Failed outsourcing deals blamed on people, not contracts

Successful outsourcing isn't about tight contracts and meeting Service Level Agreements (SLAs), it is strictly a people's business and is based on relationships between provider and customer, according to the first global outsourcing survey to be undertaken by KPMG.

Failed relationships equal spiralling costs with 60 percent of respondents claiming problems with their outsourcing provider are almost always people-related.

Head of KPMG's IT advisory, Egidio Zarella, said this is because sourcing arrangements are not managed correctly with 79 percent of survey respondents not even knowing the cost of selecting a sourcing provider.

Zarella said 50 percent of respondents took longer than six months to complete the Request for Proposal (RFP) part of the process, while 30 percent take longer than nine months. During this time the market has shifted.

He said organizations are in the dark when it came to measuring the value of outsourcing deals although 89 percent of respondents plan to increase their current level of sourcing.

In fact, 42 percent of outsourcing arrangements are not supported by a formal strategic measurement framework.

More than 650 organizations in 32 countries participated in the survey with over 60 percent of respondents C level executives. Nearly half of respondents have an annual turnover of more than $US1 billion and 143 Australian companies participated in the research.

"Sourcing is completely a people's business; only 13 percent blamed technology when the contract went bad," he said.

"It's not about contracts but having the right people; the worst offenders are those with massive SLAs, they fail to keep it simple.

"Typically costs will initially go down when organizations outsource but two years later costs are higher than they were before outsourcing."

Zarella blames lack of vendor management claiming it is a full-time job to manage an outsourcing provider.

He said deals should be monitored every quarter with a 10 point checklist and companies should check all change requests that go to the vendor.

"Only about 20 percent of companies in Australia measure outsourcers effectively because they don't measure the contract beyond SLAs," Zarella said.

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