KPMG, Sourcing, Outsourcing, Benefits

KPMG: Sourcing a key strategy, but still a fog around value of outsourcing deals

Large number of businesses around the world are unable to quantify accurately the benefits which their outsourcing arrangements bring in for them, claims a KPMG International survey. However, companies do acknowledge the positive role played by their respective sourcing providers in the overall organizational success.

Companies are now increasingly looking towards sourcing to provide tangible business benefits. The evolution of sourcing has created immense advantages for businesses that deploy and manage them effectively. KPMG International survey examines the global sourcing marketplace focusing on the current trends in the design, development and management of sourcing initiatives.

Commenting on the survey findings, Egidio Zarrella, Global Partner in Charge, IT Advisory, KPMG, said: “Personally, I’m glad to hear that businesses feel that their sourcing arrangements are working as it was all too easy in outsourcing’s formative years to dismiss it as something which was never properly delivered. However, businesses have to be able to substantiate the benefits which outsourcing delivers. Simply going on a gut feel or anecdotal evidence is not enough.”

He added that “Significant opportunities do exist for organizations to capitalize on the strategic value of outsourcing. This potential can be unlocked by a more consistent measurement of contract provisions and other metrics about the relationship with the service provider.”

Despite the fact that outsourcing is now a widely accepted business practice, KPMG survey brings to light some problems which companies claim to be suffering from regarding their outsourcing arrangements. 42% of outsourcing arrangements are not supported by a formal strategic measurement framework. Almost 2/3rd of the respondents interviewed either tracked benefits at an elementary level or did not track benefits at all. 72% of the customers reported that they do not have the benchmark for measuring the success or failure of their sourcing arrangements.

Speaking on the occasion of the survey release in India, Pradeep Udhas, Global Partner in Charge, Sourcing Advisory, KPMG said “Sourcing is as important as selling for organizations, as it not only impacts profitability, but also makes it much more nimble in today’s dynamic environment”. He further added that “The report is intended to help organizations leverage the experiences of top management who are at the epicenter of major outsourcing initiatives, in order to gain valuable insights into how to manage successful outsourcing relationships.

Key Findings:

• 42 percent of organizations believe their sourcing contract has definitely improved financial performance
• 27 percent said it has definitely improved their competitiveness.
• 72 percent of customers reported that they do not have, or share with their service providers, criteria for measuring the success or failure of their sourcing arrangement.
• As many as 59 percent of organizations interviewed either tracked benefits for IT projects at an elementary level, or did not track benefits at all
• 79 percent of respondents did not accurately know the costs of selecting a service provider
• 14 percent of respondents said they had a significant misalignment of financial and commercial expectations with their service provider