Financial Value of Outsourcing - III

In early 2003, HRO Today reported on the top 24 IT outsourcing transactions implemented over the past 15 years. These transactions amounted to over $100 bn in outsourced services. For my third post on the financial value of outsourcing, I've selected one off this list - the $3 billion / 10-year IT outsourcing agreement between General Dynamics (GD) and CSC that was inked in May 1998. Again, I've compared the firm's post-outsourcing returns with the closest size and book-to-market matched firm in the same industry that has not engaged in an outsourcing initiative of significant value - Magna International, Inc. (MGA). As shown below, GD outperformed MGA by over 100 percent. The abnormal returns are consistent with the respective increase in operational performance of the two firms.