| ComputerWorldUK reported that through studying various sourcing deals, researchers from the University of Tennessee have determined ten of the most common errors made by organisations when they partner with an outside provider. While customers make a large variety of mistakes, most of them are linked to a single fact: “you get what you pay for,” says Kate Vitasek, the University’s lead researcher.
Kate Vitasek and her colleagues compiled a list of ten common errors made by IT departments. The first, she labels “Penny Wise and Pound Foolish.” Many customers have viewed outsourcing as simply a tactic of cost reduction. This viewpoint leads to only two plausible outcomes: providers tire of continuous bidding and as a result do not compete for the contract, or a low bidder is met with large operating losses that eventually lead to the contract’s termination.
A second mistake is being “precise to a fault.” Managers and executives who create an outsourcing contract attempt to write a flawless statement with specific requirements. Vitasek says this tactic is often a mistake because “The result is an agreement that stifles creativity and results in waste because the statement of work is not realistic.”
“Hangers-On” is what Vitasek calls the third error made by departments. When workers believe outsourcing is an upcoming option, they make the claim that their work will stay in-house. A fault and overbuilt infrastructure is the outcome.
Departments also fall into the “Transaction Trap,” when an arrangement is only transactional and does not leave enough room for improvement. As a result, the vendor bypasses opportunities for higher efficiency.
Vitasek also warns against buyers creating incentives for providers to reach high performance levels. She suggests that a more reasonable way to approach this is to permit the provider to offer savings in smaller amounts over a given time span, rather than to produce “Counterproductive Incentives.”
“The Honeymoon Effect” mistake occurs when an organisation and an outsourcing company first begin work together, and both struggle to impress on another. Over time, however, this wears off, and the outsourcing provider begins to fail to invest in new technology, and the levels of productivity slowly decrease.
Another common mistake is when departments become “Ruthless Negotiators” by making the assumption that if something is good for the provider, it is bad for the customer. Instead, “win-win” situations should be examined and sought out.
The lack of advanced processes used to monitor performance is also a problem which can result in an unsuccessful relationship due to definitions of success that were not specifically defined. In order to avoid a “Rudderless Deal,” the performance should be measured.
On the opposite spectrum, problems can also arise if performance is measured too thoroughly. Vitasek explains that not many companies have the diligence to control all of the metrics they create. She calls this “Measurement Minutiae.”
The final common mistake, “Off-Hands Management,” takes place when departments measure correctly but fail to manage. Vitasek points out that if one does not work with measures in order to make positive adjustments, one cannot expect positive results.
by Kate Barber
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