What’s wrong with outsourcing? potx

What’s wrong with outsourcing?
By Ernie Zibert
Copyright 2012 Ernie Zibert
Smashwords Edition
Smashwords Edition, License Notes
Thank you for downloading this free ebook. Although this is a free book, it remains the copyrighted
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Discover other titles by Ernie Zibert at Smashwords.com.
Table of Contents
What’s wrong with outsourcing?
What is the % of value lost in outsourcing?
Conclusion
To answer the question, ’What’s wrong with Outsourcing?’ this e-book furnishes the results of
a survey of more than 100 IT professionals in Sydney in Nov 2012.
Before these results to the two questions are presented a comment on this e-book’s title is
warranted. Bottom line is that there is nothing wrong with outsourcing as a business paradigm.
Indeed, outsourcing is here to stay and the successful modern firm is that firm which best manages its
portfolio of external service providers. As stated in my previous e-books, it is the responsibility of the
buyer to extract value from their outsourcing relationship. This is not gifted, rather hard-earned. It
derives from a clear understanding of the value dimensions sought and their concomitant importance
to the firm (weighting) and the proper investment in sourcing governance.
In Nov 2012, more than 100 IT professional were asked two questions. First, what’s wrong with
outsourcing? Second, what percentage of value is lost or eroded in outsourcing over the lifetime of the
deal? Both questions are multiple-choice with five options.
What’s wrong with outsourcing?
The pie chart below shows the results to the question, what’s wrong with outsourcing. As
shown below, half of the respondents stated low customer satisfaction as the factor which is most
wrong with outsourcing. This was followed by 20% of respondents stating that the high costs of

managing the outsourced service provider was the biggest problem with outsourcing. Surprisingly,
only 6% of respondents stated that a high cost was outsourcing’s biggest problem.
The results from this survey are surprising. Most current reports into outsourcing suggests that
not realising the cost savings is the biggest problem with outsourcing. What this finding shows is that
IT professionals have evolved beyond myopic price considerations and are in-fact generally not
satisfied with their outsourcing experience(s). Given that customer satisfaction is a variable
dependent on the other four dimensions of sourcing value (see the Five Dimensions of Sourcing
Value), customers are clearly unable to sustainably extract value from their outsourcing relationships.
What percentage of value is eroded in outsourcing over the lifetime of the deal?
The results from the second survey question, ‘What percentage of value is lost in outsourcing
over the life of the deal?’ appear in the chart below.
Over 90% of IT professionals stated that 60% or more of the expected value of the outsourcing
deal is lost over the deal’s term or lifetime. In other words, nine out of every ten IT professional
believe that more than half of the value of outsourcing does not materialise. This makes sense given
that half of them were not satisfied with their outsourcing experience(s). What is even more alarming
is that one out of every three IT professionals stated that 100% of the value of outsourcing is lost over
the lifetime of the deal.
It would be interesting to see if the multiple choice values were higher, such as 120% or even
200%, what the responses would have been.
These results correlate with the Procurement Strategy Council 2009 report. This report showed
that through five factors firms can lose 100% of the expected value of their outsourcing deals.
Conclusion
If you don’t know what you’re doing you will erode value in any outsourcing relationship. The
results from this survey are telling: you have a 50% chance of not being happy with your outsourcing
relationship(s) and you have a nine-out-of-ten chance of losing more than 60% of the relationships
value. The message here is very clear. Change what you are doing with your outsourced partner(s)
today. Deploy the Sourcing Compass and implement a sound sourcing governance framework.
About the author:
Ernie Zibert is an influential IT Management Executive with 20+ years of international
achievement in leveraging technology and strategic partnerships to drive growth, performance,

flexibility, and customer satisfaction. A proven change agent, capable of orchestrating transformative
business strategy. Champions innovation with a focus on developing flexible, scalable solutions for
customer and organisational problems. Diverse experience across government, communications and
media, and finance industries. World class financial, relationship and commercial management of IT
sourcing relationships. Respected leader in highly-matrixed global corporate environments and in the
Australian IT Services community.
Other titles by Ernie Zibert:
Discover other titles by Ernie Zibert at Smashwords.com.
The Science of Sourcing Governance
What’s the difference between a million and a billion dollar IT sourcing deal?
Ordering IT Services: Would you like CHIPS with that?
Sourcing's Three Fates
The IT Outsourcing RFP COW is too FAT
AMS - The next stage in the evolution of IT Outsourcing
Outsourcing’s Two Evils
Apply CREAMS to your IT Outsourcing pain
Sourcing’s Five Critical Governance Processes
The Five Dimensions of Sourcing Value
The relationship between the five dimensions of sourcing value
Connect with Me Online:
My blog: strategicsourcingblog.blogspot.com
For more information, contact Ernie Zibert at
Thanks go to Mohandass Ayyappath for his insightful comments and editing.