Global Economics

...And Most Deals are Doomed From the Start


Most outsourcing deals are doomed before they begin because not enough attention is given to planning and due diligence.

During the life of an outsourcing deal, clients and suppliers also have different ideas about what the aim of the contract is, according to research by PA Consulting.

Its survey of 300 international C-level executives and outsourcing suppliers found that there is a lack of alignment between suppliers and customers. All suppliers cited cost reduction as the reason behind their customers' outsourcing, with only 14 per cent mentioning access to IT skills.

In contrast customers place far greater importance on access to skills (67 per cent) and almost a quarter did not see cost reduction as the primary objective.

Unsurprisingly only 21 per cent of suppliers and 38 per cent of lawyers thought their clients made their objectives clear.

"The consequences of this misalignment are poor realisation of returns, lost opportunity and failure to achieve transformational objectives," the consulting group said.

Businesses also seem reluctant to spend time and money up front to realise long-term benefits. Only 42 per cent undertook any due diligence when selecting their suppliers and yet two-thirds said in hindsight, that they wished they'd paid more attention to whether their supplier could deliver on their promises.

Despite this, 90 per cent of respondents said that agreed SLAs were hit consistently.

"The majority of clients say their suppliers area delivering the service levels. That would suggest to me they are measuring the wrong things," said one of the report's authors, Richard Harrison.

Many costs to the business are not included in the business case - only 51 per cent included costs for the team to manage the outsourcing, and only 44 per cent included the potential cost of change when building their business case.

"If you are buying a house you would pay for the right legal advice and get a survey. But with outsourcing people don't realise the level of expenditure that is necessary to deliver a successful deal," said Harrison.

"Many IT outsourcing deals are doomed before they start because of poor business cases where key items such as costs for the retained organisation have been omitted", warned Fons Kuijpers, head of IT sourcing at PA Consulting.

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