5
Biggest Failures in Outsourcing Contracts
Outsourcing is recognized worldwide as a key business strategy.
However, a lot of companies are still hesitant to join the bandwagon.
It is thus not uncommon to hear the sentiment that "as many as half of
outsourcing deals fail".
Let us look at some facts. A study by KPMG conducted early this year
shows “ 89 percent of respondents expect to maintain or
increase
current sourcing levels while only 14 percent claim to have had a
significant misalignment of financial and commercial expectations
between provider and client.” . Infinit-O's own research
reflects that 73 percent of current
outsourcing
clients look to increase the volume of their outsourced work with their
current providers. These would show that the majority still see the
great value of outsourcing as a business strategy.
What would be beneficial for us is to learn from where others
have failed. It is a source of wisdom that would otherwise come at a
great cost. Simply avoiding a strategy that had a red mark seems
contradictory to the entrepreneurial nature of today's business world.
Here are the five top reasons why an outsourcing contract fails.
I.
Client's Lack of Company Vision.
Before you even think of outsourcing, you should have a clear idea on
what your core functions are and what your business is all about. No
one knows your business better than you. If you can not determine your
company's main focus, what more can you expect from an outsourcing
provider? A simple but very insightful advise from any
outsourcing insider: “You can outsource anything that is
immaterial to your focal point.”.
Outsourcing
success will naturally follow.
II. Lack
of a Formal Strategic Measurement Framework.
According to a recent study, almost half of the companies who entered
into an outsourcing contract are clueless whether their
endeavor
was successful or not. Why? They did not bother to establish a
measurement framework to test it. They are no better
than
someone attributing his business success to a solar eclipse. Having a
measurement framework from day one would allow you to know the exact
impact of the outsourcing contract, address any potential issues, and
enhance your outsourcing potentials.
III.
Lack of Vendor Management.
A common misconception about outsourcing is that you will simply be
getting someone else to do your job while reducing your costs at the
same time. This mindset leads to an outsourcing nightmare.
Layers
of misunderstanding are rooted from passively waiting for the results.
Outsourcing is a partnership between your company and your outsourcing
vendor. This means that you need to manage the relationship if it has
any chance to flourish. Again, you know your business best. Help your
partner help you.
IV.
Heavy SLA.
At the end of the day, the bottom line of outsourcing is results. You
reduce costs, you increase your productivity, you enhance the quality
of your product or service. Service Level Agreements or Requirements
(SLA or SLR) ensures that you and your provider are on the same page
about the success of your business. Sometimes, the bottom line is lost
and both parties are stuck at the SLA, trying to make the most out of
the deal. This commonly leads to SLA's that are ridiculously improbable
that they look like a prelude to disaster.
V.
People.
Outsourcing
is primarily about
people.
You don't normally outsource something that you can already automate.
Finding the right people is almost an imperative for success. It is
therefore not a surprise that it tops the list of difficulties
encountered in outsourcing. Dealing with your outsourced team and the
outsourcing provider dictates your day to day operations. Finding the
right cultural fit, compatible language, and hiring qualified people,
should be given due consideration to ensure a smooth relationship.
Conflicting values and language barrier easily spells doom for any
outsourcing contract.
