How Outsourcing Projects Secretly Fail

Jul 21, 2016

Outsourcing of departments and services is still a hot topic in today's IT management. Managers love to put double-digit cost reductions on their powerpoint presentations. However, there's a problem: the numbers are often a fair way off reality.

There are two factors in outsourcing projects that cause hidden costs. Both originate from the same source: communication, or rather the lack thereof.

Silo Mentality

One of the most overused management terms, but nevertheless appropriate here. With increasingly sophisticated task descriptions and elaborate service level agreements, managers often tend to think that services or departments can easily be externalized. All the interfaces are defined, all the numbers are known, so what can go wrong?

A lot, in fact. Communication in organizations often doesn't follow pre-defined paths. Much information is conveyed through informal paths that are not available to an external party. Without the grapevine, outsourcing providers can never achieve the same level of integration as an internal department.

To make things even worse, outsourcing agreements often restrict communication methods to a few select, structured instruments. Direct phone calls or even email are not available - instead, the organizations are connected via ticket systems or a service hotline.

Where before employees could just call a colleague to deal with a problem, now they have to file a support ticket and describe the issue in intricate detail. Tickets will be sent back and forth between departments, and precious time is lost figuring out the right contact person instead of working on the issue.

Additionally, the elaborate job descriptions given to outsourcing providers are, in fact, never correct or even nearly complete. They can't be, because the scope of a task in an organization extends beyond just doing something that's written down on a piece of paper. It encompasses supporting colleagues, communicating, researching, and dealing with issues beyond one's actual responsibility. It means taking ownership of a problem instead of just doing a job.

SLA contracts rarely allow for this. Instead, they define a task, describe it in intricate detail, and expect it to be done exactly as defined - which is why often, the response to a request to the outsourcing partner will be "Sorry, that's not our job, find someone else".

Exaggerated Expectations

There's a second phenomenon resulting directly from the first one. While the remaining employees might not have to do the outsourced task anymore, they certainly have to instruct the service provider what to do. In many organizations, this is planned to be done with a one-off handover session that may last a few hours or days.

The problem is this: with tasks of increasing complexity being sourced out, one-off handovers just aren't sufficient. We know that new employees take up to a year to learn the ropes and start being really productive, but expect outsourcing partners to do the job right after a week? Can you see how that doesn't fit at all?

For employees, this results in dilemmas of the "spend four hours to educate the service provider, or spend an hour to do it yourself" variety. Understandably, employees often pick the second alternative. In the worst case, they will do neither and just let the outsourcing partner figure it out themselves, resulting in reduced service quality.

Even if employees spend the time to train the third-party staff correctly, organizational dynamics will get in their way. The service provider may replace the external employees, or, after two years, the outsourcing contract expires and the whole process starts anew.

Getting It Right

What can we do to remedy this situation? There are a few things.

  • Make sure there is close communication between the outsourcing partner and the internal employees. Do not restrict the methods of communication to time-consuming ticket systems. Instead, the more complex the task to be outsourced is, the more closely you should work together. At best, the service provider has a few employees at your premises to act as points of contact.

  • Base the relationship on mutual trust instead of sophisticated SLA contracts. Have a win-win mindset, and make sure you find an outsourcing partner that thinks alike.

  • Have a long-term partner. Just like those of organizational restructurings, the benefits of outsourcing are only starting to show after a period of confusion and re-orientation. If you change your outsourcing partner every two years, you will never reach ROI.

When reading this, our first reflex is to say that this will make the outsourcing agreement terribly expensive. However, the truth is simple: the costs are always there. The question is just if we want to acknowledge them and take action, or ignore them and have our outsourcing project secretly fail.