Failed deliverables from offshore outsourcers are a common experience as evidenced by the size and number of LinkedIn discussions, other social media and community posts, and court queues. There are, of course, numerous excuses rendered, few accepted, and passionate arguments on both sides. But when you cut through the noise and look at what you’re left holding (or rather what you’re not holding), there it is: the failed deliverables and all the baggage that represents.
And you wonder, how in the name of IT and legal departments could such a thing have happened?
“The main reason off-shored projects fail is because whenever a project is outsourced, be it off-shored or even near-shored, there is a measure of accountability that is relinquished,” said Bill Curtis, chief scientist for Center for Applied Special Technology (CAST), a nonprofit R&D organization, and director of the Consortium for IT Software Quality (CISQ).
That very well could be the understatement of the year. Fast flying finger-pointing is usually the first defense and such underscores the lack and loss of accountability on both sides of the table.
Claptrap and curses
Yes, yes, you know all about how important good communication is on the front of the deal. How one should spell out each and every little detail of the project and expectations, clear up objectives, and by all means share the vision. All good advice actually, but if you did that already, or thought you did it anyway, then why are you still facing the claptrap of failed deliverables armed with little more than the curses on your lips?
“A common mistake is that risks are not identified in advance and during the project and therefore not monitored,” said Eileen Boerger, president of CorSource Technology Group, who has managed the outsourcing of software development and maintenance projects to several countries including Vietnam, India and New Zealand for over 25 years. “That means the CIO will be caught by surprise and may have no recourse but to accept whatever the vendor is doing and what the vendor said still needs to be done.”
That’s unfortunately true most of the time. Once hit with failed deliverables, CIOs typically have no idea how to get out of the situation.
Options that aren’t
At the beginning of an offshore outsourcing venture, CIOs typically believe their risks are limited to just money. It follows that cash penalties would therefore be the perfect cure for whatever may go wrong down the road. Indeed, the penalty for an offshore outsourcer who fails to deliver is almost always doled out in chucks of money, but money won’t actually fix the problems. That’s especially so if you have trouble collecting it and lose more money trying to slug it out in foreign courts.
But even if the outsourcer is willing to pay the penalty costs, the pre-agreed sum may still not cover your losses or fix the problems the failed deliverables created.
In a Harvard Business Review paper titled “Why Your IT Project May Be Riskier Than Your Think,” authors Bent Flyvbjerg and Alexander Budzier cite Levi Strauss’ migration to a single SAP system, a seemingly low risk project, as an example of how horribly wrong even relatively straightforward IT projects can go. The $5 million project ended up an almost $200 million dollar loss and resulted in CIO David Bergen’s resignation. Hard to think how much money Levi Strauss should have asked for in advance of this project as a “penalty” for this kind of result.
The paper goes on to say:
A $5 million project that leads to an almost $200 million loss is a classic “black swan.” The term was coined by our colleague Nassim Nicholas Taleb to describe high-impact events that are rare and unpredictable but in retrospect seem not so improbable. Indeed, what happened at Levi Strauss occurs all too often, and on a much larger scale. IT projects are now so big, and they touch so many aspects of an organization, that they pose a singular new risk. Mismanaged IT projects routinely cost the jobs of top managers, as happened to EADS CEO Noël Forgeard. They have sunk whole corporations. Even cities and nations are in peril. Months of relentless IT problems at Hong Kong’s airport, including glitches in the flight information display system and the database for tracking cargo shipments, reportedly cost the economy $600 million in lost business in 1998 and 1999. The CEOs of companies undertaking significant IT projects should be acutely aware of the risks. It will be no surprise if a large, established company fails in the coming years because of an out-of-control IT project. In fact, the data suggest that one or more will.
All of which is to say that whatever options are spelled out in the outsourcing contract to address failed deliverables or penalize the outsourcer, they will almost without exception be too weak a remedy, and they will definitely not unsink the Titanic.