Three root causes of badly managed outsourcing

Outsourcing is an integral part of modern business and plays an essential role in gaining competitive advantage. It’s also complex, with many organisations struggling to get it right.

Most organisations choose outsourcing as the most efficient way of transforming the delivery of key business processes, allowing them to concentrate on core business activities and become more agile in increasingly challenging markets.

But realising the expected bene­fits can be more complex than anticipated. Unpredictable growth and change agendas, heightened competition, economic turmoil and a rapidly evolving services market all complicate the outsourcing landscape.

So why do many firms persist with outdated approaches to outsourcing procurement and management? Badly managed outsourcing is typified by both clients and service providers feeling trapped in dysfunctional relationships that fail to deliver on either party’s expectations.

What begins as disillusionment often gets worse - these results are all too common:

- Poor service,
- Spiralling costs,
- Heightened risk,
- Embarrassing litigation,
- Loss of shareholder value
- Damage to corporate and personal reputations

While the issues that result from badly managed outsourcing seem insurmountable, the three root causes are often simple:

1. Failure to clarify vision or strategy and objectives.
Organisations often fail to define what they seek to achieve from outsourcing. Writing RFPs and documenting overly complex statements of work takes prece­dence over agreeing what success looks like and exploring the art of the possible. This lack of clarity leads to mismatched expectations and leaves both parties unclear about what they are trying to achieve.

2. Focusing on detail rather than business outcomes.
Clients and service providers rush to define a solution and negotiate a contract, and the focus is all too often on writing detailed requirements which result in solutions that fail to meet expectations and poorly structured contracts that are only used as weapons in times of dispute.

3. Assuming benefits realisation is a passive activity.
Even in the unlikely event that shared business objectives are clearly defined at the outset, there is rarely the necessary tools and knowledge to manage the benefits realisation process. Monthly performance rev­iews, ineffectual ‘boilerplate’ governance and the veiled threat of punitive service credits are ineffective methods for ensuring benefits are fully realised.

Delivering savings by moving discrete functions to service providers is simply not enough. Modern businesses, as an absolute minimum, must efficiently deploy an optimal mix of internal and external skills to the best of their ability.

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