Project Problems
Why the disillusionment? Nearly half of the 25 blue-chip company executives interviewed by Deloitte identified "hidden costs" as the most common problem when managing an outsourcing project. Among other problems: Outsourcers often fail to understand customers' business challenges and respond fast enough to their changing needs; and many customers find that managing the relationship can be just as complicated as running an IT shop.
Sometimes these relationships unravel over time. In a typical case, the customer negotiates a long-term contract with the outsourcer, which throws personnel at the engagement, but the number of bodies never increases because there's no incentive for the vendor. Before the contract matures, the customer's needs have grown tremendously, so the prickly renegotiations begin.
Some 83 percent of the execs surveyed by Deloitte said they have renegotiated outsourcing deals to adjust pricing and factor in changes to the business, technology and regulatory environments. Some 45 percent of the respondents include "gain-sharing" clauses in their outsourcing contracts to keep the vendors on their toes. More than half the respondents have moved from long-term contracts (six to 10 years) to shorter contracts to increase their flexibility and bargaining clout.
In many cases, it's not outsourcing or the vendor that's dysfunctional. Deloitte found that 48 percent of respondents didn't have a methodology for evaluating the business case for outsourcing; 81 percent had limited or no visibility into their vendors' pricing and cost structure; 62 percent underestimated their own management requirements; and 57 percent could not free up internal resources for other projects.
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