Outsourcing's dirty little secret

Outsourcing is perceived as the silver bullet of the day, and many companies indeed benefit from it. But the dirty little secret of outsourcing has emerged: Everyone isn't happy.

By the end of the first year, more than 50 percent of the companies that have outsourced major IT functions are unhappy with their outsourcers, according to an informal survey of my clients. By the end of the second year, 70 percent are unhappy. Studies by DiamondCluster International Inc. and PA Consulting Group have also uncovered significant amounts of dissatisfaction with outsourcing deals.

Doing your homework thoroughly is the best investment your organization can make in any attempt to outsource. Every corporation understands the importance of due diligence. Nevertheless, many organizations try to cut the amount of time spent on investigation before signing the contract. But short-cutting the due-diligence process increases the likelihood of dissatisfaction with your outsourcer down the road.

Even with comprehensive due diligence and detailed contracts, many companies are unhappy with the results of their outsourcing efforts. Some common reasons include:

Changing leadership. In this situation, the leadership team that negotiated the original agreement isn't in place during execution. Outsourcers rarely confuse sales with delivery, and they intentionally bring in a different team to manage delivery. In cases where a large percentage of IT functions get outsourced, the IT executives who negotiated the outsourcing deal often find their resulting jobs too diminished to be satisfying, and they leave. Team members on both sides change, and the new group feels less ownership. The new team needs to form a strong bond by confronting a large, interesting and complex problem that needs resolution.

Mistaking the contract for the relationship. Just as a prenuptial agreement doesn't guarantee a successful marriage, detailed contract terms don't guarantee successful outsourcing (although the relationship will certainly be doomed without them). Moreover, some teams will focus exclusively on the details contained in a contract. In those cases, the original business intent is often lost -- the contract becomes a substitute for leadership and clear thinking.

In addition, team members on each side need to feel they have a strong personal relationship with their counterparts. Changes will inevitably occur; global business is too dynamic to put every possible future event into a contract. Strong relationships will promote a willingness to compromise when needed and find creative solutions instead of pointing fingers.

Sales puffery. The outsourcer's sales team is trained to understand the client's needs and formulate saleable solutions. Their proposals often reflect their fear that the competition can meet the client's demands. Since they know they won't have to deliver, salespeople often overcommit rather than risk losing the sale.

Reduced appetite for risk. When a company makes a bold bet on new technology or new business processes, the individuals responsible usually either receive rewards or suffer career harm. But the risks and rewards are never as personal with an outsourcer (including systems integrators). The outsourcer's IT professionals aren't compensated to take risks. They're paid to make the outsourced functions operate as efficiently as possible and to meet service levels. They don't have the chutzpah to make bold moves. So companies need to make any visionary changes they want before outsourcing.

Insufficient performance monitoring. Without regular, constructive, fact-based performance reviews with your outsourcer, you have little chance of successful outsourcing. Even the best metrics can't contribute to success if they aren't reviewed and used to improve performance. If your outsourcer accuses you of unrealistic expectations, or if performance reviews become confrontational, hire an unbiased third party to validate the accuracy of the metrics and run the review meetings. This will help diffuse tensions between your organization and outsourcer.

Most of all, remember that the responsibility for the success of outsourcing remains with you -- even after the contract is signed. Being aware of the obstacles will give you the leverage to overcome them, and increase the likelihood that your outsourcing efforts will be successful.

- Bart Perkins is managing partner at Leverage Partners Inc. in Louisville, Ky., which helps CIOs manage their IT suppliers. He was CIO at Tricon Global Restaurants Inc. and Dole Food Co. Contact him at BartPerkins@LeveragePartners.com.

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