Growing dissatisfaction over the quality of outsourced services is resulting in a record number of renegotiations and early terminations of job contracts, according to a recent survey by IDC Canada.
Titled Reaching Satisfying Levels: A progress Update on Customers’ Satisfaction with Outsourcers, the study revisited a similar 2004 report and found that over 50 per cent of clients are neutral, dissatisfied or very dissatisfied with their outsourcing experience – a marked upsurge from the 33 per cent dissatisfaction level of three years ago.
“There’s a wide gap between the expectations outsourcing clients have and the kind of service they get,” says Mark Schrutt, research manager of outsourcing services for IDC Canada.
In 2004, the consultancy firm queried 100 Canadian companies on their experiences with infrastructure outsourcing projects.
The study concentrated on issues such as: management of technology, accessibility to resources, skills and know how, flexibility, adherence to contract and cost.
When IDC went back to these companies recently, Schrutt said they found a sharp downturn in satisfaction levels. “In 2004, about 73 per cent of the companies reported they were satisfied, today there was about only 50 per cent.”
Schrutt did not mention the average length of contracts or their dollar value but he said researchers found a 35 per cent decrease in the duration of projects.
He said the failure of vendors to provide satisfactory level of services has resulted in a number of renegotiations and early termination of contracts as well as a shift towards shorter and smaller dollar-value contracts.
This follows a trend reported by IDC last year. Back then, the consultancy firm said big deals valued between US$500 million to US$1 billion were on a decline while projects for less than US$250 million were on the rise.
The IDC analyst believes the trend towards abbreviated contracts is indicative of the businesses’ desire for flexibility and adaptability.
“I think companies are realizing that it’s a two way street and are now taking steps to be responsible for their own satisfaction over their outsourcing adventures.”
Schrutt said, in the early days of outsourcing there was a perception that one outsource service provider was suppose to provide services on various areas. Companies now realize that to obtain flexibility and reduce risk, they have to cut contract sizes and divvy them up to the best provider.
“This could actually be a positive trend for the outsourcing industry and will ultimately lead to improved customer satisfaction,” Schrutt said.
The spike in outsourcing dissatisfaction level is “not surprising,” according to Reuven Cohen, founder and technologist of Enomaly, a Toronto-based outsourcing services consultancy firm.
He said organizations often have bad experiences with off-shore services providers “because of communication difficulties and cultural differences.”
“An outsourced service from India or China might be a lot cheaper that what you’d get from Canada, but the project could take a hundred times longer,” Cohen said.
He blamed a lot of botched projects on the over eagerness of some vendors to land a deal. “They’ll tell clients they can deliver on time because they don’t want to be perceived as incapable or don’t want to lose a customer.”
Cohen said some North American vendors are more candid with their project assessments, which is what customers are looking for. “I’d rather be told a project can’t be done in six months than wait around for 12 months not knowing when the job will be finished.”
Service issues and failure to adhere to agreements are indicative of badly organized vendors trying to take on sizeable or very demanding projects, says Michael McCabe, director of communication of the New York office of India-headquartered global outsource vendor Tata Consultancy Services (TCS).
“Some smaller vendors have not perfected their procedures and best practices,” McCabe said.
Despite IDC’s survey results, TCS has in recent years been experiencing quite the opposite, he said. “Nearly 95 per cent of our clients are repeat customers and at least six of our contracts last year ran well above the US$100 million level.”
McCabe agrees with Schrutt’s assessment that outsourcing is a two way street.
“Vendors can only deliver as well as the information they received,” he said.
McCabe suggests that clients provide outsourcing service providers with adequate information on the project and what is expected of the vendor.
He said this should be accompanied with the setting up regular and easily accessible communication channels and a periodic check-up on how the project is going along.