Outsourcing Nightmares: our contributors look back in horror…
The Outsource community shares dreadful tales of woe…
Partner and Head of Intellectual Property & Technology, Hong Kong, DLA Piper
We once had a client that was determined to do a very complex corporate joint venture outsourcing when the benefits of such a complex model were very uncertain and the additional burden and admin associated with it were very high. It ultimately became apparent that the project sponsor was hoping to get an industry innovation award by doing the deal! Then the failure to preserve a walkaway/back out option and failure to exercise that option when deal fatigue means everyone just wants to sign, even if calm heads would never have signed such a deal at the outset.
I worked for a print management company in operations as a Production Services Manager, and I worked on a number of clients, who resisted the service provided. Eventually, I worked on a global blue-chip client, where, sadly, many mistakes were made. The situation was made more acute following several senior management changes on the account, each believing they had the answer to the problems, yet universally failing to research the background and unique issues surrounding the client, so the situation deteriorated. Procurement, who had implemented a successful purchasing system in parts of their business, were protecting their position, encouraging complaints from marketing, and fervently escalating every problem to our senior management. And, seeing as there was no relationship between our senior management and marketing departments, the end clients (stakeholders), they could only react to the hostile procurement position.
These failings had personal consequences. Procurement read criticism of the process from my end clients as complaint about my performance, and asked for my removal from the account, so our senior management replaced me. However, when my clients were told of the decision and introduced to my successor, they made it clear they’d been happy with my performance, but wanted process improvements. This apparently shocked our senior management and procurement, but would have been avoidable had a proper relationship with marketing existed. Unfortunately, my company also decided to terminate my contract, which resulted in compensation for unfair dismissal. Sadly, I’m also led to understand, my previous employer has lost considerable business within the client, and there have been further senior management changes.
Biggest mistake: tying down a contract with too much detail, with a difficult ‘legally’ controlled change control process, which at the time seemed a good thing to do but in the end tied down both parties to a completely inflexible arrangement with cost incurred every time we wanted to make relatively simple changes. It made the whole thing expensive, painful to operate and overall very frustrating for both parties. We’d concentrated too much on the detail of the how and the what, rather than thinking about what we wanted to achieve from the outsourcing: the outcome!
The second biggest mistake I’ve seen wasn’t actually made by myself but the company I worked for at the time. In that case, we had a new management team on our side (customer) that joined 18 months into a five-year outsource contract for desktop provision. The new management team didn’t understand why we had originally entered into the outsource agreement, or what the situation had been like prior to the agreement or the basis on which the outsourcer entered the agreement and consequently the way in which the finances worked – they then tried to change the fundamental nature of the contract, taking SLAs to a more aggressive level, trying to reduce the charges whilst extending the scope, all of which adversely impacted the financial return for the outsourcer, which then led to a complete breakdown of trust, a deterioration of the overall relationship at all levels and ultimately to an early termination of the contract. Both sides lost in this example: the customer didn’t get what they wanted (yet still had to pay the full five-year cost of the contract) and they supplier had a painful further year, didn’t get their contract renewed and couldn’t use the customer as a reference.
Co-Founder, Director at Catacient Consulting Private Ltd.
The biggest mistake I have seen was when a client did not realise that they needed to change their internal organisation structure and kept beating the service provider over several issues that were cropping up. They then hired one of the Big Four consultants to build a case to fire the service provider. They were shocked when the firm submitted its report asking the CIO to change the structure of his retained organisation as one of the key remedial actions. The CIO’s boss (then a Sr VP with additional responsibilities) had to go and later – with the changes made – peace finally prevailed.
Director & Consulting Partner, Hewlett-Packard
The worst outsourcing contract that I have come across did not include any productivity benefits. If a contract does not stipulate productivity benefits, what incentive does the outsourcer have to improve the situation? Another bizarre aspect I have seen in a client situation, where they committed to pay X person-days (fixed) on a monthly basis without clearly articulating the outcomes they were to get in return. I know it is sheer stupidity – but it does happen.
Our company went to a ‘viewing day’ to inspect print items that were specified in the tender documents and had to be priced. None of the items matched the tender document and had we priced them up according to the specifications provided, we would have been uncompetitive.
My former boss agreed a seven-figure ADM deal with a company none of us had ever heard of just because they had wooed him with trips to the football and plenty of eye-candy. Six months later and most of our team had either been laid off or quit in disgust; the agreement was a shambles, the supplier was worse than incompetent and our ability to serve the business had disintegrated. And my then-boss quit for a more senior position at a competitor. I took his position and stuck around another few months trying to salvage what I could but the situation was untenable. Shortly after I myself moved on, the firm went into voluntary liquidation and was broken up. I still believe at least a large part of that was a result of that deal.
