Outsourcing now used by 70 percent of European companies
The increasing flow of outsourcing across the EU sets a positive trend
Today (July 2008), outsourcing is favored as a business tool across European organizations, according to a new survey of more than 600 decision makers in European companies. The Ernst & Young "European Outsourcing Survey 2008" highlights that 70% of respondents already outsource at least one function of their business, with 20% set to increase their level of outsourcing in the next two years, as they increasingly view it as a means to gaining a competitive edge.
The report, which surveyed senior decision makers at companies with a turnover of at least 100 million euros across France, UK, Germany, Italy, Spain and Belgium, also found that cost savings (49%) and better quality through the hiring of specialists (33%) were cited as the biggest reasons for outsourcing. The functions most commonly outsourced were maintenance (76%), logistics (73%) and computing/telecommunications (68%).
Thierry Muller, Partner Ernst & Young France, and Leader of Outsourcing Advisory, comments: “Companies are increasingly looking to external specialists in order to maximize their ability to remain competitive along the length of the value chain.
“Competing in the global economy and having to deal with a strong Euro, European firms need to be more scalable and profitable, and this is creating a general trend towards the fragmentation of the traditional vertically integrated business. Each individual element in the value chain is now required to deliver absolute competence in its own right, and outsourcing, as a fragmentation tool, has proved to be remarkably popular in achieving this.”
Amongst the participating countries, Belgium recorded the highest rate of outsourcing with 81% of the companies using it, while France had the lowest take-up rate at 63%. However, France demonstrated one of the broadest ranges of outsourced functions, with an average of five functions outsourced per company. Although a common business practice in the UK (71%), outsourcing remains restricted to an average of only three functions.
Cost and quality
Cost savings was, unsurprisingly, the top reason for outsourcing across the surveyed countries, however, better quality through specialist skills (33%), improved strategic organization (28%) and more flexibility (25%) were close behind.
There is some concern that business cases for outsourcing are often not met in relation to cost savings, and the tide may be turning with companies realizing that cheaper isn’t always better.
Muller comments: “Many executives are realizing that outsourcing is about corporate growth and maximizing the use of available resources. Outsourcing back office functions to low cost locations, for example, could provide substantial savings, but forms only part of the bigger picture that also encompasses improvements in quality to make the organization fit for future growth.”
France (47%) and Belgium (40%) stand out as strong proponents of quality as a reason for outsourcing.
The possible risks posed through the loss of autonomy (17%), and potentially a reduced quality of service (10%) were key drawbacks cited across European businesses which had engaged in outsourcing. Belgian and German companies experienced more of a negative impact from the loss of control which would lead to a reduction of knowledge on the performance and management of the business unit, whereas the UK and Spain indicated that finding the right partner to fit with their company culture was an important factor in achieving a healthy outsourcing relationship.
The future of outsourcing
Muller concludes: “The overall outsourcing experience appears to be a positive one. The information age is enabling new outsourcing players to exploit the different stages of an organization’s value chain, and there are clear signs that broadening confidence in the outsourcing industry will lead to its adoption over an increasingly wide range of business processes.”
