It was 25 years back when the first corporation thought of this bright idea of farming out part of its
IT department to somebody else. They called it time-sharing, and it was supposed to cut costs dramatically.
These days, the hot money-saver is off-loading Internet-related functions to application service providers
(ASPs) that rent out software applications. Between the two, businesses experimented with giant agreements
that saw entire technology operations shift to outside companies.
No matter what the current term, the basic concept is outsourcing. And seeing as we've had a quarter century
to work out the kinks, one would think that by now it would be a trouble-free, fill-in-the-blanks process.
But that would be wrong. Outsourcing, it seems, is one place where it's a snap for history to repeat itself—with
some calamitous results. While many companies have undoubtedly saved money, several others
have seen costs spiral, quality plummet or, worst of all, IT operations crash. Why is it that this
seemingly simple idea has spawned so many disaster stories?
The plain truth is that outsourcers commonly repeat a painful learning cycle every time a new technology
gets outsourced. Because it can take years for both outsourcers and their customers to learn a technology and
understand how best to manage it within the scope of the outsourcing agreement, they often make mistakes that
have long-term effects. For example, when technology is new—such as customer relationship management and
supply chain management—outsourcers often under price their offerings to such a degree that they either
go out of business or are forced to cut back on service. Customers, who mistakenly think that outsourcers
are the experts in any technology, often do not know how to protect themselves from bad deals. The importance of
Vendor Evaluation can not be overemphasized.
When outsourcers began to offer the maintenance of desktop PCs for the first time, a multitude of outsourcing
companies sprang up to meet this demand. Eager for customers, they priced their services too low. A shakeout
followed, leaving only a handful of companies and a host of dissatisfied customers. But as both customers
and vendors gained experience with how to best structure desktop deals, satisfaction levels rose.
It is noticeable that so far, the ASP phenomenon is following the same trajectory. A year or two ago, new
ASPs were appearing overnight. Today, the ASP consolidation is well under way as both businesses and
customers get smart about how to handle these new projects. In the meantime, mistakes happen.
Given the high margin for error, why would anyone outsource a new technology? Simply put, you may
have no other choice. Cycle times are shorter than ever, money is tight and skilled personnel are hard to find.
For many companies, outsourcing offers an attractive path around these constraints. But regardless of why you
outsource, mistakes happen—and often enough for us to compile a list of five classic outsourcing blunders.
Here's hoping that you can learn from a host of others' missteps.