Failed outsourcing? Don’t blame the other side

New research will be presented at the IACCM Americas conference next week. It shows that levels of trust in outsourcing relationships are often weak or non-existent. Not surprisingly, where trust is low, disappointing or failed results are not far behind.

Without giving away the details (further in-depth reports will be published later this year), a couple of points jump out at me from the findings. First, in spite of all the talk about strategic advantage and innovation, the overwhelming majority of buyers continue to focus on cost reduction as their primary goal and measurement of success when outsourcing. This aligns with previous research which shows that, at least in early years, reduced costs are the main determinant of a ‘good’ project. Only over time do other characteristics, such as innovation or continuous improvement, start to have extensive influence on the relationship.

What I found especially interesting in the results was that the number one reason that buyers give for their unhappiness is that they perceive suppliers ‘under-scope’. This, presumably, leads to regular battles over fee versus free and, in many cases, to additional costs or under-performing services.

These issues of cost reduction and under-scoping appear to me inextricably linked (and were discussed in my recent blog on opportunism). If buyers focus on cost reduction – and therefore base supplier selection on low prices – they can hardly complain if the provider minimizes scope in order to win. This syndrome is evident in industry after industry and, sadly, suppliers who try to warn buyers about the consequences of this approach simply do not win business. All the evidence we have is that honesty and integrity do not pay.

So if your outsourcing agreement – or indeed any other signficant project – is failing, you should look at the success criteria you established and see whether these drove subsequent behavior. If you want to achieve lower costs, a low-trust and adversarial relationship is the last way you will achieve it. Successful results typically accompany open and honest relationships where the parties are not punished for speaking the truth.