Failed outsourcing deals blamed on people, not SLAs

Successful outsourcing isn't about tight contracts and meeting service-level agreements, 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% 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% of respondents took longer than six months to complete the Request for Proposal (RFP) part of the process, while 30% 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% of respondents plan to increase their current level of sourcing.

In fact, 42% 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% of respondents C level executives. Nearly half of respondents have an annual turnover of more than $1 billion and 143 Australian companies participated in the research.

"Sourcing is completely a people's business; only 13% 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% of companies in Australia measure outsourcers effectively because they don't measure the contract beyond SLAs," Zarella said.

He believes organizations need to appoint a full-time "relationship manager" to remove dependencies on consultants.

"It is too expensive to keep IT in-house but it has to be done properly by appointing a relationship manager," Zarella said.

"Because this is a new title there is a serious shortage of people with vendor management skills, the days of a contract manager working in accounts payable is long gone.

"Also the person that does the deal and develops the contract should not be the person managing it afterwards."

The study supports Gartner research which claims IT departments are shrinking as IT professionals move into specialists roles such as vendor management.

In the future, an IT career will not be about technology but managing a range of service providers.

By 2010, IT organizations in large and midsize companies will be 30 percent smaller, according to Diane Morello, vice president of research at Gartner.

"Partly driving this trend is outsourcing and IT automation," she said.

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