Outsourcing: The path to achieving business transformation goals. (Advertisement: CEO Survey).

CEOs rely on business process outsourcing for many important transactional functions, but their focus is shifting to strategic functions in future outsourcing plans.

Profitability and business growth are top-of-mind among chief executives as they seek to leverage business transformation strategies and achieve measurable performance improvements. Outsourcing's role as an important tool to reach those goals is growing in importance.

Business process outsourcing already is widely embraced, especially among larger organizations. While its focus to date has been primarily on transaction-based functions, a survey of more than 320 Chief Executive readers spotlights an emerging trend toward the use of outsourcing for more strategic functions. In the future, outsourcing initiatives are more likely to focus on areas such as training and development and customer information management. The decision to outsource is being made at the highest levels of the organization--and most often by the CEO.

Also made clear by CEOs responses to the survey, conducted by Spherion Corporation, a provider of recruitment, outsourcing and technology services, is that business leaders have set the bar high when it comes to their expectations for outsourcing. Most notably, they are counting on it to increase management's ability to focus on core issues and to enable more effective deployment of capital investments. Other anticipated end results from outsourcing projects include increased return on investment, better products and reduced costs, as well as improved customer service and share, and higher shareholder value.

Chief executives seem poised to make a big bet on outsourcing of more strategic functions to achieve business transformation goals. They believe outsourcing provides increased access to specific expertise or skills, ensures flexibility as the business grows and evolves, and allows management to focus on governance and strategy.

WHAT READERS SAID

* Profitability and business growth have displaced cost reduction as the primary concerns of CEOs. When asked what they considered to be the top two most important business issues facing companies today, more than half of the respondents cited profitability (56 percent) and business growth (53 percent). Customer loyalty, mentioned by 30 percent, was deemed more important than cost reduction. (Chart 1)

* Most organizations, especially large ones, already are outsourcing. Among companies responding to the survey, 73 percent currently outsource at least one function, and 13 percent are considering it. Outsourcing of multiple functions is most prevalent among companies with more than $1 billion in annual revenues. (Chart 2)

* Choosing to outsource is an executive-level decision. The CEO makes the decision to outsource at 77 percent of the companies responding to the survey, while that responsibility falls to the chief financial officer at 10 percent. The CFO is more likely to make outsourcing decisions at $1 billion-plus companies.

* CEOs hold a favorable view of business process outsourcing. More than 70 percent of respondents said that outsourcing gives their company increased access to specific subject matter expertise, and almost 60 percent felt it ensures flexibility as their business changes. Almost as many said they believed outsourcing would be supported by company management, and 55 percent cited it as something that allows management in their company to improve their focus on governance and strategy. (Chart 3)

* Depth of process expertise is the key consideration when choosing an outsourcing partner. Reflecting respondents' high expectations of increased access to specific subject matter expertise as a benefit of outsourcing, depth of process expertise was most often cited as an important factor in evaluating a business process outsourcing provider. Notably, "lowest-cost provider" was the least important factor, mentioned by just 3 percent of those surveyed. Depth of industry expertise, demonstrated client experience and cultural fit all were rated more important than lowest-cost provider.

* CEOs see outsourcing as a way to improve performance in critical areas. Seventy-three percent said increased management focus on core issues is a likely end result of a business process outsourcing engagement, and 62 percent would expect better use of capital investments as an outcome. Those expectations were even more pronounced among companies currently outsourcing two or more functions, 79 percent and 72 percent, respectively. The expectation of better use of capital investments was highest among those who outsource call center operations (78 percent) and human resources (72 percent). (Chart 4)

* People-intensive services are prime candidates for outsourcing. When executives were asked which of five outsourcing services they use today, administrative services and human resources were the business process functions most commonly cited, each by 37 percent of respondents. (Chart 5)

* Offshore outsourcing is emerging as a viable option. Among those currently using outsourcing, 60 percent already use or would consider using offshore outsourcing. Among those currently reviewing outsourcing, 20 percent are open to the offshore option. (Chart 6)

* Transactional HR functions are most often outsourced today, but there is a movement toward outsourcing strategic HR functions. Payroll (56 percent) and benefits (45 percent) are most commonly outsourced at respondent companies. When it comes to future plans for HR outsourcing, however, training and development is cited more frequently than any other, followed by benefits and career management.

* A trend toward strategic outsourcing also is evident in the administrative back office segment. Transaction processing is the most outsourced administrative function. However, when respondents compared current outsourcing practices to those planned for the future, a strategic focus emerged. Customer information management, for example, jumps to second place in future plans for administrative outsourcing from fifth place in current practices.

* CEOs view strategic customer contact functions such as CRM as increasingly likely candidates for outsourcing. Locate, design and build services are the customer contact functions most often outsourced today, while CRM applications are fourth, behind outbound telemarketing and inbound customer contact. In the future, CRM is the second-most-likely function to be outsourced, behind outbound telemarketing.

* Customer loyalty and satisfaction are key measures of success. Seventy-two percent of respondents agreed/strongly agreed that improving customer loyalty is a crucial measure of success in a customer contact center. An equal percentage felt the same way about customer satisfaction scores. More than 60 percent agreed! strongly agreed that capturing customer and product intelligence is the best way to measure success. The ability to keep costs down is a distant fourth (41 percent).

Michael J. McDermott

Analysis by Spherion; some numbers have been rounded

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