Companies Still Don’t Devote Enough Resources to Outsourcing Management

Back in 2008 I wrote about a Deloitte report that found many companies failed to achieve strategic business objectives through their outsourcing initiatives. The report’s intro mentioned “themes of unrealized potential and lost opportunities to use outsourcing as an opportunity to innovate.”

It went on to highlight five areas Deloitte felt did not receive enough emphasis from outsourcing customers: strategy definition, creation of a business case, vendor selection, contract negotiation and ongoing performance management.

That was three years ago. So we can assume that many companies have since gone on to figure out this outsourcing thing, right?

Maybe not, based on InformationWeek’s 2011 Outsourcing Survey. As I wrote yesterday, the survey found across-the-board increases in respondents’ use of external service providers and their intent to outsource even more activities. This in itself isn’t a bad thing, of course. But it’s hard to categorize it as a good thing, given the perceived quality of outsourced services.

As Yeoman Technology Group President Michael Healey writes in a commentary about the survey, “year-over-year quality opinions are down across all categories.” Notably, 57 percent of respondents cited a drop in the quality of end user support, with 20 percent saying they paid more for this inferior support than it would have cost to deliver internally.

Yet only about 3 percent of respondents plan to scale back on outsourcing. Most plan to maintain or increase their use of outsourcing. Writes Yeoman:

All this presents an interesting scenario: We’re less happy with quality, but more on board with outsourcing in general. That means either: A, we’re actively managing our outsourcers and doing what we need to internally to shore up quality and avoid negatively impacting the business; or B, we’re simply pushing whatever we can off our plates and hoping quality will magically improve before the masses revolt. We’re thinking it’s B.

Sadly, I think Healey makes an accurate call. His recommendations include more closely vetting potential outsourcing partners and more closely monitoring external service-level agreements.

Interestingly, he notes that respondents’ opinions about quality are significantly higher for outsourced development of customer-facing software. He implies that’s because this kind of work is more actively managed than other outsourcing initiatives, saying companies are more likely to use tools to manage vendor evaluation, compliance and performance of external developers.

Sadly, respondents seem far less concerned about outsourcing activities that don’t directly touch their external customers. Writes Healey:

Ask yourself this: Does anyone outside of IT understand exactly what’s outsourced? Does accounting know you don’t own the servers that run the billing system? Does your CEO ask about SaaS vendor evaluation reports or the RFP process when evaluating a new telco partner? Not likely. But if a new e-commerce application is buggy, everyone notices.

Could getting business leaders more actively involved in outsourcing decisions improve those initiatives? I think such leaders might be able to provide guidance to help deal with four common outsourcing challenges identified by Thomas Koulopoulos, author of “Smartsourcing: Driving Innovation and Growth Through Outsourcing.” The challenges:

  • Defining their core competencies with the same level of scrutiny they may apply to defining the cost reduction of outsourcing
  • Fully understanding the processes they outsource, rather than simply lifting-and-shifting a poor process to a partner
  • Establishing enough metrics to monitor their key objectives
  • Putting a premium on a partner’s ability to transform business processes


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