Service providers should work harder at ensuring prospective customers are ready to embrace an outsourcing model before leaping into what may seem to be lucrative contracts, a Gartner analyst has said.
Linda Cohen, managing vice-president of Gartner Research in the US, said service providers must be prepared to walk away from inappropriate deals, no matter how lucrative they might seem on the surface.
"I think you have to do a better job of due diligence and profiling your customers and see how ready they really are to embrace and accept an outsourcing delivery model," she said.
Gartner Research recently predicted that half of all IT outsourcing deals would either fail or be cut short by 2008. Seventy percent of all outsourcing contracts would face serious problems and 10 percent break down completely, Gartner said.
"It looks great when you sign a 10-year deal for $1 billion, but if by your third year you've only got $12 back, it won't take long for the shareholders to ask what's happening," Cohen said.
She said Gartner's interviews and communications with customers globally had suggested most IT outsourcing deals would face serious challenges within three years.
"Just less than 50 percent will persevere with a solution," Cohen said.
"This is what we call a strategic learning assumption, based on our history of dealing with clients every day."
Cohen said outsourcing had mainly been approached in an ad hoc way rather than strategically. Long term, that tactical rather than strategic approach was creating serious problems for customers and service providers.
Customers were adopting outsourcing for the wrong or poorly defined reasons. Also, people didn't know what they wanted to achieve or had expectations that didn't match the actual deals negotiated, she said.
"So a whole lot of them are not effective long term," Cohen said.
The chief executive, for example, might want to outsource because he or she thought it would improve service delivery, while the chief information officer might want to use outsourcing to cut costs.
"They're often conflicting goals. That's the problem on the strategy side: there isn't one, sometimes," Cohen said.
Service providers must work out services and strategies better adapted to the desired business outcomes. "You need to have the right people profiled into the right position and you need to have the right process framework for the services," she said.
Unpredictable deal costs were often leading to unpredictable service and delivery models. Meanwhile, vendors had a tunnel vision that often meant service providers failed to effectively work together, Cohen said.