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 r
enegotiation 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
that predicts offshore outsourcing sites such as India and China will retain their cost advantage
for another 20 years, despite wage inflation. 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".
Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam have been identified as the
strongest challengers to India and China in the offshore outsourcing market.
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