Many businesses accept that poor management on their part and unrealistic expectations are largely to blame for failed IT outsourcing deals, according to a new report released today by sourcing advisory firm TPI.
Meanwhile, a separate study has concluded that the potential for significant savings through outsourcing is expected to fuel growth in the offshoring market for the next 20 years at least.
The TPI report, which is based on responses from 40 large firms undertaking outsourcing projects, found that almost a third admitted to placing more emphasis on setting up an outsourcing contract than they did on managing it. Over half also said that their own "unrealistic" expectations were a major barrier to the success of the project.
"Contrary to popular belief, many companies blame themselves at least as much as the service providers for their own dissatisfaction with outsourcing relationships," said Stuart Harris, partner at TPI. "Moreover, problems encountered with outsourcing contracts prior to renegotiations often stem from a lack of clarity between the client and the service provider about the scope of the services to be provided – not the quality of the services themselves."
Harris said the fact that only 18 percent of respondents had looked to
replace their incumbent supplier during contract renegotiations suggested that
most customers understood that relationships with outsourcers could change over
time.
“Most clients conclude that the industry’s service providers are generally adept
at delivering on contractual commitments, and that courses of remedy must
necessarily involve changes to service management and governance processes in
the first instance,” explained Harris.
The report will be prove reassuring to outsourcing providers, many of whom have been roundly blamed for the high proportion of IT outsourcing projects that are deemed to have failed. However, it also suggests that some outsourcers may be exploiting customers' weak outsourcing management skills, with almost a third of respondents claiming their bargaining position had weakened during the renegotiation process compared with when the original deal was signed.
Worryingly for the outsourcing sector, the report also found that best practice outsourcing management techniques are still not widespread. Almost half of respondents said they had no formal governance structure, while over a third fail to hold regular meetings for monitoring outsourcing deals.
The findings are particularly concerning in the wake of a recent study from management consultancy AT Kearney that predicts offshore outsourcing sites such as India and China will retain their cost advantage for another 20 years, despite wage inflation.
Paul Laudicina, managing office of AT Kearney, said that the report also revealed that while salaries in offshore locations are climbing, the quality and stability of their services are also improving. "These findings reinforce the message that corporations making global location decisions should focus less on short-term cost considerations, and more on long-term projections of talent supply and operating conditions," he said.
The report also identified Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam, as the strongest challengers to India and China in the offshore outsourcing market.
