How often do IT oursourcing deals fail? The numbers vary depending on which study is cited and what definition of failure is used. But executives initiating or tending to an IT outsourcing relationship must be constantly sobered by the fact that, from a purely statistical viewpoint, their deal stands about as much chance of failing as of succeeding.
Millions of dollars are often in play in an IT outsourcing deal, along with the hopes of management and investors in the business transformation that outsourcing can deliver. So it is to everyone's benefit to have the means in place to deal with the problems which, perhaps inevitably, will occur.
However, what IT decision makers really need is not just better triage but better preventive medicine along the entire lifecycle of their outsourcing deals. Issues and challenges can appear quite different depending on where they occur in the course of a relationship. What might be a catastrophic problem in year two or three of a deal might have been only a small issue when the seeds of the problem were sown at the contract or transition stage.
Based on our experience and research, we recommend that IT outsourcing buyers take a three-part approach to maximizing the value of their IT outsourcing deal.
- Prevention. Focus on the risk mitigation capabilities and governance structures that anticipate problems before they occur and that keep an outsourcing relationship on track.
- Quick response. Develop the diagnostics and "early warning systems" that identify problems quickly and then address them before they mushroom into deal-killing catastrophes.
- Retooling. If things go badly wrong, have the mechanisms at the ready to bring the parties together, re-examine the original deal intent and retool or refresh the relationship where possible.