PA Consulting, Outsourcing, Clients, Deal, Contracts

Outsourcing clients get the deal they deserve; often that’s not the deal they intended

Businesses and suppliers are not aligned when it comes to interpreting and agreeing IT outsourcing objectives. Furthermore, most outsourcing deals are doomed before they begin as insufficient attention is given to planning and due diligence. These are two major findings of the comprehensive research into IT outsourcing by PA Consulting Group.

Article provided by Top-Consultant.com

PA surveyed over 300 international C-level executives, and interviewed major global IT outsourcing suppliers and legal advisers. The resulting 2005/2006 report, entitled ‘Understanding Misunderstanding’, is the first three-way research (incorporating clients, suppliers and lawyers) to reveal the different perceptions within the IT outsourcing market - unearthing areas of genuine misunderstanding which put the various parties at loggerheads from the outset.

Failure to align objectives

When asked about the outcomes clients require from IT outsourcing, suppliers cited cost reduction (100%), access to IT Skills (14%) and IT investment (18%). Clients on the other hand placed far greater importance on access to skills (67%) and almost a quarter did not see cost reduction as the primary objective.

This discrepancy can largely be put down to miscommunication. Only 21% of suppliers and 38% of lawyers thought their clients articulated their objectives clearly to the supplier marketplace.

The consequences of this misalignment are poor realization of returns, lost opportunity and failure to achieve transformational objectives.

Lack of planning and poor business cases leads to future problems

Businesses also seem reluctant to spend time and money up front to realize long-term benefits. Only 42% of clients undertook any form of due diligence when selecting their suppliers and, in hindsight, 66% of clients wished they’d increased focus on their supplier’s ability to deliver on promises at the outset.

While 50% of organizations said they found realizing benefits difficult, 90% of all respondents reported that agreed SLAs were hit consistently. Whilst suppliers are therefore delivering against SLA’s, they are not able, willing or sufficiently flexible to adapt to changing business dynamics.

So, while deals may look to be proceeding in line with stated objectives, often they fail to take into account ‘softer’ goals and strategic business targets. The result can be an arrangement that fails to grow with the business, or leaves the client hamstrung without the flexibility or cost buffer available to adapt to change.

Equally, many costs to the business are not included in the business case. Whilst 89% of client respondents included the current cost of IT delivery in the business case, only 51% included costs for the retained organization, and only 44% included the potential cost of change when building their business case. It is therefore not surprising that the benefits that are ultimately realized bear little correlation to the original business case.

According to Fons Kuijpers, head of IT sourcing, PA Consulting Group, there is no excuse for IT outsourcing deals to go wrong in a mature market. Yet, even now, many IT outsourcing deals are doomed before they start because of poor business cases where key items such as costs for the retained organization have been omitted.

Commenting further Kuijpers said: “Equally worrying, suppliers and clients have different expectations of the desired outcome. This is largely due to the clients’ inability to articulate clearly what they seek to achieve from the deal, and partly due to suppliers pursuing their own agenda.

“Organizations get the outsourcing deal they deserve – think people, not money. Those who follow good practice and put the best people on the case will succeed - those that don’t only have themselves to blame.”