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Outsourcing Advice

I recently discovered a report on the Deloitte web site called
Calling a Change in the Outsourcing Market - The Realities for the World’s Largest Organizations

Its findings were that very often the deals failed to meet their objectives:

  • 70% cited cost savings as a key driver for outsourcing, but 38% said they ended up paying hidden or added costs they thought were included in their contracts.
  • 57% cited quality and innovation, but 31% said vendors became complacent once contracts were in place.
  • 35% cited flexibility and capacity, but comments revealed that contracts are binding and vendors, often rigid, are refusing to accommodate last-minute changes.
  • 22% cited access to high-caliber labor, but one in five experienced greater employee turnover and realized the intellectual capital they had paid for was fleeting.
  • 22% cited transfer of risk to vendors, but they said vendors were unable to fully absorb the costs of business losses, leaving the company on the hook for paying the bill.
  • 16% said they outsourced because they lacked the in-house expertise, but 44% found their vendors couldn't deliver on the quality and cost savings and they decided to bring the operations back in-house.

These findings were backed by reports from Dun & Bradstreet and DiamondCluster International. The report received a lot of attention at the time which can be found by searching so I don’t want to go over that. I want to make another related point…

If you are engaged in outsourcing, then it is very likely that you will use an outsourcing consultancy. The selling point of these consultancies is that their consultants have “been there and done it”. This means that they were probably responsible for some of the catalogue of failed outsource deals highlighted in the various reports. Do you really want to be listening to these guys? Do you want “common practice” or “best practice”?

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Reader Comments (3)

I think it would be useful for companies considering outsourcing to talk to other companies who actually did an outsourcing deal.

Do not believe the outsourcing consultancy firm alone. Talk to the customers!

July 3, 2007 | Unregistered CommenterSjaak Laan

I cannot emphasize the importance of quality. All our overseas customers have built up confidence in our quality and adherence to schedules over a period of time. Cost reduction is an added bonus.

I don't know to what country the article was referring to. But, I think we shouldn't emphasize the whole outsourcing community. Some outsourcing companies were able to meet the deals and most often exceed from what is expected from them. It is very subjective... case to case basis...There are outsourcing companies which are very lenient and transparent. I think best advice is, 'look for the right outsourcing partner'.

January 26, 2009 | Unregistered CommenterOutsourcing Guru

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