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What makes some outsourcing arrangements successful, while others fail at the first hurdle? In order to identify the reasons behind outsourcing success and, conversely, failure, sourcing consultancy Quantum Plus and law firm Bird & Bird surveyed people involved in managing outsourcing relationships.

This is a very high-level bird’s eye (1000000-feet) view of the issues and challenges facing any outsourcing deal out there. There are many points mentioned in this article that I agree with. But on the other hand, it leaves out some crucial piece of information that might have made this article a great read. It does not mention the profile of companies or people surveyed. It does not talk about the composition of service buyers versus service providers. Overall, I would like to see more details on the survey population. But having said that, this is definitely a great piece to get a general understanding of some of the most commonly experienced issues with outsourcing.

To summarize (in case you don’t find the patience to click on the url and read the whole thing), the most often seen issues in outsourcing are -
1. Expectation mis-match between the client and service provider
2. Reliable measurement of service levels rendered
3. Lack of innovation from the service provider
4. Internal expectations mismatch, between the expectations of an outsourcing engagement and internal management expectations

Overall, the stress is on expectations mismatch and the various reasons for which this mismatch occurs.

Happy reading, and if you like it, Digg it!

On a related note, I would like to hear what you think about these issues? Do you agree with them? Do you think this applies only to a certain types of deals and this is a gross generalization of the issue?

The original research findings summary is available here – http://www.softage.ru/outsourcing/index.php#34

read more | digg story

Earlier in January this year, TPI, the Outsourcing Research & Advisory firm release its usual quarterly report on the health, numbers and trends observed in the outsourcing contracts that were seen during the later part of 2006. This report observed that there was a significant decline in the Total Contract Value (TCV) in some of the bigger outsourcing deals seen in the observed period. Although it rang some alarm bells in the industry, things stayed calm when observers later found that the service providers have been reporting a reduction in TCV because buyers were trying to do it themselves – DIY Outsourcing! (More on that in a different post).

We’ve been seeing reports of mid-market organizations testing waters with DIY Outsourcing as well. Now, assuming that the credit market situation actually results in a financially stressed IT department, we should be seeing organizations changing tactics on their DIY strategy. Although the whole notion of outsourcing will not go on the back-burner (due to the obvious cost benefits), we may be seeing these deals flowing back into the service providers hands. Thus, we may see an increase in the TCV number in the next couple of quarters.

But are outsourcing service providers, especially the offshore strategists, ready to handle a sudden (even if temporary) increase in deal numbers and sizes?

The recent credit market turmoil, spurred by the sub-prime mortgage industry fallout in the U.S., has created ripples in the financial markets across the world. Although markets in the U.S. were affected the most, the impact has also been felt in the EU, with the recent announcement from Citigroup about it’s management shake-up.

As economists and bankers ponder over the possibilities of a global downturn, it is deja vu time for the folks in the outsourcing industry. Circa 2001, the “Post- Bubble” era ushered in a greater acceptance and recognition of ITO and BPO as a standard strategic component in various industries. The same feeling seems to be creeping in, albeit in a different avatar, this time around.

Along these years, the industry landscape has changed. Among service providers, we have seen a growing maturity in client service and delivery efficiencies. With a rapid proliferation of new entrants, the incumbents have had to fight back with competitive rates, and an aggressive inorganic growth strategy. We have also seen some surprising mergers and acquisitions in the past couple of years (remember Keane?). Among the clients, first of all, outsourcing has become an accepted component of an organization’s overall strategy. These days, clients do not need to educated about the benefits of ITO/BPO (although the same cannot be said about executing on those strategies). Clients have moved beyond the basic premise of labor arbitrage when factoring outsourcing into their grand plans.

Given these changes, it would be interesting to see how the outsourcing industry is affected (or, should I say “influenced”?) by the current market turmoil. An easy prediction to make here would be – the current scenario will result in IT budget cuts in the forthcoming quarter and the next year. This would, in turn, force executives to pursue their outsourcing strategy more aggressively, with a higher emphasis on realizing cost savings. This would result in an increase in the price pressure for service providers (as if the weakening dollar was not enough of a problem already). Thus, service providers will end up investing in technology to increase delivery efficiencies further, and to bring operational costs even below their existing levels. Maybe we will see an increase in Tier 1 service providers (Read – Accenture, Infosys) from Tier 1 locations (read – India, China) outsourcing their contracts to Tier 2/Tier 3 providers at lower cost (emerging) locations.

And I wonder of all this will happen within the next 12 months?

Comments?