Ignore the 'Social Factor' in Outsourcing Deals at Your Peril, Finds New LogicaCMG Study

A new study by LogicaCMG, based on a survey conducted by IDC, finds that more than one third (36%) of major outsourcing deals that included redeployment or a transfer of personnel run into problems because organisations fail to understand the importance of the 'social factor'.  The 'social factor' takes into account internal communications, redeployment within the IT department, and the transfer of personnel to the service providers and the provision of a clear roadmap for staff about the future of their employment.

The survey by IDC looked at the attitudes of 200 senior decision-makers in large companies in France, the UK, and Germany towards success factors in outsourcing and the issues that lead to termination, cancellation, or non-renewal of contracts.

The study found that the two main selection criteria when choosing a service provider remain price and technical skills, but that trust and the ability of service providers to communicate effectively with employees are increasingly important.  In the case of application management in particular, maintaining critical knowledge and skills in-house is essential and the question of personnel transfers becomes even more important.

The biggest challenges around managing the social factor of outsourcing deals relate to lack of communication with the company's employees.  In particular, 34% of companies find that the biggest problem is getting employees to accept the move towards an outsourcing agreement.  The difficulty in giving employees future prospects were cited by 24% of companies.  Paradoxically, this is the factor that is most important to employees and that will often determine the success or failure of a project.

Andrew de Cleyn, senior vice president, global service delivery at LogicaCMG explains: 'The social aspects of outsourcing arrangements, particularly employee communications, must be approached with care.  At a European level more than one third of contracts that included redeployment or a transfer of personnel ran into problems because of lack of preparation.  For 15% of the companies surveyed, the result was termination or cancellation of the project.

'This can have major consequences for a company that has already taken some steps towards outsourcing.  Implementing an outsourcing contract with a transfer of personnel is complex, and recent changes to Transfer of Undertaking and Protection of Employment (TUPE) regulations in the UK mean that staff have more choices and rights than they had in the past.  This is a time when social conflicts have the potential to cause a delay in signature of the contract.'

Andrew de Cleyn continues: 'Given the importance of the social factor to successful outsourcing contracts, it is vital to get the communication right.  It is necessary to reassure employees and to give them a clear roadmap of future prospects, particularly when a transfer of personnel is taking place on a voluntary basis.  The ability of the service provider to help with this process is the key to success: a joint communication plan needs to be prepared at the beginning of the project.  As part of this the company and the service provider need to paint a picture of the new structure, its business culture and geographic location.'

The collaboration between company, service provider, and employees is one element of the trust that is of increasing importance in outsourcing arrangements in Europe.  The IDC study found that trust is the differentiator for 84% of companies when selecting an outsourcing partner, and outlines the Six Pillars of Trust in an outsourcing relationship:

- The transparency of the service provider.

- An organised relational model with clearly defined responsibilities.

- Knowledge of the service provider's organization.

- Reactivity to every challenge.

- The ability to offer advice before and throughout the service.

- Geographic proximity.

Andrew de Cleyn concludes: 'Companies no longer hesitate to outsource an ever-increasing part of their information systems and outsourcing is viewed as a lever for change and long-term performance.  However, companies do not necessarily take into consideration the most important selection criteria, such as trust and the ability to communicate collaboratively with employees.  Failure to communicate may at times result in failure to renew contracts or even outright termination.  We recommend that companies begin to use a new provider evaluation grid when choosing suppliers that relates to the Six Pillars of Trust.'

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