Opinion

Return on Investment: Why the ROI in outsourcing is not just a financial number

This article provided by

Jaroslaw Czaja, CEO, Future Processing

The days where businesses prioritise cost over the benefits of their outsourcing investments may be coming to a close. A recent KPMG survey revealed that when asked what the most important criteria for choosing external service providers was, only 5% answered that it was the cost of the outsourcing partner. In fact, ‘return on investment’ (ROI) came out as the most important criterion (at 21%) with business outcomes at 16% and automation/transformation of processes at 11%. This report highlighted how certain organisations are starting to assess ROI as more important than the cost of suppliers. However, if companies view ROI as the highest priority, then how should they decide whether the outsourcing supplier has been worth the investment?

A prime example of an industry where the question of return on investment is debated often is healthcare. For example, when companies were asked about outsourcing, the KPMG survey revealed that larger healthcare companies outsource 36% of their business and IT operations. As hospitals are currently experiencing a growth in ransomware and other cybersecurity threats, Health IT claims outsourcing cybersecurity not only proves cost-effective, but also enables hospital staff to concentrate on their core tasks. In addition, the operations that the healthcare industry can outsource are diverse, including analytics, Electronic Health Record (EHR) implementations, cloud adoption, and IoT.

Qualitative vs. quantitative

Organisations around the world are now increasingly evaluating ROI in a qualitative way, instead of only focusing on the financial aspects. While a more traditional method of calculating ROI may be to divide the benefit of the investment by the cost of it (which simply produces a result in the form of a percentage or ratio), evaluating ROI from outsourcing partners should constitute more than looking at the quantitative aspect alone.

To evaluate outsourcing’s ROI from a qualitative point of view, users of outsourcing services need to reflect upon the following questions:

  • In what ways has the outsourced department’s performance and output improved?
  • To what extent has the outsourcing supplier met compliance requirements?
  • How have the company’s analytical capabilities been improved?
  • How much strategic value has the supplier added to the company?
  • How much innovation has been introduced to your company as a result of cooperation?
  • How much more free time do in-house staff now have to work on value-based tasks?
  • How much time was required on your side to train and manage outsourced workers?
  • To what extent have the in-house staff learned from the outsourcing partner’s knowledge?

Evaluating ROI with qualitative questions like these can make the process confusing at first. Where should a company begin? And how does it assess whether the outsourcing company has changed any fundamental elements of your company throughout the process? The solution is to closely follow the company’s progression according to qualitative factors and to monitor changes and benefits during the entire process, rather than leaving the reflection until the final evaluation.

Saving costs and time

When considering outsourcing, the company is given the chance to carefully reassess its current status and service delivery model. A supplier cannot be chosen until the company identifies the exact areas it needs the outsourcing supplier to amend. This may even result in the company completely redefining its long-term vision, if they realise that a) the service provided by the supplier may result in one department becoming the new strength of the company, or b) by freeing time for employees to focus on other areas that were previously given less attention. In this case, the ROI is not only the client’s products, services and infrastructure, but also the point that inspires a reassessment of your company’s long-term direction.

Saving costs will always be an important benefit of outsourcing. Yet, with businesses focusing on cost-effectiveness, outsourcers can add value to the company by supplying skills and offering the opportunity to re-evaluate previously unrecognised areas, while showing their ROI in both quantitative and qualitative terms. Businesses should view ROI as not only a cost-oriented assessment, but also as an assessment of how other areas of the business have benefited from the company’s redirected attention. Outsourcing is not only the employment of external skillsets, but is also the process of providing organisations with the opportunity to evaluate and strengthen their entire position, which, in today’s competitive environment, is not a bad idea.

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