LogicaCMG: Corporate Fear Costs Business GBP5.4 Billion

Tuesday 17 February 2004 13:11 CET | News

While corporate leaders face increasing pressure to improve profitability and cut costs, they could be losing sight of GBP5.4 billion worth of immediate savings.

The key findings of an international study commissioned by LogicaCMG reveal that the largest organisations across Europe could be set to generate more than two-and-a-half times their current cost-savings by overcoming their perceived fear of outsourcing as a high-risk strategy. Companies are currently saving an estimated GBP2.2 billion a year through outsourcing, in what is still an overall immature market, and without even having investigated the optimum level of outsourcing. According to analysis from LogicaCMG, the optimum balance is struck if 70 per cent of functions are outsourced and 30 per cent remain in-source. The study reveals that these financial benefits can be achieved while reducing commercial risk. About two thirds of organisations agree that business risk could be minimised by better balancing which business processes or systems they in-source and which they outsource. More than half of German companies and 83 per cent of Dutch firms support this view. But 59 per cent of all companies are not conducting regular risk analysis on their internally run operations, and a further 15 per cent only run a risk analysis when considering outsourcing. Too many companies, therefore, may be running higher than assumed risks with in-house operations - but they simply are unaware. LogicaCMG advocates a blended model of outsourcing that allows organisations to optimise their sourcing risks, so that potential benefits can be properly evaluated rather than just judged by perception. Additional findings: - 78 per cent of all companies (97 per cent of UK firms, 71 per cent of German firms and 70 per cent of French firms) have a risk management strategy in place, but too many fail to employ it looking at the risks associated with in-house functions. - The main reasons cited for not outsourcing core functions are: they are too mission critical (according to 40 per cent of all European firms); they are at the core of the business where most value is added so it is hard to justify a move to outsourcing (42 per cent of firms); and cost (only seven per cent of firms). - French companies expect the highest cost-savings (22 per cent) compared with 16 per cent for the relatively mature UK market and 14 per cent overall target for cost-savings. League tables: - Current outsourcing levels -including partially and totally outsourced: (* Numbers highlight the strongest trends per business function) UK (%) France (%) Germany (%) Belgium (%) Netherlands (%) Finance 20*36 07 HR 13* 3 3 8 3 IT 43* 33 13 35 10 Supply Chain Management 20*3 19 1317 Design and Innovations27* 333 13 Payroll 4013650*50* - The top business benefits of moving to an outsourced approach for key business processes: (rating from 1 insignificant to 5 very important) Benefit All countries Cost reduction 3.9* Improved service delivery 3.7* Cost management/predictability 3.6* Improved business performance 3.5 Improved process management 3.4 Expanded process c

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Categories: Payments & Commerce | Payments General
Countries: World
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Payments & Commerce