Ten deadly mistakes of outsourcing and how to avoid them

Deadly Mistake Nine: Relying on the Outsourcing Provider to Impose Behavioral Change

Outsourcing works best when it causes minimal disruption to your business and organization. The mere act of outsourcing usually represents a significant change in the status quo. But some companies make the

mistake of using outsourcing as a vehicle to impose drastic changes in how their organization operates and rely on the outsourcing provider to enforce these changes.

The practice of service level management illustrates this mistake. Before outsourcing, a company may have had few formal mechanisms in place to document user requirements, service level expectations, charges for services and so on. When a business process is outsourced, the company expects the provider to implement a more disciplined and controlled type of process. But they fail to consult end users and get buy-in from them for the changes in the process. End users quickly see the outsourcing vendor as an enemy trying to impose rules and procedures on them that they neither understand nor want. Soon users may openly revolt or act subversively to undermine the whole outsourcing arrangement.

Expecting outsiders to act alone to change your organization is a recipe for failure. Strong internal leadership and proactive change management interventions need to be employed if behavior change is to be successfully effected. Training and incentives must be offered to users — they need to see a clear benefit for their efforts. Many senior managers may prefer to use the outsourcing provider as a blunt weapon to ram through change but to succeed they will instead need to be involved in a ‘hands on’ fashion to address user concerns, sort out problems and keep the peace internally until the benefits of the new way of operating begin to be realized. The bottom line is that you can use outsourcing as a tool to support organizational change but you can’t outsource the responsibility for making the change happen.

Deadly Sin Ten: Falling into the Mutual Deception Trap

The last deadly sin involves turning the contract negotiation into a win-lose contest with the outsourcing provider. Contract negotiation is a process that can easily bring out the competitive and adversarial sides of the participants. Armies of lawyers and accountants from both sides must become involved and these specialists can take over the process if allowed, turning it into a hostile win-lose exercise. For some opportunistic vendors, the lock-in process begins with the contract negotiation. The customer has already invested a great deal of time and resources in the outsourcing process by this point and a deal-oriented vendor will try to take as much advantage of this situation as they can. And many buyers fall prey to this same kind of asymmetrical behavior.

Instead of open and honest discussion and negotiation of requirements and commitments, the negotiation process devolves into a series of mutual deception tactics. While this can happen in any area of the deliberations, there are a few specific issues around which it is most likely to arise.

One common deception involves costs. This happens when the buyer attempts to get the outsourcing vendor to commit to unreasonably high cost reduction targets or when the seller tries to take advantage of buyer inefficiencies in the process to be outsourced to ‘low ball’ the cost reduction commitments it makes so that it can reap the majority of the cost benefits for itself. Open disclosure of financials and operating costs can help keep the negotiations on a productive track.

Another common deception involves capabilities. The buyer exaggerates the condition and value of the assets and people it will be transferring over to the provider while the seller promises to maintain and improve these assets while having no intention of making any significant investments in them. Using independent third part benchmarking services and advisors can help to keep both sides honest by providing a fair and mutually accepted measure of quality and a realistic assessment of the investments and improvements likely needed to maintain capabilities as the relationship progresses.

A last prevalent deception is the stated desire for ‘partnership’- sharing common goals and equitably splitting risks and rewards – that each party earnestly proclaims to the other. But beneath the surface, the buyer tirelessly attempts to negotiate the most favorable terms it can or wields its clout to wring free services from the provider, even to the detriment of its so-called ‘partner’ while the seller does likewise — relentlessly searching for opportunities to price gouge its ‘partner’ for any services not explicitly specified in the contract. Joint ownership and investment and gain sharing relationships can help to enable collaborative behavior during the negotiation process and once the relationship begins.


Outsourcing is a common and accepted part of how companies operate today. But the decision to outsource remains a strategic one, even when what’s being outsourced is not. It is critical therefore, to pursue outsourcing for the right reasons and in the right ways in order to realize the benefits you anticipate. Make sure you fully understand the problem and have seriously weighed all possible solutions to it besides outsourcing before proceeding. Be rigorous in evaluating vendor capabilities — make certain you validate that providers can deliver what you require in your specific context. Give as much attention to building an effective working relationship with your outsourcing provider as you do to negotiating the contract. Avoid deal-making contests and win-lose brinksmanship. Remember that even if you do everything right leading up to signing an agreement, success may still not be ensured. The hardest part — implementation – remains. To succeed you will need to gain acceptance for outsourcing throughout your entire organization, change how you operate, maintain a viable and productive working relationship with your outsourcing provider and anticipate and respond to unexpected changes in demand for and supply of services throughout the life of your relationship.

With a list of success factors like these, no wonder so many outsourcing relationships fail to deliver to expectations. Still sure you want to outsource?


Tony DiRomualdo is with Next Generation Consulting.

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