KPMG Global Survey: Failed outsourcing deals blamed on people, not SLAs

Successful outsourcing isn't about tight contracts and meeting service-level agreements (SLA).  It is strictly a people business and is based on relationships between provider and customer, according to the first global outsourcing survey to be undertaken by KPMG LLC.  And when these relationships go bad, the result is spiralling costs.  Overall, some 60% of respondents claimed that problems with their outsourcing provider are almost always people-related.

Head of KPMG's IT advisory, Egidio Zarella, said this is because sourcing arrangements are not managed correctly; 79% of survey respondents did not even know the cost of selecting an outsourcing provider.

Zarella said 50% of respondents take longer than six months to complete the request for proposals (RFP) part of the process, while 30% take longer than nine months. During that time, the market shifts.

He said organizations are in the dark when it came to measuring the value of outsourcing deals, although 89% of respondents plan to increase their current level of outsourcing.  In fact, a formal strategic measurement framework does not support 42% of outsourcing arrangements.

More than 650 organizations in 32 countries participated in the survey, with over 60% of respondents C-level executives. Nearly half of respondents have an annual turnover of more than $1 billion. Sourcing is completely a people's business; only 13% blamed technology when the contract went bad,' he said.

'It's not about contracts but having the right people; the worst offenders are those with massive SLAs; they fail to keep it simple.’  Typically, costs will initially go down when organizations outsource, but two years later, costs are higher than they were before outsourcing.'

Zarella says it takes time and effort to manage an outsourcing provider.  He said deals should be monitored every quarter with a 10-point checklist, and companies should check all change requests that go to the vendor.  He believes organizations need to appoint a full-time 'relationship manager' to remove dependencies on consultants.

'Because this is a new title, there is a serious shortage of people with vendor management skills.  The days of a contract manager working in accounts payable is long gone.  Also the person that does the deal and develops the contract should not be the person managing it afterwards,' Zarella explained.

The study supports earlier Gartner Inc. research that claims IT departments are shrinking as IT professionals move into specialist roles such as vendor management.  In the future, an IT career will not be about technology but rather about managing a range of service providers.

By 2010, IT organizations in large and midsize companies will be 30% smaller, according to Diane Morello, Vice President of research at Gartner.  'Partly driving this trend is outsourcing and IT automation,' she said.

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