Basic errors upset IT outsourcing deals, reports PA

Out-Law News | 31 May 2006 | 5:39 pm | 2 min. read

Too many IT outsourcing deals are failing as a result of misunderstandings between suppliers and their clients, according to a recent report by PA Consulting. It follows research which suggests that breakdowns in communication are commonplace.

PA observes that, despite the relative maturity of the IT outsourcing market, the success rate has remained static. So it surveyed 315 organisations across the world, including clients and their suppliers, to find out what is going wrong.

Sixty-six percent of clients said they wished they had focused more on the suppliers' ability to deliver on their promises. Scott Hamilton, a member of PA's management group and sourcing executive board, acknowledged that due diligence can be challenging: "A supplier is only ever going to name a reference client from a successful project," he said. But he was still surprised to find that 58% of clients in the survey had not undertaken any form of due diligence at all.

Expectations can differ widely. Most clients do want to save costs by outsourcing their IT functions, but money is not a driver for 24% of clients. In contrast, Hamilton notes that "suppliers are obsessed with costs": all supplier respondents thought clients wanted to save costs. And for 67% of clients, access to IT skills is a motivator; yet only 14% of suppliers appear to recognise this.

Again, poor communication is blamed. Almost 80% of suppliers said that clients failed to communicate their objectives clearly at the outset. And 62% of suppliers reported that clients have unrealistic expectations.

Hamilton also points to "a real disconnect in the area of business transformation": suppliers think it's what they are selling more often than clients think they are buying it. "Clients aren't so interested," he observes. Only 32% of clients tried using IT outsourcing as a means to deliver business transformation, most preferring to maintain control in-house. Of those that tried, most reported failure.

Clients also expect innovation – it is often pitched in the sales process – but they don't budget for it, according to Hamilton. He describes 'innovation boards,' which suppliers will offer as a means of brokering debate on thought leadership. But while clients often complain about a lack of innovation in the supplier's delivery, Hamilton says they fail to understand that it takes time and effort and effective and transparent commercial management.

Respondents also expressed frustrations about personnel changes. The team that is involved at the point of procurement usually disappears at the point of delivery. "The simple answer is to make sure the delivery team is there as early as possible – on both sides," said Hamilton.

PA described its own survey results as both a revelation and a disappointment. "The revelations show a number of areas where suppliers and clients appear completely aligned and work 'as one' to deliver tangible benefits," notes the report. But at the same time, suppliers and their clients "still make basic but far-reaching errors that put their sourcing arrangements at risk virtually from the start."

"To the outsourcing professional, these findings may not be a surprise," concludes PA's report. "The question that remains is why these problems persist in an industry that is becoming increasingly mature."

For a copy of the report, email: [email protected]