Firms failing at outsourcing contract management

Many organisations are failing effectively to manage outsourcing contracts owing to a lack of planning and foresight, according to Gartner.

The analyst firm said that the situation has not been helped by the economic meltdown and the subsequent cost reduction programmes, which it predicts will have disrupted 30 per cent of outsourcing deals by 2012.

A Gartner survey of businesses worldwide across different industries in December 2008 found that 55 per cent focus too much on the operational level of outsourcing, and not enough on the strategic management of contracts.

"Many organisations struggle to develop an effective and efficient sourcing environment, which is necessary to achieve positive sourcing outcomes," said Gartner research director Frank Ridder.

Organisations have difficulty managing outsourcing relationships because they do not estimate the end-to-end effort required, according to Ridder, and because suppliers often promise more than they can deliver.

The highly dynamic nature of the service provider landscape also makes it is difficult to find the right supplier with which to build a long-lasting relationship.

Ridder suggested that, to overcome such pitfalls, organisations need to align sourcing actions with business goals, and formulate financial targets in order to establish a clear guideline for all sourcing activities. The analyst gave the example of a target to reduce the total cost of sourcing by 15 per cent in two years.

Other problems arise when outsourcing deals are not structured to provide the flexibility needed to enable the deal to adapt quickly to the market and the organisation, Ridder explained.

An effective demand management strategy will allow project teams to prioritise IT services based on demand to ensure that the right resources and skills are in place across all sourcing activities.

"Organisations that excel in sourcing have seamlessly integrated all pro viders, aligned all parties behind one goal, developed an agile sourcing environment and achieved business impact through targeted IT spending," Ridder said.

"Others who lack the right competencies are more likely to experience sourcing inefficiencies caused by misalignment, idle resources, unnecessary processes, overloaded operations, a heavy inventory or a lack of focus."