Outsourcing Programs Hampered By Poor Planning and Narrow Focus on Cost Savings

A new study from Deloitte reports that enterprises entering into outsourcing arrangements are focusing too heavily on reducing costs through labor arbitrage alone, resulting in high levels of disappointment and conflict even though most companies are realizing the cost savings that they had hoped for. The study reported that 83 percent of companies surveyed had achieved an ROI of over 25 percent on their outsourcing projects.

However, 49 percent of the executives surveyed indicated they would have defined service levels that aligned better with their companies’ business goals if they could start their outsourcing projects over and only 34 percent of respondents reported that they had gained important benefits from their service providers’ innovative ideas or transformation of their operations.

In addition, by a 3-to-1 margin, the outsourcing service providers polled reported that their client companies did not have a solid outsourcing plan, lacked the operational data needed to make sound decisions and did not understand how the to-be organization would really work. Such contradictory findings could be the result of a failure to properly define the goals of the outsourcing projects as being more than saving money.

According to Deloitte, while there is no single right way to use outsourcing for each company, companies should examine the following aspects of an outsourcing deal to see if they need to correct their course even in mid-stream:

--Did you clearly define the strategy? Companies need to ask themselves if they are outsourcing the right things for the right reasons. Transferring a dysfunctional operation to a vendor in hopes of saving costs through economies of scale or arbitrage can be a case of “your mess for less.”

--Do we have a solid foundation? Companies need to ask if they have defined and quantified what they expect from outsourcing. The creation of a business case and the establishment of effective service level agreements (SLAs) should not be given short shrift; but in practice this is too common.

--Vendor selection now means something different. Companies need to select the right service provider, one that is capable of delivering strategic process improvements as well as cost reductions. When things do not go well in outsourcing, most companies automatically scrutinize the service provider, but do not recognize that their decision to select a vendor on cost alone may be the actual root cause of their problems.

--Striking the deal. Companies need to ask if their contracting process is mutual and flexible. Contract negotiation is a pivotal point in the outsourcing process. *After the deal is signed, are you getting what you paid for? It can be tempting to think the signing of the outsourcing contract is the culmination of the outsourcing process. But in reality, effective performance management, especially the insistence that service providers actively search for, develop and implement strategic improvements, is the crowning component of an effective outsourcing initiative.

More information on the IT industry can be found at www.SupportIndustry.com