Executives Cite Loss of Operational Control as Most Significant Barrier to Expanding Outsourcing
LONDON; July 2, 2002 – An overwhelming majority of businesses are using outsourcing as a cost-cutting tactic, but few companies have embraced it as a strategic business imperative, according to new research from Accenture (NYSE: ACN).
The research was based on a survey of 150 senior executives at Fortune 1000 companies in the automotive, consumer goods, retail, industrial equipment and transportation industries. Participants were asked about current and future outsourcing initiatives, barriers to more effective use of outsourcing, and how quickly they expect a return on these investments.
Nearly nine out of 10 respondents (87 percent) said their companies outsource at least one aspect of their business. For instance, 27 percent outsource information technology, 27 percent outsource logistics/distribution, and 25 percent outsource customer service/technical support. Two-thirds of respondents, however, reported no plans to expand their outsourcing to other business areas within the next 18 months.
“There is a distinct gap between how companies use outsourcing now and the strategic possibilities it offers, but apparently there are hurdles that must be overcome before many companies will embrace outsourcing more strategically,” said Greg Caster, a partner in Accenture’s Products Operating Group. “While executives have long realized that outsourcing basic business activities can enhance operational efficiency, only a select few are ready to use outsourcing as a tool to drive business growth.”
Almost one half (48 percent) of the executives surveyed said that the fear of a loss of operational control was the most significant barrier to expanding their use of outsourcing. Other impediments cited included cultural barriers in the organization (19 percent), costs (14 percent) and long-term dependency on an external organization (11 percent). Just 6 percent cited diminished vendor relationships and collaboration capabilities as an impediment to more aggressive use of outsourcing.
“There is a significant competitive opportunity for companies who succeed in closely aligning strategic outsourcing initiatives to their growth plans and using outsourcing to transform cost structures and service levels,” Caster said.
But the outlook for uptake still remains sluggish. Of the executives who plan to increase outsourcing within the next 18 months, 13 percent said they would consider outsourcing human resources and 13 percent said they would consider outsourcing their IT operations.
“These findings tell us that even those companies with plans to increase their outsourcing are still approaching it as a means of cost-cutting,” added Caster.
An additional factor in this equation may be return on investment (ROI) and timeframe. One-fourth of respondents expected to see ROI within the first six months, and almost one half (42 percent) expected it within seven to 12 months.
“The demand for rapid ROI leads companies to undertake bite-sized projects instead of the business transformation initiatives that may be necessary to compete long-term,” commented Caster. “Those that invest in the long-term vision will be better positioned to reap both the short- and longer-term benefits.”
Accenture is the world’s leading management consulting and technology services organization. Through its network of businesses approach – in which the company enhances its consulting and outsourcing expertise through alliances, affiliated companies and other capabilities – Accenture delivers innovations that help clients across all industries quickly realize their visions. With more than 75,000 people in 47 countries, the company generated net revenues of US $11.44 billion for the fiscal year ended August 31, 2001. Its home page is www.accenture.com.