Outsourcing contracts at risk

Outsourcing contracts at risk

Management must act to protect investments over the long term

Businesses are in danger of losing control of their outsourced IT projects due to a lack of internal IT leadership, poor business sourcing strategies, inadequate relationship building and a failure to provide the right internal resources and skills, according to a study commissioned by LogicaCMG as part of its Outsourcing Enterprise whitepaper series.

The new research-based white paper, Building Core Retained Capabilities, led by Leslie Willcocks, Professor of Technology, Work and Globalisation at the London School of Economics, revealed that senior managers must identify and retain key skills and core competencies in their in-house teams if they are to truly benefit from the relationship with their outsourcing supplier. The research showed that organisations are prioritising short term cost reductions over an invest-to-save strategy, resulting in a number of outsourcing projects developing problems such as loss of control, inadequate service, and constant renegotiation due to a lack of strong internal leadership and project management.

By 2012 about 58 per cent of the average corporation's IT budget will be with outsourcing suppliers, so it is crucial that they resource properly internally. The research identified nine core capabilities that must be equally applied to ensure long term business performance and strategic advantage from IT and business outsourcing. These capabilities include leadership, business systems thinking, relationship building, architectural planning and design and informed buying, which lean towards softer business skills.

The consequences of failing to invest internally in these core competencies are sizeable and include high contract costs and poor pay offs; back sourcing and excessive management effort. Investment in these capabilities is expensive and with management costs of the contract value for the retained team expected to be at 10 to 12 per cent by 2010, organisations must "spend to save" now, by investing in the right internal skills to develop long term strategic benefit.

The white paper concluded that to implement all nine core capabilities requires high-performing individuals, who can develop into a high performance team with a greater emphasis on both business and interpersonal skills. However, the study revealed that in practice the recruitment and retention of individuals with these capabilities is confined to a small, high quality group, compounded further by the fact that current retained functions tend to possess strong technical expertise but are weaker on business and interpersonal skills. This results in a major human resources challenge and organisations need to be prepared to upskill and recruit to provide the right resources and support to create a successful in-house team.

Len Rust is publisher of The Rust Report

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