Outsourcing Blunders
It was 25 years back when the first corporation thought of this
bright idea of farming out part of its IT department to somebody
else. They called it time-sharing, and it was supposed to
cut costs dramatically. These days, the hot money-saver is
off-loading Internet-related functions to application service
providers (ASPs) that rent out software applications. Between
the two, businesses experimented with giant agreements that saw
entire technology operations shift to outside companies.
No matter what the current term, the basic concept is
outsourcing. And seeing as we've had a quarter century to work
out the kinks, one would think that by now it would be a
trouble-free, fill-in-the-blanks process.
But that would be wrong. Outsourcing, it seems, is one
place where it's a snap for history to repeat itself--with some
calamitous results. While many companies have undoubtedly saved
money, several others have seen costs spiral, quality plummet
or, worst of all, IT operations crash. Why is it that this
seemingly simple idea has spawned so many disaster stories?
The plain truth is that outsourcers commonly repeat a painful
learning cycle every time a new technology gets outsourced.
Because it can take years for both outsourcers and their
customers to learn a technology and understand how best to
manage it within the scope of the outsourcing agreement, they
often make mistakes that have long-term effects. For example,
when technology is new--such as customer relationship management
and supply chain management--outsourcers often under price their
offerings to such a degree that they either go out of business
or are forced to cut back on service. Customers, who mistakenly
think that outsourcers are the experts in any technology, often
do not know how to protect themselves from bad deals. The
importance of Vendor Evaluation can not be overemphasized.
When outsourcers began to offer the maintenance of desktop PCs
for the first time, a multitude of outsourcing companies sprang
up to meet this demand. Eager for customers, they priced their
services too low. A shakeout followed, leaving only a handful of
companies and a host of dissatisfied customers. But as both
customers and vendors gained experience with how to best
structure desktop deals, satisfaction levels rose.
It is noticeable that so far, the ASP phenomenon is following
the same trajectory. A year or two ago, new ASPs were appearing
overnight. Today, the ASP consolidation is well under way as
both businesses and customers get smart about how to handle
these new projects. In the meantime, mistakes happen.
Given the high margin for error, why would anyone outsource a
new technology? Simply put, you may have no other choice. Cycle
times are shorter than ever, money is tight and skilled
personnel are hard to find. For many companies, outsourcing
offers an attractive path around these constraints. But
regardless of why you outsource, mistakes happen--and often
enough for us to compile a list of five classic outsourcing
blunders. Here's hoping that you can learn from a host of
others' missteps.