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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,
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.
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