Failed outsourcing deals result from a combination of unrealistic expectations, poor communication and difficulties getting the client company and vendor to work together, said Geraldine Fox, global outsourcing practice leader at Compass Management Consultants, speaking at EDGE magazine’s outsourcing

panel held last month in Toronto.

Many firms farm out pieces of their business they are unable to achieve much success with themselves, said Fox at the event called When Outsourcing becomes SmartSourcing. (The EDGE breakfast series event is produced by the ITBusiness Group.)

Fox said in no time, though, these client realize these troubled projects cannot be managed “”from a distance.””

Illustrating this impractical approach to outsourcing was a trend a few years ago in which huge, well-publicized deals involved client firms that were actually in “”a bit of a financial pickle”” and simply wanted to cut costs, explained Fox. She said the arrangements had little to do with cementing partner relationships or producing improved products.

Although companies should regard outsourced work as important, “”a common complaint from clients is they never get to interface”” with the people who are providing this value-added service and end up dealing strictly with technical people, Fox said.

Operational meetings between staff working in data centres and on help desks tend to occur, she explained, but committee meetings between higher level executives on both sides are more scarce. In 80 per cent of cases, Compass finds clients “”always have something more important to do in the company.””

Cost savings not realized

Mismanagement of the relationship and a lack of communication lead to client perceptions that “”money is going out of the business,”” and the external team working on a project is not performing as well as the internal group had, Fox added.

She said the vendor, on the other side, begins to feel unappreciated and misunderstood. According to statistics Fox quoted from a Carnegie Mellon report on outsourcing, 53 per cent of all outsourcing customers have renegotiated a contract. In 25 per cent of these cases, the original service provider lost the account.

Referring to a Lacity-Willcocks survey, Fox noted that only 53 per cent of surveyed companies reported some, rather than significant, cost savings. Others achieved no financial savings at all and in fact saw costs increase due to contract loopholes.

Other issues companies must consider before they sign a contract concern security and privacy of data connected to a project or a service being outsourced.

“”The fundamental issue is who will be accountable for the security,”” said Donald Hicks, a partner at law firm Gowling Lafleur Henderson LLP in Toronto and part of a panel discussion of consultants and clients involved in outsourcing.

In his view, establishing security policies is always the responsibility of the customer, whereas deciding how to meet these objectives is the outsourcing provider’s job.

This is a topic of importance to Canadian organizations that contract out work to American vendors. Take the caseof the B.C. government, for instance, which is embroiled in “”a very large and important debate on implications of the U.S. Patriot Act”” because it’s outsourcing several functions stateside, he said.

The question is whether the U.S. government can gain access to Canadian data under the anti-terrorist legislation.

The fate of staff following a move to outsourcing was also tackled by the panel of CIOs.

The University Health Network, one of Canada’s teaching hospitals, has been outsourcing for 10 years and gone through three major contracts with providers such as HP, Compaq and Digital Equipment.

Career growth

Cara Flemming, director of risk management and controller, has struck a deal with outsourcing vendors that they seek permission before hiring the hospital’s staff. “”You don’t want surprises,”” she said.

Even if IT workers of a client company begin working for the outsourcer assuming control of certain projects, the advantage is they have “”already developed these relationships and speak the same language,”” making it unnecessary that they all sit beside one another, Michael Taylor, director, outsourcing client solutions at RBC global services in Toronto, said.

Some clients redeploy staff to where their skills can most benefit the company, he said.

For Hydro One Inc., CIO Hitesh Seth found it best to seek an agreement from the union on sensitive matters related to staff movement when the Toronto-based utility outsourced IT and business processes two years ago to Cap Gemini in a 10-year contract.

Union talks culminated in the decision that Hydro One staff shifting to Cap Gemini “”enjoy career growth”” such as gaining experience working with multiple clients that was not possible through their original employer, said Seth.

He added it was agreed critical staff were to handle the Hydro One account for a certain length of time.

Over the course of the contract, Hydro One staff has been pulled from strategic functions – such as “”dealing with outages and availability and desktop calls”” – and begun overseeing Cap Gemini as it directly handled these activities, a move that Seth described as “”a little bit of a challenge and a mind shift.””

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