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Why Outsourcing often does not deliver value

Why are the benefits of outsourcing only rarely achieved

In a recent Dun & Bradstreet report they noted that “25 percent of all outsourcing fails” completely and over 50% of all outsource deals do not deliver any substantive benefit at all. Outsourcing failures are often the result of companies rushing into transactions with unrealistic or unsubstantiated expectations of cost savings and performance improvements that cannot be met because the client does not communicate its requirements in a clear way either internally or to the potential vendors. The outsourcing of many business processes besides IT also has the same less-than-stellar results – call centre problems are almost a
cause célèbre. Some people believe you need hundreds of pages of detailed specifications as complex as War and Peace to make outsourcing work at all tying up the whole thing in a tight contract that covers every possibility – clearly not a practical proposition.

The main causes of failure in an outsource in my view are :

  • The buyer’s unclear expectations up front as to its objectives – poorly defined goals and requirements and a lack of outsourcing contract management capability are two of the top reasons for IT outsourcing failures.
  • The parties’ interests maybe aligned up front but become misaligned as the buyer’s business environment or needs change over time (as they will inevitably)
  • The provider’s poor performance against service level agreements – which in some cases is dramatic.
  • The parties do not consider each other’s interests to ensure their relationship is mutually beneficial – the naturally conflicting objectives and the need for vendors to make money are often not really internalised by clients.
  • Poor governance structure for managing the ongoing relationship – in some cases this is left just to account management.
  • Poor cultural fit compatibility of the parties – asymmetric sizes between client and vendor as well.
  • Poor communication; the parties do not proactively share necessary information with each other – the relationship deteriorates rapidly when information is hidden

In another recent work I have been involved with there have been several instances of buyers and outsourcers in direct conflict and not inclined to acknowledge their own influence on outsourcing failures. The blame game starting early on in the relationship. Hidden costs, high staff turnover and poor cross-cultural communications are also some of the key causes of offshore outsourcing failures. Another big source of outsourcing failures is the way that outsourcing vendors tend to “sell high,” pitching their projects to the CEO rather than to the IT staff and managers who really know how to run the business – this enrolment of ‘C’ level managers is often the source of great difficulty when the real discussions take place. They have bought into a process based on high level aphorism that have little practical value on the street corner.

If you choose to look at global outsourcing as an opportunity, as numerous companies do, you may quickly realize that making it work requires a carefully planned and orchestrated approach. I suggest, though, that the current failure rate of performance improvement in outsourcing is only tolerated because the full extent of failure is disguised; few organizations or individuals are willing to admit the extent of failure on a major outsource contract. Failing at this game can have career damaging consequences.

See more at Bizface in the Outsourcing forum

Will outsourcing be a victim of the credit crunch

Outsourcing and the Credit crunch – will reality prevail?

So we are told that IT heads are keeping the faith in outsourcing (survey computer week) despite the sight of bedraggled refinery workers picketing outside factory gates carrying placards with ‘British Jobs for British Workers’. A slight whiff of fear is evident in the Outsource market as the implications of what these workers were saying quickly sunk in. What they were complaining about was not just about jobs being given to others but the way it was being done – using labour arbitrage – i.e. cheap labour in a situation not too dissimilar to the ‘globalisation’ of the IT services market. This is where executives scour the world to save a few cents on labour cost and when the advantage is gone move onto the next cheap site of well disciplined labour. Globalisation in this context meaning the ability to transfer work without hindrance to the area that is at that moment the cheapest – then moving on. Surfing the world to where there exists a compliant government to ensure the unions do not get out of hand and rock the economic boat and get in the way of more profit.

I think it is interesting that already attention is starting to switch from India as a supplier of commodity services for example to countries such as the Ukraine. This trend partially as a result of increased labour cost in India where top level graduates are not putting up with low wages in call centres for handling routine service calls from the UK. Wage inflation, currency movement, and intense competition for the low end commodity services is driving out the advantage they once had. What they will find is that the train moves on – just as it did in the manufacturing industry some years back – their initiatives to attempt to move away from commodity is a sign of this.

Keeping faith with globalisation in outsourcing or off-shoring means carrying on the illusion of creating better organisations and delivering illusionary savings by shipping work to low cost areas – deskilling the local workforce and removing opportunities for entrants in the IT professions. The refinery workers are reflecting this and they are waking up to what the notion of globalisation really means – it is not abstract but has real consequences – particularly in periods of economic stress. They are resisting and although we may disagree with some of the xenophobia – they are shouting out that they are stakeholders in our society every bit as important as managers and executives who assume so much control over their lives and livelihoods.

