Outsourcing deals needs strong Rx, Gartner cautions

LOS ANGELES -- CIOs who are exploring outsourcing options this year will discover some intimidating statistics....

Between now and 2008, 70% of all outsourcing deals will be impacted by a serious malady. Less than 50% of those deals will find a cure.

There is a lot of pressure from CXOs to outsource. Mark King vice presidentGetty Images

In a presentation heavy on medical metaphors, Cohen diagnosed the eight most common illnesses that put outsourcing deals at risk and outlined potential routes to recovery. Maladies ranged from "Offshoritis" (symptoms include pressure from the CXO to sign an outsourcing contract) to "Deal Paralysis," a condition caused by the vendor replacing an "A Team with F Troop."

The high failure rates Cohen talked about can be traced more to execution and attitudes than with the decision to outsource, she said.

"It doesn't have to happen. All outsourcing illnesses are curable and all are preventable," Cohen said. "We're living in a highly multi-sourced world and need to manage in a different way."

Gartner's eight outsourcing maladies 1.Outsourcing compulsive disorder: New work is generated. Too many vendors.  Outsourced operation seems inefficient. 2. Offshoritis: Pressure from the CXO to outsource. Continuous audits. 3.Outsourcing migraine: Boss unhappy with results.  Business case difficult to prove. 4. Deal paralysis: Modification mania. Lots of paid extras. Vendor complains that deal is not profitable. 5. Vendor tunnel vision: Vendors won't play well together. None will take responsibility. Vendors are driving standards. 6. Chronic fatigue sourcing: Lack of innovation. Price slashing. Vendor bashing. 7. Management deficit disorder: Reports are abundant but ignored. Overpayments. Late payments. Auditors everywhere. 8. Deal dementia: Misalignment of goals between service provider and receiver. Constant finger pointing. Litigation looming.

CIOs and other IT managers must contend with significant changes in the way vendors operate, she said.

"Service providers are in a position where they have to make predictable revenue and predictable profit," Cohen said. To achieve predictability, vendors are moving from delivering highly customized deals to a "factory" model. Cohen said companies can still outsource "the good, old-fashioned way," buying services that are custom-made, but the price for that attention will go up.

Managing relationships with vendors is perhaps the most critical component of outsourcing , Cohen said, adding that about 80% of Gartner research for clients is focused now on managing "this co-dependent environment."

Gartner provided compelling data for finding better ways to execute and manage outsourcing. The research firm is predicting that in 10 years, 30% of all information technology jobs will be "offshored," an increase from the current level of 5%. Those figures include work exported from the U.S. and other developed countries.

Given the seriousness of the topic, Gartner took a light-hearted approach to its conference kickoff, dressing up analyst Linda Cohen in a Johnny Carson-esque soothsayer outfit. At the close of the presentation, Gartner analysts came out dressed as doctors, and were "interviewed" by Cohen about their specialties.

Steve Lavin, a network services specialist for Kaiser Foundation Health Plan, enjoyed Gartner's light touch. But not everyone appreciated the theatrics. "It was undistinguished," said Diane Salter, who manages IT infrastructure for Raytheon. "I've been to several conferences. It's not what lights your hair on fire."

Mark King, vice president of technology operations for Getty Images, said he managed to find some substance in the presentation. "For me it was a slow start, and the doctor shtick was a bit much," King said. Still, he said Cohen's maladies were dead-on. "There is a lot of pressure from CXOs to outsource. There is a perception that there is a lower cost model. But once you've squeezed out the costs, as Cohen said, where do you go from there?"

Cohen closed with some tips for attendees. Start with a business-driven outsourcing strategy, she said, and develop a strong governance model. Finally, aim to strike a balance between trust and control with inside and outside partners.