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  Outsourcing Blunders

 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, fill-in-the-blanks process.

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.


   2006 Outsourcing Recent Stories and News

Insurance Industry Plunges Deep into Outsourcing -- IBM Global is ... - MarketWatch

Insurance Industry Plunges Deep into Outsourcing -- IBM Global is ...
MarketWatch - 11 hours ago
NEW YORK, Aug 28, 2008 (BUSINESS WIRE) -- The insurance industry, which has lagged behind others in outsourcing business and technology processes abroad, ...
The Total RPO Market in the UK Is Projected to Reach GBP824.1 ... MarketWatch
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Mayor blames outsourcing delay on Aguirre advice - San Diego Union Tribune

Mayor blames outsourcing delay on Aguirre advice
San Diego Union Tribune, United States - 18 hours ago
By Ron Powell SAN DIEGO – Mayor Jerry Sanders said Wednesday that his voter-approved plan to outsource some city jobs will be delayed by months because a ...
Mayor Blames Aguirre for Setback to Privatization Reform KOGO
Sanders' Privatization Derailed Again Voice of San Diego
City to talk to unions; outsourcing plan delayed San Diego Union Tribune
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Waiting for More Specifics on HP’s Acquisition of EDS - IT Business Edge


Waiting for More Specifics on HP’s Acquisition of EDS
IT Business Edge, KY - 2 hours ago
In speedy fashion, HP has closed the biggest outsourcing deal in recent memory, its $13.9 billion acquisition of EDS. As I wrote this spring (and I wasn’t ...
HP completes acquisition of EDS for $13.9B ABS CBN News
Hewlett-Packard completes purchase of Electronic Data Systems San Jose Mercury News
Ovum on: HP Closes Q308 Ready to Bring EDS into the Fold Computing News
InformationWeek - Wall Street Journal Blogs
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INTERVIEW-Wipro co-CEO sees tough times driving outsourcing - Reuters India

INTERVIEW-Wipro co-CEO sees tough times driving outsourcing
Reuters India, India - 14 minutes ago
By Georgina Prodhan LONDON, Aug 28 (Reuters) - Indian information technology outsourcer Wipro Ltd (WIPR.BO: Quote, Profile, Research) is seeing strong ...


Best-in-Class Companies Realize 18% Decrease in Time-to-Market ... - MarketWatch

Best-in-Class Companies Realize 18% Decrease in Time-to-Market ...
MarketWatch - 2 hours ago
found that Best-in-Class organizations realized an 18% decrease in time-to-market as a result of their R&D / Engineering Outsourcing engagement -- a rate ...


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