Royston

Labour Party to clone Tony Blair before next election to ensure New Labour for Generations to come

Labour Party to clone Tony Blair before next election to ensure New Labour for Generations to come

Having had a disastrous handover to comrade Brown – in fact those of us in the know when the question of whether Tony or Brown should head up the Labour Party and fight for a new labour government at that time knew Brown would probably never win the first labour election victory. His weaknesses at an early time being evident to all: member of the living dead, no charisma (not surprising as member of living dead), and an unfortunate speaking tic (where the jaw is dropped at the end of each sentence ) that drives one mad. No one doubted his intellect, at least compared with the rest of the Labour Muppets around at that time, but what he lacked was leadership – Brown for all his ability, is a manager, not a leader – no one will identify or aspire to be him or, will internalise his pronouncements and make them their own – In the end this will do for him even if he manages to divert attention from the mess he got us into after ten years in charge at No11 by convincing autocratic millionaire Arab kings to fund his public sector spending splurge. It must be said that we want to be led like sheep in this country, and that’s why Tony Blair was so successful – he talked a load of crap – but did this so well and effectively that we thought it was eminently sensible to follow him to the back of beyond – i.e. Iraq and Afghanistan.

Now we are faced with another year or two of Brother Brown burying this country in debt and then what may be an election defeat for him (even though the labour party has built up quite a client state over the last ten years) the labour party has cooked up a ruse whereby in the future we can ensure a constant supply of party leaders in the mould of good ol Tony. Now personally I find this the kind of hell my Sunday School teacher talked about (can you imagine Tony being on the Throne for ever its almost as bad as thinking of Madge or Charles on the Throne) but almost a logical extension with this blind following of ever more outrageous claims made by scientists in the area of cloning, ’embryo’ research and animal experimentation.

As a stake inoculation I might point out I have several postgraduate science degrees and so know the game quite well when it comes to getting funding for, or permission to experiment in, areas of dubious ethical and scientific value. There is an inevitable testing of the boundaries by scientists researching at the limits of relevancy into some aspects of human health. We have over the last few years seen a procession of eminent scientists telling us poor mortals that a new area of research must be allowed in order that some disease or other will be banished, couples helped to conceive, or needed in order for the brain drain of our top scientists to be prevented. Now the arguments or discursive practices being deployed is never ‘oh we need the Dosh to carry out some PhD research’ because we need the grant money, ‘its’ always posed as: needed to find a cure for genetic diseases, or childhood diseases (usually muscular dystrophy or cystic fibrosis), possibly cancer which is always good for a bob or two, or helping childless couples conceive.

What is disturbing is not obvious good intentions co-opted for political gain but the way this cock and bull nonsense is swallowed by politicians and how a bevy of worthies (my eminent scientists) are wheeled out of the closet to tell us we (Jo Public) should allow all this without any critical discussion. They offer vague platitudes and little critical justification other than implied self interest that we or close family will be helped by this further extension of the ability of science to play with life or to carry out revolting experiments on primates.

Elsewhere in one of the other Blogs on www.Bizface.co.uk the blogger talks about stewardship, doing something that does not have any implied gain but doing something that is right for rights sake. The extension of life for a few months, or the ability to allow someone to overcome biological constraints to conceive, is not enough justification for me to allow playing with the fabric of life. It is not the specific issue of allowing hybrid cells to be created in order to improve stem cell research, as in this case, but the systemic problem of constant leverage of ethical boundaries without informed consent and the labelling of those who raise a yellow card as latter day Luddites – or even labelling them as going beyond their brief and interfering in the secular political world. What’s at issue here is ‘issue selling’ to the public to permit an anything goes approach and we need to think more clearly about setting the bounds. An informed debate in the Commons needs to take place , not constrained by party loyalties to begin this process, as a start to an informed approach.

Some Quotes on this:

“The irony is that this secular utopianism is based on a belief in an unstoppable human ability to make a better world, while at the same time it believes that we have the right to kill unborn children and surplus old people, and to play games with the humanity of those in between.”

Anglican Bishop of Durham Rt Rev Tom Wright

“For people out there suffering from Parkinson’s disease and motor neuron disease, this is not a question of some issue about the procedure through the House of Commons. This is an issue about whether we can find the drugs that can cure their illnesses. So this is the heart of the matter.” Alan Johnson Minister of Health and Former Postman

“It is difficult to imagine a single piece of legislation which more comprehensively attacks the sanctity and dignity of human life than this particular bill.

CARDINAL Keith O’Brian

“This research has massive potential to provide treatments for serious debilitating disorders ranging from developmental abnormalities in young children, to stroke, cancer, HIV/Aids, diabetes and Parkinson’s disease, as well as better and safer treatment for infertile couples.” Medical Research Council (this was a good quote as they managed to get in all the worthy causes in one piece)

City Spivs and Speculators get paid (off) for 'risk' taking

City Spivs and Speculators get paid (off) for ‘risk’ taking

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Some years ago I was sitting in the accountancy module B212 ‘window dressing and off balance sheet techniques‘ during my Masters course when the lecturer at the time piped up that one of the biggest fears in finance was the fact that mortgages were lent long whilst money was saved or acquired from the market short. In principle short money can be called for very quickly whilst paying back a mortgage on demand is impossible. A interesting discussion took place as we considered the possibilities of savers suddenly loosing confidence and withdrawing funds to stuff under the mattress or inter-bank lending suddenly drying up and the fact that as mortgagees we would be unable to pay our loans on demand loans so all chaos could result.

