Outsourcing Nightmares: common outsourcing calamities
What are the most common mistakes companies make when outsourcing?
Commercial Director, Moneypenny
Not preparing in-house staff for the change. People generally don’t like change. We are creatures of habit and any suggestion of doing things slightly differently can naturally meet with resistance. To ensure a successful and lasting outsourcing engagement, in-house staff members need to be on board. Talk to them, ask for their thoughts and concerns; explain how, when and why outsourcing has been determined as the solution; prepare them for the transition and any associated issues likely to arise.
In my opinion, there is one fundamental mistake companies make when outsourcing, and that’s not doing enough planning and research beforehand. Research the project/task being outsourced; set measurable goals. Research the cost, and be sure to look long-term. Research the company/individual you are outsourcing to and decide if this relationship will be permanent or if you would like to take over in the future. In which case, research the information you will need have to achieve this.
VP, Managed Services, Avanade UK
A common mistake made when outsourcing is getting to the point of negotiation and finding there is a significant mismatch of expectations either in terms of:
- commercial terms, or
- the solution matching the service specification, or
- key contractual terms.
Any of the above can place both sides in a difficult position.
European Financial Shared Services Director, MWV
A major mistake is taking the outsourcing decision without solid background checks, mostly because of the market trend. A readiness assessment of one’s own organisation, its shape and current needs, is critical. Example: a very dispersed organisation with one or two finance people per site. Often a business case is calculated on a pure in/out basis, forgetting about the retained organisation model. Underestimating transition costs is a second major issue. BPO providers usually come up with a good plan, but it will only work if discipline and solid due diligence is done at the company’s end. A very frequent scenario is that the business is not ready, with too many projects going at the same time, the leadership not strong enough, etc. The result is that ROI comes with significant delays if at all.
Alliances Manager, iAdvize
Nowadays there are a great number of ways that customers can contact a company – phone, chat, email, social media – and yet not enough information is passed down to the outsourcing partner. Some companies neglect to supply their outsource partner with the customer knowledge and product knowledge they require, or information on the sales and after-sales process. This results in the poor performance so often complained about by customers.
There are so many pitfalls in outsourcing and there are some that are very easy to fall into so we hear about them a lot. Failure to understand the baseline in sufficient detail is a very common mistake, making it difficult to understand what benefits can be realistically expected and how/when they will be delivered; inevitably leading to surprises at best and disappointment at worst. We also see customers disappointed when the provider fails to deliver some of the less tangible outcomes such as “innovation”, “proactivity” and “value add”. The root of this problem is typically lack of communication – where the customer has either failed to quantify exactly the outcomes and behaviours that they expect, or sometimes failed to talk to the provider at all about their expectations.
Exit Manager – Sourcing Programme, IS & PMG
The most common root cause of mistakes is failing to put yourself into the other party’s shoes. I’ve worked on both the buy- and sell-sides, and never fail to be amazed by attitudes that flow from customers not really appreciating that suppliers have to be paid for their work, and suppliers not understanding that customers are also organisations with decision processes to be followed, and options to choose from. A few examples to illustrate the point:
- Customers wanting a silver service for a bronze price, e.g. bidding down the rate table in an outsource contract and then still expecting pre-sales support such as provided by an SI.
- Customers not understanding that if they have two direct suppliers with dependencies between them then neither will take any responsibility for the other’s work.
- Prospective suppliers not understanding that a formal tender process requires homologated responses, so you’re taking a big chance when you go non-standard.
- The upsell illusion: suppliers believing that customers will feel compelled to adopt their new strategies without some very close examination of the technical and economic feasibility.
CEO, The DDC Group
The primary mistake companies make is when they do not trust the vendor that they have chosen. This may be a result of a number of oversights, such as: they have not researched their background, discussed their abilities with the references that have been given, or taken the time to test out and train the vendor. If the work is being done by someone new in the customer’s own facilities, training and testing of new recruits’ knowledge is part and parcel of the process. A test or pilot program for me is just that: a learning or training program for our team to better serve the customer. Treat it as that, and trust us to learn and take it over.
Owner, Heinz Jedlicka Benchmarking KEG
- believe “outsourcing” to be an “IT-subject”. In reality it is a business decision.
- look for “quick cost savings”, because IT is seen as a “cost factor” rather then a “business enabler”
Many companies do not understand the work which is needed to understand “the current state” before even considering the “future state”
Many companies do not have an undisputed understanding about:
- the IT budget and the running cost.
- the services being delivered by IT described as a service catalogue.
- the service quality and the agreed (with the business!) service levels, both planned and actual.
- the correlation between the IT services and the business strategy and goals.
- the formal definition of the service delivery processes.
Director, DJA Business Solutions
One of the most common mistakes is to try to put too much risk onto the supplier. I have seen agreements where the supplier was liable for everything, even government changes to the client’s tax regime. This just bumps up the price. The desire to have an absolutely fixed price may help budgeting but doesn’t help costs. Risk should lie where the control is and if it can’t be controlled then my default is that it lies with the client.
Partner and Head of Intellectual Property & Technology, Hong Kong, DLA Piper
Failure to adequately document and detail the required service and service levels, particularly in first-generation outsourcings.
Erosion of business case benefit throughout over the course of the procurement (the x millions in savings which are talked about at the project inception are rarely apparent or quantifiable by the time the deal signs).
Failure to establish a cross-discipline team to run the procurement. As a minimum there needs to be input from commercial experts, service delivery managers, legal, compliance, C-suite stakeholders. Related is a failure to ensure they are relieved from their day job so they can do this new job while it is required.
To read more of our lead feature on ‘Outsourcing Nightmares’ from the Autumn 2014 issue of Outsource, see the article index here.