11 Reasons Outsourcing Relationships Fail – Vendors Experience Extremely High Turnover

In the first article in this series, I outlined the 11 most common failure modes for IT outsourcing relationships.  These are summarized below for your reference:

• The vendor over-promises, and fails to deliver on their commitments
• The client fails to exercise proper governance over the vendor contract
• The vendor underprices the contract and fails to earn a profit
• The contract fails to align vendor with client goals and objectives
• Vendor reports contain raw data, but rarely include proper diagnosis
• The client does not understand the metrics included in vendor reports
• Both client and vendor view the contract as a zero-sum game
• Vendors spin data and reports to cast themselves in the most favorable light
• Continuous improvement is ill defined or not included in the contract
• Vendors experience extremely high turnover on a client project
• Vendors and/or the client do not adequately train personnel

In this eleventh installment of the series, I will address the fact that most service providers experience extremely high turnover amongst their agents and technicians.

High Turnover

It’s no secret that IT service and support is a high turnover industry.  Moreover, managed service providers experience much higher turnover than their enterprise counterparts.  This is due to a variety of factors including low compensation, low morale, and inadequate training. Moreover, high turnover has a direct and adverse impact on the clients who purchase these services.  Each time an agent or technician leaves a position, all of their accumulated knowledge, experience, and wisdom walks out the door with them.

The benchmarking quartiles below show just how serious this problem is.  The median annual turnover for outsourced service desks agents is a staggering 61.7%! By contrast, the median turnover for insourced service desk agents is about half that amount, at 35.2%.

I wrote at length in the eighth installment of this series about overcapacity in the industry, and how this creates downward pressure on prices.  In an effort to win new business it is quite common for vendors to underprice their proposals.  When this happens, vendors will cut corners in an effort to eke out a profit on an otherwise unprofitable contract.  The most common of these tactics is to hire the lowest cost resources that can be found.  This, by definition, means that the vendor will be hiring from the bottom of the talent pool. And more often than not these agents lack the skills and experience to deliver the performance specified in the contract.  This hurts both the vendor and the customer, as the customer does not receive the performance expected from the vendor, and the vendor is likely to have an unprofitable contract once penalties are applied for lack of performance. This is a classic lose/lose scenario, also discussed in Part Eight of this series.

The Antidote to High Vendor Turnover

It is worth revisiting the advice I offered in the eighth installment of this series: don’t automatically select the lowest cost vendor when outsourcing your service desk, desktop support or field services operation! There is a high likelihood that the lowest cost proposal is underpriced, and this inevitably leads to poor quality and high agent turnover.  Instead, look for the proposal that meets your performance objectives and is priced within the top quartile (lowest cost quartile) when benchmarked against similar outsourcing contracts.

The second thing you can do is specify a performance target for monthly agent/technician turnover. This value should never exceed 2% in a month or 24% in a year.  This metric should include turnover from all sources, including so-called “good turnover” (e.g., promotions, etc.).  Moreover, there should be debits attached to this performance metric such that a vendor is penalized for missing the target in any given month.

Thirdly, Agent job satisfaction should be measured semi-annually. Since job satisfaction is positively correlated with turnover, a good job satisfaction number generally indicates that agent turnover will be low.  Additionally, I would advise that you, the customer, provide the survey and survey instructions to avoid any temptation for the vendor to create and score a job satisfaction survey in a biased fashion.

Finally, your contract should specify a minimum number of new agent training hours as well as annual training hours. The top quartile for new agent training would be approximately 148 hours per agent, while top quartile for annual agent training would be about 30 hours per agent.

Here are some additional resources that may be helpful in your quest to minimize agent/technician turnover in your managed service contract:

• Job Satisfaction
  Agent Turnover
  Job Satisfaction Survey