Cures for unhealthy outsourcing maladies

Demand for outsourcing services continues to rise, but so do the problems. It all begins when outsourcing providers send in the A Team to ink the deal, and when the transition is complete customers are often left with the F Troop.

By 2008, 70 percent of all outsourcing deals will face serious problems. A further 10 percent will break down completely with an estimated 50 percent expected to persevere.

Not a pretty picture, but Linda Cohen, Gartner managing vice president said at the analyst's IT Services and Outsourcing Summit in Sydney this week, that despite the problems, the growing demand for these services isn't going to slow down.

The big problem, she said, is that customers continue to take an ad hoc approach to outsourcing.

Highlighting the most common problems to beset such deals, Cohen outlined cures for what she calls outsourcing maladies.

Claiming customers can suffer an outsourcing or offshoring compulsion, she said this behaviour leads to deals that are non-strategic.

Then there is deal paralysis, she said, which involves unpredictable costs, service and delivery models.

Cohen said customers should also be wary of vendor tunnel vision where a lack of collaboration can create serious problems.

"You have to stop this ad hoc, compulsive outsourcing; if you perceive a service is overpriced, the best thing you can do is look into multisourcing best of breed," Cohen said.

"And don't outsource an unhealthy situation, it's just too unpredictable."

Companies also need to be aware of service providers who send in the A Team to ink a deal, and then replace it with the F Troop.

Gartner vice president Michael Gale said the A Team wins the deal, the B Team completes the transition and the C team stabilizes operations.

"Once you hit the D Team, you're probably in trouble, and you need to avoid getting to the D Team," Gale said.

"The A team makes all the promises but the D team has no incentive to deliver."

To avoid what he describes as the three-year depression, which is the time it takes for an outsourcing deal to fall apart, Gale said organizations need to be pre-emptive at the contract stage.

That means building in incentives that progress throughout the life of the contract and have a strong focus on governance.

"But good governance is not going to get you there, you need to refresh and realign the outsourcing arrangements every two to three years," Gale said.

"[Customers] recognize that long-term outsourcing arrangements must change to realign with the business."

On the subject of offshoring, Gartner says India is still the best destination for Australian companies.

Gartner Asia-Pacific vice president of the IT service group, Rolf Jester said India is more suitable than the other contenders including Canada, Ireland, Israel and the Philippines.

Jester said local companies should also consider nearshoring and take a closer look at New Zealand or regional Australia.

"Evaluate the country before you evaluate the vendor," Jester said.

Revisit and review your strategy

Australian Customs Service national manager of IT market testing Jo Hein is well aware of the importance of reviewing your outsourcing strategy.

After much deliberation, the organization extended its outsourcing arrangement with EDS for a further two years, with the $193 million add-on now extending until June 2007.

However, despite the decision already being made to stay with EDS, the review of the organization's outsourcing arrangement has been under way for five months and continues to be considered.

"We started this process about five months ago, and we're still in the thick of it," Hein said.

"The trigger for us to carry out this review was that our contract with EDS was ending in June 2007, and we thought we needed to take a look at where we had come from and where we were going."

Throughout this process, Hein and her team discovered five key lessons when reviewing and developing a sourcing strategy.

They are: include a strong governance framework; use a structured methodology; assess all sourcing models; assess the total IT environment and; remember that strategic priorities are the lynch pin.

"These five key lessons took five months, and with all the emotional and philosophical discussion that took place, it made the process a lot longer."

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