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Keeping Clear of Four Common Outsourcing Pitfalls

by: Ronald Escanlar

Tuesday, December 28, 2010 |

The continuing economic downturn is seeing an increasing reliance on outsourcing, yet companies are still making mistakes in their outsourcing deals, reports SearchCIO.com, a website for technology managers and executives.

SearchCIO.com senior news writer Linda Tucci reports that for 2010, companies that outsourced IT work spent 7.1% of their total budgets for outsourced IT services. From 3.8% in 2008 to 6.1% in 2009, the data from advisory firm Computer Economics, Inc., on which she based her figures, are simply impressive.

Four common outsourcing pitfalls

In her report, Tucci interviews Steve Martin, a partner at outsourcing advisory firm Pace Harmon LLC. Martin was a former partner with Deloitte Consulting, where he closed $7 billion worth of outsourcing deals. He lends his experience to provide an insight into the four common mistakes committed in outsourcing deals.

Mistake no. 1: Relying on a single outsourcing provider.
Martin says “it takes two outsourcing vendors to tango to a competitive deal, even if one of them has only a 10% chance of winning.” Never forego the bidding – there are benefits to having two competing outsourcing providers bidding for a deal. Sole-sourced deals, meaning deals that didn’t go through bidding, are usually priced at 30% to 40% above market rates, says Martin.

Mistake no. 2: Too much focus on cost.
A deal that works for both the client-company and the provider needs a thorough understanding of the real costs for a successful operation. Martin says budgets that are too tight cannot be expected to perform well.

Mistake no. 3: Imbalance in sharing information.
Martin says that in any IT outsourcing deal, all IT assets, i.e. PCs, servers, routers, printers, and facilities, must be brought to the table. However, current performance levels must not be disclosed at all, advises Martin. An outsourcing provider is supposed to offer a cost-efficient deal for your operations, not to cancel some of your current costs.

Mistake no. 4: Hasty deals.
Martin advises companies to keep the “losing” bidder around, since early low odds are founded on unfamiliarity, and usually not on anything else. The tables can turn around, says Martin – a bidder with a 10% chance can suddenly have a 40% chance, or higher, as talks go on.

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