Three Key Lessons Learned from IT Outsourcing Achievements and Failures

Posted: September 9, 2010 in News

IT Sourcing Europe highlights the three key lessons learned from successes and failures of the global IT Outsourcing relationships from recession till present days.

Lesson #1: Organizations must change to survive.

In order to survive a recession and win today’s competition, any organization should strive to substantially innovate its business operations and processes as well as services and products offered. In today’s ITO context, it is no longer enough for companies to focus solely on cost-efficiency and resolution of short-term issues.  For innovation to be created and matured in such external services markets as outsourcing, both client and supplier should put much effort in growing their ability to go beyond traditional outsourcing relationships, in which problems are dealt with largely as a contest between the two parties with different vested interests to protect. During the recession many traditional outsourcing relationships failed because both parties ignored the collaborative arrangements. Within today’s Outsourcing 2.0 concept, collaboration is the main force driving innovation. Collaboration allows the client to move from outsourcing management and contract administration to project success and quality monitoring and risk sharing. The buyers of the outsourcing services should tend to establish personal, competence-based and motivational trust among their vendors to reach a collective delivery and open, learning, flexible, adaptive and interdependent behaviors. IT outsourcing can only work well in the environment of mutual trust and risk sharing among all of the parties involved. So, focus on long-term cooperation is essential for creating such an environment.

Lesson #2: In-house leadership is vital for large-scale transformations.

Both client and supplier organizations should now consider the concept of leadership as a “third corner thinking” able to mobilize in-house resources to handle the adaptive challenges facing the organizations, transform the way how things are done and leverage the capabilities and strategies in a new way. Both client’s and supplier’s leaders should think in the spirit of problem solving, not just company interest protection, and should perform in compliance with the industry’s best practices to achieve a collective delivery.

The more work is outsourced, the more leadership is required from both sides to define the problem and develop and implement the solution. The role of leadership shifts from mere governance and contract management to direction maintenance and process shaping. The more business-focused and aggressive the innovation, the more truthful the idea that the leadership should come primarily from the client. Thus, in outsourcing, the most valuable and hardest task of leadership is to advance goals and develop strategy to promote adaptive work.

Lesson #3: In ITO risks should be shared and offset.

Innovation, achieved collaboratively, is able to find ways of ITO risk sharing and offsetting, which, in turn, will allow client organization to reduce costs in a more sustainable way. Business process innovation drives sustainable improvement of both business operations and profit growth targets.

To create as risk-free environments as possible within ITO engagements, outsourcing companies need to create a common goal with their suppliers and suppliers need to understand clients’ business goals prior to signing a contract and generating project metrics. Such understanding will eventually allow suppliers to provide the most appropriate skills to ramp up the project success. Clients, able to create an environment of mutual trust and collaboration, will eventually be able to create a risk-reward mechanism based on actual supplier performance and cooperation.

To conclude with, today’s outsourcing companies and their suppliers need to change their traditional approaches towards leadership, contracting and organizing their processes to gain a lot of success from their ITO partnerships. The models in which companies hire partners to execute their IT projects and place the whole burden of responsibility on their partners are doomed to fail in today’s ITO context. The organizations willing to outsource their IT function should be 100% involved in project management at the highest executive level and should be focused on establishing strategic long-term cooperation rather than skimming the cream off short-time benefits. This is the only possible scenario of further success and maturity of global outsourcing practices.

 

(Based on Logica’s white paper in association with London School of Economics, 2010)

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