Outsourcing Common but not Cost Effective

October 27, 2004 (PLANSPONSOR.com) - A vast majority of US and European multinational companies utilize outsourcing or shared services to support financial functions, but less than half consider the action to be cost effective, PricewaterhouseCoopers finds.

The survey, PricewaterhouseCoopers’ ‘Management Barometer’, showed that 72% of European and 77% of American multinationals have outsourced financial functions over the past two years. Seventy-one percent of European multinationals and 78% of American multinationals expect to use these services in the next two years.

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For multinational companies, those in the product sector (80%) are more likely to outsource financial functions than those in the service sector (63%)

The trend of outsourcing extends into non-multinationals as well. Twenty-nine percent of US and European companies expect to increase their use of outsourcing financial functions. Spending is expected to be 16% higher than current levels.

Despite the widespread usage of outsourcing, nearly a third (31%) see limited or very little benefit to outsourcing. Nine percent feel the benefits just break even, while 4% say they are actually losing money. Only 3% say that outsourcing has helped a ‘great deal’ in saving money.

The effectiveness of outsourcing is also a point of contention. While 38% claimed that the benefits that arose were better then expected, 46% rate them about par. Eight percent rated the benefits worse than those initial expectations.

The survey also showed that many executives felt that they could have used help monitoring return on investment (ROI) with regards to outsourcing. Twenty-three percent of European respondents said that they only correctly estimated ROI part of the time. US executives had a harder time calculating this number, with 53% claiming they did so only some of the time or rarely.

Vast differences arise when looking at the financial functions outsourced by American and European companies. In the next two years, the top two outsourced functions in American companies are payroll/billing/accounts payable (74%) and benefits/claims administration (70%). For European companies, the top two expected outsourcing functions are IT/Systems support (70%) and tax services (59%).

PrciewaterhouseCoopers ( www.pwc.com ) based this survey on interviews with 127 CFOs and Managing Directors in Europe, and 151 in America.

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