Wednesday, 21 July 2010

Outsourcing Failure Timeline

I'm baffled that CIO magazine continues to tout outsourcing as a good idea. The article I just read offers how to save outsourcing costs after year one. It suggests IT leadership renegotiate their service contract if they see the costs exceed industry benchmarks. Nothing wastes time like attempting to renegotiate a contract shortly after it has been signed. It doesn't bother to peek a little into the future; five years.

Year 1The client realizes the 10% reduction from elimination of workforce. Executive is pleased from initial results. IT leadership gets a bonus.
Year 2Client project team for the outsource is likely gone. The client struggles with increased service times. Co-source attributes delays to "working out the kinks." Executive is consoled. Health checks and look backs may occur to identify gaps. Co-source starts to own more "domain" projects (without having domain knowledge.)
Year 3Further attrition due to staff/consultants frustration. Loss of domain knowledge. Health checks likely have been sanitized for executive consumption. Executive mindshare is moving on to the next initiative. IT leadership is convinced more resources are required to fill the gaps.
Year 4Outsource is entrenched. Client continues experience service delays due to disconnects in domain knowledge, communications, and/or culture clash. Executive may question IT leadership re service levels. IT leadership blames project group for not having appropriately risked and/or defined business processes. Outsource may start "optimization" initiatives at client's expense.
Year 5Outsource cost is now greater than initial TCO reduction. Client has added 5% to its IT management resources to facilitate better communication and coordination with outsource. Business units start to do their own "shadow IT." Executive may start to realize that IT is a competitive differentiator; but no one wants to admit failure, and more money is invested because so much has already been invested.

I strongly recommend anyone considering outsourcing make 100% sure you've got your own house in order before you try. Document in detail all your work processes, do a risk analysis, and an impact analysis. Gather performance benchmarks and get a service baseline. Do it in the name of Continuous Improvement because the learnings will be valuable for improving efficiency. The best cost saving may be not outsourcing.

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