By Steve Ranger, 13 April 2006 15:40
NEWS
Most outsourcing deals are doomed before they begin because not enough attention is given to planning and due diligence.
During the life of an outsourcing deal, clients and suppliers also have different ideas about what the aim of the contract is, according to research by PA Consulting.
Its survey of 300 international C-level executives and outsourcing suppliers found that there is a lack of alignment between suppliers and customers. All suppliers cited cost reduction as the reason behind their customers' outsourcing, with only 14 per cent mentioning access to IT skills.
In contrast customers place far greater importance on access to skills (67 per cent) and almost a quarter did not see cost reduction as the primary objective.
Unsurprisingly only 21 per cent of suppliers and 38 per cent of lawyers thought their clients made their objectives clear.
"The consequences of this misalignment are poor realisation of returns, lost opportunity and failure to achieve transformational objectives," the consulting group said.
Businesses also seem reluctant to spend time and money up front to realise long-term benefits. Only 42 per cent undertook any due diligence when selecting their suppliers and yet two-thirds said in hindsight, that they wished they'd paid more attention to whether their supplier could deliver on their promises.
Despite this, 90 per cent of respondents said that agreed SLAs were hit consistently.
"The majority of clients say their suppliers area delivering the service levels. That would suggest to me they are measuring the wrong things," said one of the report's authors, Richard Harrison.
Many costs to the business are not included in the business case - only 51 per cent included costs for the team to manage the outsourcing, and only 44 per cent included the potential cost of change when building their business case.
"If you are buying a house you would pay for the right legal advice and get a survey. But with outsourcing people don't realise the level of expenditure that is necessary to deliver a successful deal," said Harrison.
"Many IT outsourcing deals are doomed before they start because of poor business cases where key items such as costs for the retained organisation have been omitted", warned Fons Kuijpers, head of IT sourcing at PA Consulting.
Comments
There are 4 comments. Join the discussion
1. anonymous
This is why most software projects fail, period. It shouldn't be any surprise to anyone that the same is true in outsourcing.
2. Mark Kobayashi-Hillary
...and what's more is that the lack of certainty when specifying what is required of the service provider means that there is bound to be a crunch later on as the client demands more flexibility and the supplier demands more payment for more effort. Knowing your present spend is essential for measuring outsourcing efficiency, but most companies have a vague sense of accuracy about the cost of the retained organisation at best.
3. Martyn Hart
A question that springs to my mind when I read this story is that when they say ‘most outsourcing deals are doomed before they start’, the ‘most’ is unqualified, and not backed up by the research. Does this mean nearly all outsourcing deals are doomed before they start? In fact, when one looks at the research it clearly demonstrates that 90% of respondents agreed that SLAs are hit constantly. Is this really the sign of doomed deals?
OK, perhaps some of the blame should be placed on end users shoulders when only 42 per cent undertake any due diligence when selecting their suppliers – they should make their choice far more carefully, if they have any hope of meeting their objectives.The question that remains to be asked is that when consultancies come in to help with an outsourcing deal, are they doomed before the consultancy comes in, or can the help of a consultancy save these previously doomed deals? When consultancy companies release research such as this they need to be careful not to undermine their own case!
4. Kevin Stovey
In my view Outsourcing has many parallels with marriage and surgery - you may think that's a little profound - but hear me out. When I talk on the subject, I compare the process of planning and preparing a piece of business, or an entire business unit, for outsourcing, to that of preparing to undertake an organ transplant. You've got to understand all the areas of connectivety and what flows through these channels. You also need to know what the implications are when you severe or close off these lines.
I also consider Outsourcing to marriage because the success of outsourcing is about relationships, it's about how two parties who, let's be honest, didn't really know each other that well, have to keep alive a 10-15 year contract.
During the tender analysis phase too much attention is given over to assessing and scoring the hard measures and yet it's the soft issue that will scupper you and these are often overlooked.
Sadly in my experience not enough attention is given over to planning the exit and covering this off within the contractual agreement. Pre-nuptial agreements have grown in popularity to do exactly that - set out what exit looks like and what the costs are.