A new report has revealed that poor contract management on behalf of clients is a major reason for dissatisfaction with outsourcing – according to the very people buying and managing outsourcing agreements.
The report from TPI, the global outsourcing advisory firm, found that 61% of outsourcing buyers admitted to placing more emphasis on setting up their outsourcing contract than on managing it, making it a major factor for dissatisfaction.
With the benefit of hindsight, 52% of respondents stated that their own unrealistic expectations were often another key barrier to the success of the arrangement. The report found that outsourcing contracts typically deliver 28 percent less value than originally anticipated, with many companies restructuring their agreements within as little as 18 months.
Stuart Harris, Partner at TPI, said: “Contrary to popular belief, many companies blame themselves at least as much as the service providers for their own dissatisfaction with outsourcing relationships. Moreover, problems encountered with outsourcing contracts prior to renegotiations often stem from a lack of clarity between the client and the service provider about the scope of the services to be provided – not the quality of the services themselves.
“It is critical for buyers to recognise that the manner in which an outsourcing relationship is managed is as important as forging the relationship at the outset – if not more so.”
Almost half (49%) of the international companies surveyed by TPI said their inexperience in managing outsourcing had hindered their success to date. Almost the same number (46%) had failed to fully implement a proper governance structure and 35% had neglected to convene for regular meetings of governance boards.
In line with buyers recognising the impact of their own failings on outsourcing success, few choose to sever the relationships with their existing providers when they encounter problems. While 42% said they considered soliciting bids from other service providers as part of the renegotiation process, only 18% actually did so. Similarly, 41% said they considered bringing some of their outsourced work back in-house, but only 13% followed through.
And 46% of those surveyed increased the contract term at renegotiation, and 59% reported that their revised contract entailed a broader scope than the original, with 13% describing this increase as significant. Among those surveyed, 56% indicated that renegotiating their contracts had proved effective; a further 21% said it was too early to tell.