The Problem With Outsourcing, and How to Fix IT

The Problem With Outsourcing, and How to Fix IT

Part 1 of a Multi-Part Series by Jeff Rumburg

As a 30 year veteran of the IT industry, I have seen the good, the bad, and the ugly when it comes to outsourcing.  I have personally advised hundreds of Global 2000 corporations on their sourcing initiatives.  Some of these projects involve simultaneous outsourcing and offshoring; some involve outsourcing while co-locating with the client; while still others involve nearshoring or a hybrid mix of outsourcing and insourcing.  But virtually every outsourcing contract I have reviewed in this industry has two things in common: 1) the vendor is out of compliance with the terms of the contract, oftentimes significantly out of compliance, and 2) the client/vendor relationship is dysfunctional and fraught with conflict.  The result is that both the client and the vendor are unhappy, while the customer suffers the consequences. Why is this, and is there a solution to the problem?  Why are so many clients dissatisfied with their BPO/MSP, and what can be done about it?  This is the first of several articles that will address both questions in depth.  So, if you would like to fix your outsourcing relationship; if you would like to bring your outsourcer into compliance with the contract they have agreed to; or if you are contemplating outsourcing and want to ensure that both the contract and your outsourcer meet your organizations needs, I can assure you that all of this is not only possible, but relatively straightforward.  Read on to learn how you can achieve success with outsourcing. A Fundamental Problem We have all heard the term win-win.  It refers to a scenario in which all sides that enter into an agreement benefit in some way.  Many vendors as well as buyers of outsourced IT services use this terminology.  Yet the empirical evidence demonstrates that win-win is rarely achieved in outsourcing relationships.  In fact, I would estimate that this golden win-win scenario happens in fewer than 5% of all IT outsourcing relationships.  Likewise, the win-lose, and lose-win scenarios, where the client wins and the vendor loses, or the vendor wins and the client loses, are also quite rare.  Sadly, and unfortunately, the majority of outsourcing relationships land squarely in the lose-lose category where both the client and the vendor are disappointed or deeply dissatisfied with the relationship. There are many reasons for this, and there is plenty of blame to go around.  But once again I must emphasize that the biggest loser in this conflict is neither the client nor the vendor.  It is the customer, and that is the real tragedy of this industry. In my experience the majority of outsourcing relationships fail due to one or more of the following factors:

• 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 and 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

The list of maladies goes on.  But for any client or service provider in this industry that is truly committed to success, the solutions to these problems are relatively straightforward. In future installments of this series I will methodically tackle the problems that plague the outsourcing industry. I will do so from a neutral perspective.  I am neither pro nor con outsourcing.  Rather, my goal is to educate the industry so that more outsourcing contracts end up in the win-win category where the biggest winner of all will be the customer.