Failure in Outsourcing Contracts
Filed in archive Outsourcing Issues on May 17, 2007
Compass, a management consultant company recently revealed that almost 65% of outsourcing companies unravel even before its maturity time. These contracts are estimated to value at least 20 million pounds.
The reason why these contracts failed was identified as "a new mood of mistrust." I guess that in normal-speak this means that the contracts were not as successful as they were earlier projected to be.
240 contracts which expanded over 24 months was examined for the said study. At first, outsourcing providers charged a cost-saving rate but as time goes by, the charged rate is much more expensive when compared to having the functions in-house.
As for me, I believe that one of the reasons outsourcing contracts fail is the failure to evaluate such business ventures beforehand.
Permalink: Failure in Outsourcing Contracts
Tags: outsourcing 2007 contracts business home outsourcing+contracts failure+outsourcing home+based
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Response from:
Gary M. Zeiss, Esq.
(05/18/07 4:28pm)
The "mood of mistrust" cited in the article can be traced to many factors, but core to each of these is the asymmetry of information that naturally exists in these deals. Before the deal is signed, the customer has the information advantage and often uses that advantage against the supplier. After the deal is signed, the information balance shifts to the supplier (usually during implementation), and the customer is left not knowing what is going on. The only real way to get around this problem is to create transparent (or at least translucent) deals where the customer and the supplier both have visibility into each others operations, costs and, yes, margins. Full, clear disclosure is the surest way around distrust - and should be practiced in every outsourcing deal. Gary Zeiss, Esq., Los Angeles, CA - http://www.zeissesq.com
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