What’s wrong with outsourcing? By Ernie Zibert Copyright 2012 Ernie Zibert Smashwords Edition Smashwords Edition, License Notes Thank you for downloading this free ebook. Although this is a free book, it remains the copyrighted property of the author, and may not be reproduced, copied and distributed for commercial or non- commercial purposes. If you enjoyed this book, please encourage your friends to download their own copy at Smashwords.com, where they can also discover other works by this author. Thank you for your support. Discover other titles by Ernie Zibert at Smashwords.com. Table of Contents What’s wrong with outsourcing? What is the % of value lost in outsourcing? Conclusion To answer the question, ’What’s wrong with Outsourcing?’ this e-book furnishes the results of a survey of more than 100 IT professionals in Sydney in Nov 2012. Before these results to the two questions are presented a comment on this e-book’s title is warranted. Bottom line is that there is nothing wrong with outsourcing as a business paradigm. Indeed, outsourcing is here to stay and the successful modern firm is that firm which best manages its portfolio of external service providers. As stated in my previous e-books, it is the responsibility of the buyer to extract value from their outsourcing relationship. This is not gifted, rather hard-earned. It derives from a clear understanding of the value dimensions sought and their concomitant importance to the firm (weighting) and the proper investment in sourcing governance. In Nov 2012, more than 100 IT professional were asked two questions. First, what’s wrong with outsourcing? Second, what percentage of value is lost or eroded in outsourcing over the lifetime of the deal? Both questions are multiple-choice with five options. What’s wrong with outsourcing? The pie chart below shows the results to the question, what’s wrong with outsourcing. As shown below, half of the respondents stated low customer satisfaction as the factor which is most wrong with outsourcing. This was followed by 20% of respondents stating that the high costs of managing the outsourced service provider was the biggest problem with outsourcing. Surprisingly, only 6% of respondents stated that a high cost was outsourcing’s biggest problem. The results from this survey are surprising. Most current reports into outsourcing suggests that not realising the cost savings is the biggest problem with outsourcing. What this finding shows is that IT professionals have evolved beyond myopic price considerations and are in-fact generally not satisfied with their outsourcing experience(s). Given that customer satisfaction is a variable dependent on the other four dimensions of sourcing value (see the Five Dimensions of Sourcing Value), customers are clearly unable to sustainably extract value from their outsourcing relationships. What percentage of value is eroded in outsourcing over the lifetime of the deal? The results from the second survey question, ‘What percentage of value is lost in outsourcing over the life of the deal?’ appear in the chart below. Over 90% of IT professionals stated that 60% or more of the expected value of the outsourcing deal is lost over the deal’s term or lifetime. In other words, nine out of every ten IT professional believe that more than half of the value of outsourcing does not materialise. This makes sense given that half of them were not satisfied with their outsourcing experience(s). What is even more alarming is that one out of every three IT professionals stated that 100% of the value of outsourcing is lost over the lifetime of the deal. It would be interesting to see if the multiple choice values were higher, such as 120% or even 200%, what the responses would have been. These results correlate with the Procurement Strategy Council 2009 report. This report showed that through five factors firms can lose 100% of the expected value of their outsourcing deals. Conclusion If you don’t know what you’re doing you will erode value in any outsourcing relationship. The results from this survey are telling: you have a 50% chance of not being happy with your outsourcing relationship(s) and you have a nine-out-of-ten chance of losing more than 60% of the relationships value. The message here is very clear. Change what you are doing with your outsourced partner(s) today. Deploy the Sourcing Compass and implement a sound sourcing governance framework. About the author: Ernie Zibert is an influential IT Management Executive with 20+ years of international achievement in leveraging technology and strategic partnerships to drive growth, performance, flexibility, and customer satisfaction. A proven change agent, capable of orchestrating transformative business strategy. Champions innovation with a focus on developing flexible, scalable solutions for customer and organisational problems. Diverse experience across government, communications and media, and finance industries. World class financial, relationship and commercial management of IT sourcing relationships. Respected leader in highly-matrixed global corporate environments and in the Australian IT Services community. Other titles by Ernie Zibert: Discover other titles by Ernie Zibert at Smashwords.com. The Science of Sourcing Governance What’s the difference between a million and a billion dollar IT sourcing deal? Ordering IT Services: Would you like CHIPS with that? Sourcing's Three Fates The IT Outsourcing RFP COW is too FAT AMS - The next stage in the evolution of IT Outsourcing Outsourcing’s Two Evils Apply CREAMS to your IT Outsourcing pain Sourcing’s Five Critical Governance Processes The Five Dimensions of Sourcing Value The relationship between the five dimensions of sourcing value Connect with Me Online: My blog: strategicsourcingblog.blogspot.com For more information, contact Ernie Zibert at ernie.zibert@gmail.com Thanks go to Mohandass Ayyappath for his insightful comments and editing. . of Contents What’s wrong with outsourcing? What is the % of value lost in outsourcing? Conclusion To answer the question, What’s wrong with Outsourcing? . multiple-choice with five options. What’s wrong with outsourcing? The pie chart below shows the results to the question, what’s wrong with outsourcing.