Easing the Pain of Outsourcing

On paper, outsourcing almost always makes sense. The cost savings are eye catching, double digit percentages. Productivity and efficiency improvement benefits are touted as soft benefits that make the project even more appealing. Add the “motherhood and apple pie” rationalization of, “We’ll be able to focus on more strategic initiatives,” and only Scrooge would argue against the idea.

Too bad the adage “The best laid plans of mice and men often go awry,” applies. It is why 74% of the CIO’s we interviewed recently confessed to wondering what exactly they had committed to upon finalizing an outsourcing contract. The mere thought of executing the transition from in-house to outsourcing can be migraine inducing.

Can CIO’s do anything, short of buying Advil by the case, to ease their pain? Our research reveals it is possible, but it may require a mind set change. For the purposes of this column, we’ll assume the due-diligence is complete. The decision is final. Outsourcing is the right thing to do for the business and vendor selection is narrowed to a short list, if not a final one.

We asked 50 Fortune 500 CIOs, given the opportunity to “do it all again” what would they do differently? Upon first review, their answers may appear bland. But closer inspection reveals that while most outsourcing projects start out on the right track, final scope and costs negotiations typically result in short changing the activities most critical to a less painful project.

An astounding 84% of CIOs indicated they would invest more in developing the scope-of-work and transition plan. Outsourcing vendors have long complained about customer’s unwillingness to pay for pre-project consulting. The consistent push back from CIOs has been that pre-project work should be part of the vendor’s cost of sale.

CIO’s told us it took several “nightmarish” transitions for them to fully appreciate the importance of mutual investment in pre-project work. When they did invest in this work, CIOs stated there were two important findings.

The first was a realization of the cascading effect of the various decisions that accompany an outsourcing project. While this particular discovery had little impact on the actual project, it had tremendous impact on corporate-wide satisfaction with the project. It also provided CIOs with visibility into opportunity for other costs savings and streamlined processes.

The second was understanding the cultural fit. Often the team engaged in initial selling and scoping is not the team (or at least not the full team) responsible for execution. Investing in getting to know each other better via more intensive transition planning helped CIOs refine both their team and that of the outsourcers. It also revealed potential disconnects in cultural priorities. This allowed the transition teams to create operating principles to guide level decision making.

Here’s a few of things these CIOs would do differently if they could do it all over again:

Build in Flexibility

Outsourcing projects are long-term contracts. Over the course of three-to-seven years, businesses often undergo dramatic changes. Over 70% of CIOs stated they overlooked flexibility. Their focused tended to be on reliability and responsiveness. Now they focus on developing projects as partnerships, with joint-working agreements that support change while delivering value.