Gartner Says Half Of Outsourcing Projects Doomed To Failure

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March 26, 2003 (11:45 AM EST)

Gartner Says Half Of Outsourcing Projects Doomed To Failure

Half of this year's IT outsourcing projects will be tagged as losers by senior decision-makers for not delivering on bottom-line promises, said research firm Gartner.

Outsourcing is prone to failure because of breakdowns in communications between outsourcing providers and their clients, Gartner said.

Gartner's analysts said outsourcers must do a better job of communicating with clients and become more accommodating. But the blame isn't all on one foot.

Parties should "commit to regularly scheduled, formal meetings to review the progress and achievement of objectives," said Linda Cohen, a managing vice president for Gartner. "Failing to do this, the relationship can be seriously compromised because corrections are not made in a timely fashion."

Cohen and her co-analysts released the study at the ongoing Gartner Symposium/ITxpo 2003, which wraps up Thursday in San Diego. The symposium and exposition draws an audience of about 10,000 IT professionals from companies around the world.

In 2003, Gartner said, fewer than a third of companies will have formal plans for managing their relationships with their chosen outsourcers, contributing to the perceived failure rate by executives. Companies outsourcing some or all of their IT needs can buck the odds and prove the worth of their deals by putting plans in place, especially ones which recognize that technology and business needs are constantly in flux. Mechanisms for renewing and modifying contracts can catch problems before they bring down an outsourcing arrangement.

"Long-term arrangements with [outsourcers] must be built for change, rather than 'built to last,'" said Cohen. "Flexibility is the key to successful long-term service supplier and buyer relationships."

Enterprise-level outsourcing is on the rise and is one of the few upbeat areas in the current global IT market doldrums. Companies such as IBM and EDS have struck major outsourcing deals during the last several months, in some cases acquiring all IT assets and staff, then managing them for the client. And increasingly, companies are exploring moving some operations overseas, where costs are lower. That, of course, can put some American IT workers' jobs in jeopardy.

As IT outsourcing becomes more common, Cohen suggested, companies will be faced with a decision: hire a single provider for all their needs, or go with multiple outsourcers. Enterprises that can manage one, albeit complex, contract but lack capabilities to stay in close contact with numerous providers should steer for the single-source strategy, she said. But "multisourcing," where a company brings in several outsourcers, will continue to remain dominant.

Those companies can turn to a prime or general to oversee the numerous other providers.

"As the enterprise's understanding of multiple suppliers increases, as well as the processes to manage and integrate them, a prime or general contractor approach is beneficial for obtaining a mix of suppliers without the job of managing the suppliers directly," said Cohen.