Outsourcing until there’s no way out

tata.gifWhen a friend of mine went on vacation this past summer he gave me the keys to his apartment so I could check in on his cat. My duties included feeding her, cleaning the litter and playing with her with a little. I did as expected, and everything went fine. But imagine if I decided to buy what I felt was a healthier, but more expensive kind of food. Suppose I used my friend’s credit card and bought some toys I thought would stimulate the cat a little more. Perhaps I could have taken it a step further and moved the litter, rotated her feeding schedule and had her performing some tricks by the time he got back.

He might have thanked me – or he might have reacted the way IT managers do to their outsourcing partners.

Tata Consultancy Services (TCS) on Tuesday released the results of its first annual survey of IT services customers, including 800 senior IT managers in the U.S., the U.K., France, Germany and three other countries (but not Canada). The statistics are so familiar you could probably sing along with me: 62 per cent of organizations experienced IT projects that failed to meet their schedules, 49 per cent suffered from budget overruns and 47 per cent had higher-than-expected maintenance costs. It just didn’t go very well, in other words.

“It is for this reason that TCS is calling upon the industry to deliver more certainty in the provision of IT services,” the study’s author writes. There isn’t a lot of detail on how the industry should go about doing this. In fact, the onus seems to be much more on the customer to do a better job of setting the terms of the partnerships up front, and so on. Dispensing this kind of advice has become something of a growth market for industry analyst firms. IDC and Info-Tech have both published reports this year looking at how companies can terminate their outsourcing relationships or, from time to time, salvage them.

A couple of months ago I actually had a conversation about this with Douglas Long, marketing director of TCS Canada. He said something that seemed to identify a root cause of these problems.

“It really depends on what customers are hoping to achieve by outsourcing,” he said, adding that TCS typically looks at three common objectives. “One is the pure cost thing, that’s very basic. We see, frankly, less and less of that. The next is greater operational efficiency, where an existing process is amended to the point where it works better. The third is to use outsourcing to achieve business transformation – the way you run and manage the business.”

This, for TCS and nearly every other outsourcer, is the end game. Unfortunately, the rash of horror stories and high-profile breakups (think IBM/JP Morgan) shows that few customers are ready to take it to that next step. Maybe it’s a psychological thing – at a certain point you wonder why the outsourcer is wagging the customer, as it were – but companies like to transform their businesses on their own. From an outsourcing company’s point of view, this is catastrophic, because it means there’s no roadmap for their services to evolve. To stay in the cost-cutting game commodifies their offering.

Much as we talk about a disconnect between IT and the business, the disconnect between outsourcers and the outsourced might be worse, and would explain all the figures in the TCS study. While the goal within enterprise is to bring IT and businesses closer together, businesses may have their reasons for keeping outsourcers at a distance. Somewhere in the middle there are some processes that can certainly be improved, but outsourcers will continue pushing their limits. They have no other choice.

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