Why do so many IT outsourcing deals fail to meet expectations?

IT outsourcing deals are complex, and there are times when the expectations aren’t clear, objectives change, and providers sell more than they can deliver. Many outsourcing deals require some type of change or transformation in order to deliver more or better services at lower costs. While the desired end state may be well understood, the current state may not be, thus resulting in a misunderstood and poorly executed transformation. If the required change is late or never completed, the deal fails to meet expectations. Failed transformation is a common theme in outsourcing transactions that didn’t meet expectations.

There are many other reasons, including a lack of understanding of the contract (from both sides), poorly worded or unrealistic service levels, overly complex resource units, overcomplicated billing procedures, misunderstanding of the business case, and failure to anticipate and account for changes in technology…..to name a few.

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How can a company with outsourcing relationship issues perform mid-course corrections?

Outsourcing relationships are long-term transactions. It is unrealistic to assume that the deal formers could anticipate everything that might happen over the course of years. If they could, they should probably be in a different business!

The contracts usually allow for and expect adjustments. Contract change procedures are there to make contract changes. Governance procedures are there to evolve the services, service levels, reports, innovation provisions expect offerings to improve, etc.

If you find you need to make mid-course corrections, the best approach is to kick off a project with the same rigor that was followed when you entered the deal. Give yourself a clean start that includes processes to keep things on tract for the rest of the term. We have found both sides end up more satisfied with the relationship. For more information on mid-course corrections, check out the Swingtide white paper Outsourcing Health Checks and IT Sourcing Wellness.

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What can I do to minimize the risk of provider non-performance when I outsource?

Let the provider do what it does best and has done before. We find the best deal is often obtained by giving the providers flexibility in proposing their solutions to your situation in the RFP response stage. The Swingtide RFP process conveys your requirements to the bidders and lets them propose the best solution they can deliver that will meet those requirements. We then normalize the proposals so that you can pick the best overall partner for negotiations.

A few big benefits come from this approach:

  • The provider demonstrates its ability to be creative and offer solutions to your requirements (something that will certainly be important during the relationship);
  • The provider gives you something proven that it is comfortable delivering (significantly minimizing performance risk);
  • The cost is usually less (you don’t pay for customizations that may not be needed).

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How do I demonstrate to management that the outsourcing contract has been successful?

It is important to establish measurable objectives when making the outsourcing decision. Most of these can be included in the business case. The best way to report ongoing benefits of an outsourcing transaction is to track the actual results against that business case to identify whether the benefits have been realized. Understanding the variances will help you manage both the relationship and expectations.

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When should I have an exit plan for my outsourcing contract?

We think of it this way — you have disaster recovery plans for significant events that have a very low probability of occurrence, right?

Well, it is a certainty that your outsourcing contract will come to an end, and it is a significant event. In a happy relationship you really should have an exit plan in place two to three years prior to expiration. In an unhappy relationship, you should have one immediately.

An exit plan analyzes options and removes some of the unknowns from a potentially disruptive event. It is the responsible thing to do. The process of preparing an exit plan will have you thinking of things a little differently. For example, you might pay more attention to tracking the licenses or understanding the tools your provider is using. You might focus more on where your backups are stored and how the information is retained. You might ask for regular updates on provider wind-down costs. You might monitor documentation.

Many companies that don’t develop exit plans find themselves with no choice but to continue a relationship, at least for a short time, that they aren’t happy with. That is an avoidable situation.

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My SLAs are green but my customers are unhappy; what should I do?

Surprisingly, this issue comes up a lot. The issue is often that the SLAs are not being reported correctly (e.g., not counting the right downtime, unclear start or stop time for issue resolution, wrong count, etc.) or that the initial SLAs were written in such an aggregated way that the problems the business feels are lost in a big population.

Fortunately, both problems are correctable. The SLAs reported should first be validated to ensure that they match the contract and the counts. If they are, they probably need to be adjusted through governance or a contract change.

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