Obviously I am drawn to this reminiscing from a course more than 20 years ago by this weeks events and the thought that we have actually looked into the abyss. If this loss of confidence had gone much further there is actually no way that any government could cover all of the required finance without long term fiscal consequences when looking at the proposed bailout of 700billion in the US this is clear – the figures are simply too huge – and there was (perhaps still is) a chance or a real depression. So how did we get here when the risk was well known. We have and governments are too blame here began to assume that the ongoing growth period from the mid nineties would go on forever – we believed for a short while the Brown and Bush nonsense that the boom and bust and the cyclic nature of economies was a thing of the past. Actually not many economists bought this line but there seemed to be over the last ten years a creeping complacency in the market and in the economy at large that growth would continue house prices would rise and all would continue as before – a complacency that ended a few short weeks ago.

One of the problems faced by HBOS for example was the breaking of the linkage between grannies saving, and loans being made to the newly forming families to buy their homes. Grannies tend to keep their money safe in a Bank for a rainy day – so save relatively long. More of the money that was being lent was being acquired on the wholesale market thus very short and when money becoming in short supply and loans were called in the whole circus came to an end. Coupled with this trend the window dressing of junk debt and reselling as triple A in other areas meant in some cases these inter-bank loans were unpinned by toxic and rubbish debt that could not in any case be collected. So a prediction of an accounting professor twenty years ago came all to true in a few turbulent weeks.

What is a little depressing about the saga of some of those who have fallen is they carried out these feats of financial engineering to the plaudits of their peers only a short while ago. The CEO of HBOS for example was hailed as a ‘genius’ only last year – to some extend it was rather pleasing to see a rueful former CEO contemplating the handover of his company in a garage sale to one of his former rivals. A 300 year old company sunk during his short three years at the helm – a nice achievement not unique unfortunately if you look across the water.

There is an old saying that goes ‘when the going gets tough the politicians run for cover’ and politicians on both sides of the Atlantic squarely place the blame on the city or processes such as short trading and not themselves. Not minded to the fact that their policies and management of the economic context and their abject complacency has led us to where we are now. In he UK eye watering public sector borrowing to finance the client state, virtually no monetary policy, the encouragement of a reckless financial environment the surreal belief that would go on forever and the belief in the infallibility of their stewardship and lack of responsibilities are where some the explanation lies. It was even more unedifying to see Brown and Captain Darling claiming credit for facilitating the solution to HBOS which they themselves had practically caused – now for more weeks of historical reconstruction.

Gordon Brown UK Prime Minister re-launches again and fails

Brown solves world hunger and financial markets in a day.

I am becoming used to seeing Gordon Brown in his many guises or relaunches (currently around number seven) giving out the impression that he is more or less single handedly running every ministry in this country. From facilitating mergers between banks, solving Clostridium difficile in hospitals, greeting our hero Para Olympians back home to lagging. It is the latter theme I would like to dwell on as I was astonished to see the other day the Prime Minister of the country on national TV launching a very minor initiative that in more normal times would have been handled by a much more junior member of staff. Here we saw the great man extolling (well droning on about) the virtues of his new ‘lagging credit’ where if you are destitute or living in a croft somewhere in the god forsaking north of Scotland you can get a grant towards cavity foam insulation or lagging the turf on the roof. It was a careful exercise in avoiding any concession to the middle class and ensuring that only his clients in the north (well it is cold up there) would benefit from his largesse whereas the rest of us have to fork out – the proposal being completely riddled with caveats and exclusions designed to exclude anyone not minded to vote labour.

What was more annoying was that he was in fact not giving us anything. Dressed up as a government initiative and as a vehicle for relaunch it seems that the energy companies on threat of swingeing ‘windfall’ taxes have to do this. If you are living in a turf roofed and lined croft in Brown’s constituency you have to apply to the companies for the work to be done gratis or at the discount rate if you have some spare cash. This whole thing was yet another example of a politician making an announcement, claiming the credit whilst taking no responsibility for the implementation or the consequences. What is certain is the energy companies, quite rightly in my view, will have to cover these costs by adding ‘it’ to the bills of Joe Public you and me – of course turf living Brown voters will be able to claim relief. Now for me it is a good thing to concentrate on energy saving we cannot go on as we are but to dress all this cock and bull nonsense as some sort of give away by Brown is absurd. This was only designed to make him look good and defuse the Left of his party who regard any aspect of profit making by energy companies or otherwise as an anathema so wanted the so-called windfall tax and this boil had to be lanced before his next relaunch (the eight) at the conference this week.

I don’t think this (the seventh or is it eighth I forget) relaunch will work either – the labour party have to come to terms that Gordon Brown is not and never will be a leader – so stop trying to make him out something he is not. What we need is some management by ministers including Brown to at least steer the ship of state roughly in the right direction until the next election when thank god we have the chance of getting rid of these incompetent bunch of morons – although what job any of these could do when they bombed out is beyond me.

Cheers from a Croft in Wales

Royston