Why Outsourcing Fails – Top 5 Reasons
Introduction
Outsourcing has proven itself time and time again as an effective mechanism in reducing costs, vastly through making use of lower wages offshore however, many organisations fail to ever realise that value. Catalysed by the pandemic and in recent year with remote working trends organisations have now got the ability to enable outsourcing yet often still find themselves not being able to realise the anticipated process efficiencies or cost benefits, and are left wondering how other have been able to turn it into stealth weapons allowing them to achieve competitive advantage! The primary reason for this is the majority of firms fail to understand the underlying factors that cause outsourcing to fail be it onshore or offshore.
The 5 reasons outsourcing fails..
1. Sourcing doesn’t align with the business aims and objectives..
- Objectives discount the time to value required and assume teams will understand processes, functions and reasoning the same as them.
- Objectives address short term goals as opposed to the long term plan. Departments in large organisations often work in silos and many have their solutions thrown out when objectives are realigned resulting in no cost saving.
- Opposing objectives example where one maybe to increase customer experience and the other to reduce costs, resulting in farmed experiences which neither add value to the customer or the company.
- Changing objectives this is more common in smaller projects and startups that miss a clear objective or are building before validating.
2. Teams and customers don’t adopt sources solution..
- Organisations quite often know exactly what they want to build and the steps needed to be taken to build the proposed solution however, fail to account for human behaviour, their ability to adapt to change, the time it takes to adopt the change and the journey to achieve their desired efficiency. Most often than none, this is never fully achieved but not due to outsourcing but product management failure or lack of it completely, (learn more about our hybrid engineering service) all of which are once again management failures.
- On the other hand, the result of lack of adoption can also be due to the organisations inability to communicate the solutions value effectively, whether this be internally to teams or externally to customers. More often than not the project owners tend to pitch complexity as opposed to simplicity in order to make themselves look clever, an telltale sign of this is use of jargon not understood by the outsourced team.
- Lastly, building on top of the point of communication, there is the requirement for validation, does the proposed solution actually deliver value to the customer? Is It something they need? Is there product fit? Unfortunately, once again this is due to organisational dysfunction and lack of product management processes again. In short architects build houses that sell, individuals build houses by personal preference and learning on the job. All the more reason to adopt hybrid engineering models!
3. Vendor relationships become very transactional
- RFP’s often focus on technological objectives yet scouring practices focus on cost objectives with technological objectives then negotiated in engagement contracts.This further stops the vendor to exclude considerations for innovation and focus on just meeting the requested criteria.
- Strong focus on the base price per unit, the dollar rate making both defaulting in outsourced vendors/contractors to feel commoditised.
- Organisations fail to provide actual data or documentation of what they require to avoid costs rising and attempt to supply the minimal information required, the only outcome of this is projects ending up going longer than prescribed.
- Negotiations are often just rate reduction battles for the same service level which results in vendors cutting back investment in management and support structures to maintain their margins. Resulting in change requests being used by bargaining chips at a later stage.
4. Vendor Mismatch
This is by far one of the biggest reason organisations fail, more often than not, organisations will attempt to recruit, train and hire offshore themselves however due to the increased employee employer distance fails completely when cultures, assumptions, support structures are misaligned or even missing.
The second scenario is where an organisation chooses to work directly with a company with no onshore support beyond an account manager or sales person resulting in missing standard practises that may be expected, excessive communication.
5. Indirect, Direct Discrimination
Often individuals within teams that have had bad past experiences with outsourced resources or have general difficulty socialising with particular demographics can end up indirectly discriminating against outsourced resources. This maybe in the form of excessive questioning, over explanation, patronisation, dismissiveness, belltiling of accomplishments, character assassination to others, lecturing, giving direct orders, stonewalling, walking out and gaslighting situations between colleagues. That said the signs of the above may be subtle and not so apparent but if felt and heard loud and clear on by the resource. This is constantly causing resources to consider twice before being placed in a company, their argument is often that the onshore staff would never be treated in this manner why should they thus resulting in sudden disappearances of resources. This is particularly experienced by resources of South Asian, South East Asian, Eastern European and African resources.
Conclusion
To conclude a failure to make outsourcing work is a failure in the management surrounding it. The failure can be catalysed by 5 key factors. The first being sourcing doesn’t align with business aims and objective, the second, stakeholders not adopting the built solution, the third, vendor relationships becoming very transactional, the fourth, vendor mismatch and last but not least discrimination. Now the obvious course of action is to work backwards and ensure these factors are mitigated however this just reduces the risk of failure succeeding is another conversation all together. Read more to find out about how to make outsourcing succeed.
