Is Outsourcing Broken?

Hardly a week goes by without another outsourcing failure hitting the news- The stories are not restricted to IT or BPO sourcing and even though offshore outsourcing failures attract a disproportionate share of attention, there have been an equal number of failures onshore. It is not surprising that failures in the public sector (both in the UK and the US) are widely reported. What is surprising are the number of failures in the normally more media shy private sector  that are either in the press or talked about within the industry. Certainly a number of recent court cases have kept consultants and lawyers particularly busy.

A quick Google search will quote survey after survey stating the number of CXO's that believe more outsourcing contracts fail than succeed and many more articles suggesting recipes for success.  Interestingly, many of these surveys are sponsored by consultancies providing various flavours of sourcing and outsourcing advice!  However, finding a list of outsourcing success stories is much harder. Is this because failure makes better copy than success or is there something fundamentally wrong with the outsourcing industry?

Certainly compared to other industries (with the obvious exception of financial services) outsourcing continues to gets a bad press. The dichotomy is that this bad press is not new. Outsourcing has been popular in the UK since the 1990's. Starting from humble beginnings with the outsourcing of non-core activities in the IT Department there are now IT departments that rely on their outsourcer(s) for core and critical services with only a handful of internal resources left to 'manage their supplier(s)'. Outsourcing has now spread to many other back office functions in the private sector. It is thought that there is hardly a FTSE 100 company that is now not dependent on the outsourcing industry for the supply of key services. In the public sector the range of outsourced services provided is even broader and likely to expand further. Even a stay in prison may now be the responsibility of an outsourcing supplier.

In the UK more IT staff are employed by IT companies than are employed by end users. Although the UK is leading the outsourcing rush in Europe, the deepening economic recession has lowered the resistance to outsourcing in many European countries. This is going to be a major growth area over the coming years as the outsourcing boom moves from Northern Europe to Southern Europe.

The outsourcing jigsaw is further complicated as service delivery has become global. More and more countries are now promoting themselves as outsourcing destinations. At a recent conference there were 33 trade delegations touting for business. Iceland as a potential offshore destination did stretch the imagination. A whole industry has grown up helping to promote individual countries regions and sometimes even towns. India is still the most quoted destination with nearly 5 per cent of GDP and 3 million people dependent on the industry. Even airlines are flying to new destinations as a result of the outsourcing boom.

The key question that this series of articles will try and answer is why has outsourcing become so popular when the continued criticism will not go away? Is outsourcing broken and it is just taking the market a long time to realise? Or is the fundamental concept sound and the key problem is that the outsourcing industry is still immature and what we are seeing are the normal growing pains of any new industry?

This series of articles will explore whether the growth of outsourcing is based on a sustainable model and how new disruptive technologies could impact the future of the outsourcing industry. As a CIO recently stated "The problem with the outsourcing industry as average is usually as good as it gets" Is this true and if yes will it change?

I will be exploring a number of themes. Firstly, starting with the basic question is the economic model behind outsourcing fatally flawed? Can outsourcing provide competitive advantage or disadvantage for the majority of its users. Are there areas of outsourcing where making the basic economics work easier than others? Are there areas to avoid?

Secondly, I will be taking a critical look at whether or not the outsourcing users are also culpable. How clear is the business case for outsourcing? How well is this communicated internally and externally with potential suppliers? In essence outsourcing is a management of change exercise. So are the basic change management principles being followed or is the rush to outsource blinding users to doing the obvious. Procurement will not escape the microscope. Does procurement normally help or hinder the process? Are the normal procurement processes relevant or workable when constructing a successful and sustainable outsourcing relationship?

The rush to offshore also needs to be critically examined. Why is the industry embracing the offshore phenomenon? Of course, for many it adds glamour to the industry but is the added complexity just one step too far? Is the offshore boom adding to the woes of the industry and are some organisations using the offshore card to paper over the rapidly growing outsourcing cracks, in an attempt to make the savings originally promised and regain lost credibility with their peer group internally within their organisation?

How culpable are outsourcing suppliers to the current state of mediocrity? Do they turn down deals that in their commercial hearts are less than sound; or is there a genuine belief that they can make a real difference?  Do suppliers have the necessary breadth of skills to provide a level of service that a user cannot provide for themselves?

The outsourcing industry has also spawned a range of other 'experts' that provide advice and guidance. These include advisors, lawyers, analysts and a range of contractors. Do these experts help or hinder the successful growth of the industry?

And finally, if outsourcing has struggled to succeed in a relatively stable environment what will the impact of cloud have on the industry and the people within it from CIO to salesman?