Consutant, The Finance Coach
One of the repeated mistakes I have seen was outsourcing prior to completed process redesign – companies that were starting the transfer without having tried and tested routines, processes, and authorisations. This was probably driven by the thought that once the responsibilities were changed, processes would fall in place. They will not, and what is saved in the first instance in terms of time and effort/money, will have to be invested later on. This will cost more.
Looking at outsourcing very much from the viewpoint of shared services: merely moving people into one place is not creating a shared services centre; this is more preparing for a party…
Director, DJA Business Solutions
The source of my biggest error in outsourcing was the lure of the cheap price. It is difficult to accept a higher price but you have to look at the long term. In my case the specification was correct, the quality fine and the delivery plan achievable. I knew they had underbid but I felt, against everything I now say, that the price was their problem. Their plan was to underbid the initial contract and make the money on changes. Unfortunately this meant that their changes were so expensive that we didn’t take most of them up. Their losses piled up and the relationship fell apart. They took staff off the contract to cut losses and quality fell.
Not realising the benefits of the outsource because the client headcount wasn’t released. Nobody enjoys letting people go, but if that’s how the business case was built, someone is going to have to have the hard conversations. Similarly, not realising the benefits because the transition project didn’t achieve the required quality and the client compensated by building a shadow delivery team (rather than working with the partner to resolve the issues).
I worked for a KPO provider in a business development capacity, with sales as the primary metric. I was able to close a deal with a client involving more than 20 attorney FTEs to test a practice management system. In the exuberance of a big sale from a new client involving a new service/capability and the eagerness to start billing right away, the company overlooked the basics of process transition management:
● thorough documentation and training,
● risk management (i.e. mitigating a technical skills gap, doing a pilot/parallel-run, fine-tuning before full live handoff),
● installing a reliable project manager,
● leveling client expectations, and
● finalising key performance metrics.
It is a real temptation for vendors to shortcut proper transition management in order to get to billable work right away. But the imperative to do the basics by the book should be obvious (project success, satisfied clients, repeat business, testimonials, referrals).
I was involved at a relatively senior level with what became the NHS National Programme for IT. Much of what occured is now a matter of public record and whole libraries have been, and will be, written on what is to my mind the biggest outsourcing balls-up in history. There’s no point trying to apportion blame, since it lies in all corners. But one incident will always stick in my mind: a few of us had gone out for dinner one evening around about the time we had come to the conclusion that the entire project was doomed (this took place long before the general public became aware of the scale of the crisis). One of my colleagues eyed us all up and then proceeded to order the most expensive bottle on what was a very highly priced wine list, saying “We may as well make the most of it, chaps, because it’s all coming crashing down soon.” This was not an uncommon sentiment. I have never known such an apathetic atmosphere nor such arrant self-serving as was encountered throughout the various structures towards the end. It was a nightmare that cost billions, ruined careers and more than a couple of marriages. Appalling.
Director, Blagreaves Consultants
On one particular renegotiation the whole team got carried away with the benefits and potential saving we could achieve and spent too much time focussing on the financial aspects of the deal and completely took our eye off ensuring that we had embedded within the deal the right practices and principles to ensure that the vendor was bought in to helping delivering them, as this would mean a substantial drop in their revenues.
As a result, what we actually experienced was increasing costs as the supplier was able to use the loopholes in the processes to drive up their revenues and there was nothing we could do to prevent it.
Owner, Abelard Collaborative Consultancy
Personally, my biggest mistake when it came to outsourcing work was to tell them what was needed assuming that we shared the same history and experience of how that fitted into the rest of what we did. I assumed that they knew the detail of what I wanted. They didn’t. It was a disaster!
VP, Strategic Account Relationships, Tungsten Network
I remember a Fortune 200 company that outsourced a process with the initial understanding and agreement that it would be implemented in phases – each with a volume and date marker. However the customer’s needs changed and they told the provider that they now needed a quick implementation with all volume; however nothing formal was amended to accommodate this change. Each side was not listening to the other and refused to deal with the issue openly and on the table. Each party had different expectations.
Even though the service provider had documented it as a phased approach, the customer pushed forward believing that it had agreed it had changed, even though it never became a part of the project plan/timeline. The result was a large backlog, higher costs and unhappy partners on both sides.
The moral of the story is to spend extra time resolving even uncomfortable issues openly. At any time someone could or should have stepped forward to deal with this. In the end, it was discovered that there were options available but the service provider was afraid to confront it and the customer believed it would just work out. This is a difficult and unnecessary way to start a relationship. It can take time to regain trust on both sides.
To read more of our lead feature on ‘Outsourcing Nightmares’ from the Autumn 2014 issue of Outsource, see the article index here.