a year from $140 billion in 2005 to over $220 billion by 2010.
-Innovative new value propositions for outsourcing will emerge and suppliers as a whole will become increasingly more creative in illustrating profitable business models that demonstrate value creation for customers.

Allaying fears about the outsourcing backlash, the study states that clients will transcend the hype and fear of outsourcing and as the market matures, clients will come to understand the power and benefits of strategically managed outsourcing initiatives, as opposed to concentrating on the FUD (fear, uncertainty and doubt) that has been inflated by the media.

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