Outsourcing IT Must Create Value Worth More than Simply Savings

We know that the IT and business process outsourcing industry has taken hit, thanks to a rock-bottom economy. We know that while companies are still looking to outsource and offshore, they are less interested in mega-deals and much tighter with their spending.

Nonetheless, value is top of mind. And not just value in terms of cost, but value in terms of buisiness benefit. So says a new research report, “From Cost to Value,” from consulting and tax advisory firm KPMG International. The report is based on the responses of about 450 CIOs to an online surve sent out in January, which was based on the firm’s own technology agenda launched in 2007 and updated in 2009. Specific to the survey is an analysis of the CIO’s profile and its relation to the priorities on his or her agenda.

The report indicates that now more than ever IT value is critical to business success. In fact, CIOs queried for the report put IT value, which they define as the ability to better react to changing market conditions by using IT — highest on their agenda for the coming years. Eighty percent of respondents put this in the top three of the most important trends. IT value beat out cost optimization (62 percent), portfolio management (52 percent) and risk and compliance (56 percent).

With that in mind, it is no wonder that when asked about outsourcing, the CIOs surveyed said that while most expect the number of outsourcing contracts to increase in the coming years, they also are becoming more critical of their sourcing providers. Many – nearly 70 percent – say they intend to pay much more attention to the price-quality ratio. What’s even more telling is that nearly 90 percent intend to increase pressure on their sourcing provider. According to KPMG, this indicates that CIOs realize outsourcing must show satisfying results.

In a prepared statement, Bryan Cruickshank, a partner with KPMG Advisory in the U.K., said that although the tendency is to equate value with cost-cutting, “our survey suggests a dual focus amongst today’s CIOs. Understandably, they are pursuing value by reviewing outsourcing arrangements and retaining a firm focus on cost optimization for example. At the same time though, they are demonstrating their willingness to move the CIO role from its typically operational home into something more transformational. With that in mind, the days when IT was seen merely as a way of improving efficiency seem behind us. These days, CIOs expect IT to contribute directly to realizing the business strategy and to have a central role in management.”

Outsourcing providers, consider yourselves duly noted.