Top PLCs' outsourcing secrets revealed

Outsourcing has moved beyond simply being a cost-effective approach to IT to become a strategic tool in the corporate armoury,...

Outsourcing has moved beyond simply being a cost-effective approach to IT to become a strategic tool in the corporate armoury, according to a definitive new study of the UK's top 100 companies.

The survey, compiled by outsourcing consultancy Morgan Chambers and CW360, argues that outsourcing has moved into a new phase of maturity and will become an increasingly important business tool as economic conditions worsen.

The first episode of the survey, published today, looks at which companies have outsourced IT and why they have adopted this strategy. Among the findings of the survey are:

  • Fifty-six FTSE 100 companies have outsourced some of their internal services

  • There has been a huge growth in business process outsourcing, with £5.9bn in revenue generated from FTSE 100 companies alone

  • Of the 173 ongoing outsourcing contracts within FTSE 100 companies, 55 "mega-deals" account for 63% of the total value - some £14.4bn

  • Financial re-engineering is a hidden, but key motivation for outsourcing

"Outsourcing now is an executive tool and it is demonstrably being used to turn around the fortunes not only of individual companies, but whole industries," said Robert Morgan, chief executive of Morgan Chambers.

Banks now spend £5.16bn annually on outsourcing, despite the sector being a comparative latecomer to the outsourcing market. Banks takes the lead when it comes to business process outsourcing (BPO), rather than simple IT and communications (ICT) outsourcing.

Five industry sectors - electricity, beverages, insurance, pharmaceuticals and aerospace - have no BPO contracts at all. The defence industry has few BPO contracts, but is a leading outsourcer of ICT.

The survey uncovered both trends and paradoxes in UK business practice.

"Those organisations that are against the concept of outsourcing generally tend to be culturally paternal and protective, in the older less innovative industries and dominated by a particular style of executive," said Richard Sykes, chairman of Morgan Chambers.

"However, there are exceptions to every rule and trend," he added. "HSBC is a forward-looking and successful bank but has so far refused the concept completely. Marks & Spencer is renowned for sourcing its products and produce from external suppliers but in both ICT and BPO it remains untouched by formal outsourcing."

The report, entitled Outsourcing in the FTSE 100: the definitive study, analyses the behaviour of the UK's top 100 PLCs over a five-year period in order to investigate the effect of outsourcing on company balance sheets.

Further episodes of the report will cover the impact of outsourcing on financial performance, business and sourcing models, critical factors for success and the future of outsourcing.

Further information:
Outsourcing in the FTSE 100:

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