PHOTO:All Rights, Microsoft Corporation
I often talk about the failures in long-term outsourcing, reminding everyone that the failure rate in outsourcing is at least 50%, with some reports quoting a failure rate that can be as high as 90%, in technology and IT. Outsourcing, when it follows best practices, can be spectacularly effective and successful.
Some of you may be thinking that this doesn't sound like your experience. You may have outsourced and you may have had some failure, but it may have been 60% or 70% successful. And that may be true for many of you. Usually, there is not only a big chance for failure in the early days of outsourcing, there is also a significant second peak in failure when the second contract is signed in year 3-5.
One of the reasons why the failure rate is so high is that procurement departments build extensive conditions for cancelling a contract, but are extremely resistant to triggering a termination clause,. Even when the vendor is clearly failing. A failed contract is seen as a black eye for a Procurement department.
The law of unexpected consequences makes this situation play out like this: when the vendor relationship is wrong, after six months you only have few workers (5?) and a lot of problems; by the one-year mark you have reluctantly expanded (perhaps to 15) but productivity is too low and quality is poor; between the 2nd and 3rd year you expand the failing group (now 50?) and spend most of your time in arguments and recriminations (is the pricing too low, are requirements unrealistic, have both sides failed to meet their responsibilities?). By refusing to admit failure early, the "rebuilding stage" is put off for years and a frustrated and exhausted staff tries to make things right in the 2nd (or 3rd?) contract.
Outsourcing is like any other relationship. When it's not working well, it needs to be fixed, even if that fix means starting again with a different partner. Re-sourcing can be painful, but not as painful as living with a failed program. Remember, re-sourcing isn't a failure, there are times when it is the shortest path to a successful outsourcing program.