The 8 Maladies of Outsourcing

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    For the first half of this week I’ll be reporting from the Gartner Outsourcing Summit in Los Angeles. This three-day event brings together managers looking to learn more about IT or business process outsourcing, Gartner analysts, big-name company executives who share their own stories, and the service provider community. My guess is there are probably between 500 and 550 attendees in all here.

    The conference opened up with a keynote by Gartner VP Linda Cohen, who shared her eight maladies of outsourcing. Yes, these are high-level; the details come later in the breakout sessions. (Yet, several of the attendees I spoke to who are enmeshed in slightly more mature relationships told me that the maladies certainly capture what they’re experiencing.)

    #1. Outsourcing compliance disorder

    , characterized by inefficient or overpriced outsourcing operations, a lack of competitive service offers or service pricing from the vendor, and a lack of service provider coordination because there are too many vendors working for the client and business units are making their own deals. Her remedy: Get your act together and manage outsourcing in a new way. One piece of advice: Think long and hard about how many vendors you need. If you’re new to outsourcing and still mastering the arts of governance and management, she recommends a single vendor — or at least a “prime vendor” to manage multiple sources.

    #2. Offshoritis

    , whose symptoms include the lure of cost savings; the CXO just says do it, so IT does; it’s applied as a band-aid for reducing expenses; and applications are bleeding costs. The remedy: Align the offshore strategy with the business strategy. In stage one, achieve operational excellence by learning the fundamentals of vendor management and doing labor arbitrage. In stage two, pursue process effectiveness by globalizing and aggregating processes and seeking productivity gains. In stage three, establish the agility to respond to business by looking for global synergy and becoming a true master in global sourcing.

    #3. Outsourcing migraine

    , which you know you have when you’re unhappy with the current price per value; the boss is unhappy with the results; everybody is a critic — which frequently happens two to three years into the endeavor; SLAs are being met, but the customer satisfaction scores are low; and there’s a distinct lack of vendor innovation. Her remedy: Align mutual benefits in efficiency, enhancements and transformation between the service recipient and the service provider. For example, while the client is seeking efficiency and continuous improvement, optimum value at a competitive price and preferential partner status, the provider is seeking predictable, recurring revenue, predictable profits and a relationship that’s extending.

    #4. Deal paralysis

    , whereby the vendor has replaced an A team with an F team, there’s too much or too little vendor attention, a modification mania proclaims that everything will cost more money, the cost is unpredictable, and the vendor revenue is unpredictable. Here the remedy is to reinspect your delivery model. Chances are, you’ve got to change them. This is a market-driven situation, says Ms. Cohen. The vendor needs to achieve a “balanced portfolio” of work, which encompasses both “utility” or low return jobs with custom or high-return projects.

    #5. Vendor tunnel vision

    , in which vendors don’t play well together; no one takes responsibilities; each vendor has its own dashboard, which works nothing like anybody else’s; and vendors are driving standards. The remedy: You’ve got to take control of the situation, set standard co-management processes and practices and establish contract change control and management. In other words, be the parent. Make sure that everybody adheres to your requirements on dashboards, statements of work and SLAs.

    #6. Chronic fatigue

    sourcing comes about through lack of innovation, an atrophied IT or operations environment, and a poor perception of outsourcing results or value. The remedy: You have to have a program or process to evaluate the relationship between buyer and seller on a regular basis — at least annually, possibly every two years. Cover price and service levels, customer satisfaction, contracts and relationships, and vision and alignment.

    #7. Management deficit disorder

    , which strikes in two forms: 1) macro-vendor management, where invoices go to the contracting or finance divisions; reports are abundant but ignored; overpayments take place; and nobody’s minding the store; 2) micro-vendor management, in which you spend too much time and money analyzing performance, your organization makes late payment of invoices, and there are auditors everywhere. The remedy is obtaining competency in sourcing management, which calls for a happy medium. The structure recommended for roles is this: a chief sourcing officer to develop sourcing strategy, approve sourcing business cases, providing governance and guidance and act as executive liaison to the external providers; a performance manager to do operations oversight, service integration, incident management and SLA performance management; a contract manager to manage terms and conditions, projects and bids, negotiate for terms and conditions, pricing and SLAs and enforce contracts and schedules; and a relationship manager to govern agreements, facilitate requirements and priorities, provide issue escalation, monitor performance and relationships, and act as a liaison to the business unit management and service provider. The idea is to create roles and responsibility with authority to act.

    #8. Deal dementia

    , which exposes a misalignment of goals between service provider and receiver; and the buyer and seller executives aren’t meeting regularly or are meeting constantly; and there’s constant finger-pointing. The remedy: Get those four people mentioned in malady #7 consistently involved in the management of the relationship.

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