When it comes to outsourcing, everyone has a tale of woe. My favorite comes from a software vendor that outsourced a new development project: “They were amateurs and couldn’t hit a deadline. It’s also why we switched from PHP to Java. It was the wrong platform to start.” Many will grumble in agreement, recalling their own horror stories.

However, bigger questions loom. Who picked the platform? (The unhappy customer did.) Did the customer check the work daily? (No.) Did it have automated status reporting? (It didn’t.)

Outsourcing is a key part of every modern IT group. Problem is, we still don’t seem to do it that well. Twenty-nine percent of the 530 business technology professionals responding to the InformationWeek Analytics 2010 Business of Outsourcing Survey have fired a vendor within the last 12 months. You can blame the partner–or grab a mirror.

Two big trends jump out from this year’s survey of companies using IT outsourcing, and both speak to the importance of IT managing outsourcing better.

One is the growth of cloud computing and software-as-a-service initiatives–and the disturbing trend of IT trusting performance monitoring to the vendors. The other is the fact that IT outsourcing is moving up the stack, as vendors take over increasingly strategic functions. Nearly six of 10 IT shops outsource some critical function–management, engineering, or development; almost one-fourth keep executive and management functions in-house but look to outsource everything else. As companies rely more on outsiders, a lack of oversight, management, and even monitoring can have catastrophic consequences.

Our survey shows a continued rise in all types of outsourcing, everything from traditional hardware services and staffing to cloud applications and full-blown data center operations.

However, there are some serious levels of dissatisfaction. With end-user support and development of customer-facing applications, more than half of survey respondents say outsourcing has delivered lower quality. Cloud computing and SaaS get more favorable reviews, with the majority saying it has delivered better quality and 44% planning to expand use. However, there are problems there, too, with almost six out of 10 respondents relying on their cloud vendors to monitor their own performance.

Most IT shops have set the right goals for outsourcing: Freeing up staff for more strategic initiatives is the most-valued benefit, just above cost savings and better alignment of IT staff and costs with business trends. They’re also worried about the right problems: unforeseen costs, communication problems, and the time required to manage subcontractors.