Top ten mistakes in selecting an outsourcing firm

A few days ago James McGovern, an Enterprise Architect from HP, asked a question on LinkedIn What are the top ten mistakes a CIO makes in selecting an outsourcing fir? Needless to say that this is not a new question and many people have answered it over the last decade (see for example “Outsourcing: 10 Crippling Mistakes IT Departments Make.” yet it set off a discussion with more than 30 people pitching in. There is no surprise here, outsourcing remains an integral part of most IT organization and many mistakes are made in every step and in every aspect of its utilization.

The thought of joining the discussion on LinkedIn naturally crossed my mind, but I realized that my contribution would be better if I put together a summary / highlight some of the most significant points brought in by others (and maybe add a few of my own) and do it here, in my blog, where this discussion naturally belongs. Also I noticed that many answers on LinkedIn went far beyond selecting the vendor and concentrated on mistakes people make when executing the contract /engagement. Great info, just not relevant to the question. Anyway, here is my list of top mistakes I’ve seen CIOs and other technology executives make when selecting an outsourcing vendor –

1) Outsourcing for the sake of outsourcing. The most significant mistake is using outsourcing to solve problems that could be addressed with other often more effective tools and measures. Outsourcing is a powerful tool, but it has its place and its drawbacks. Used without appropriate knowledge it can misfire and create a lot of collateral damage. Before you even consider selecting vendors you need to define goals and objectives you are trying to accomplish by outsourcing and only then turn to selecting companies that can support your objectives.

2) Ignoring basic rules. I covered these rules in an old post, take a look, and remember ignoring these rules is akin to ignoring gravity ;)

3) Inadequate process. Vendor selection can be a complex multi-step process or just a short project posting on a freelancing marketplace. Appropriate process must fit the task at hand, organizational culture, and available funds. Needless to say winging it or building a rocket launcher to kill a woodpecker will get you nowhere. Part of the process is defining selection criteria, see some ideas in this post.

4) Wrong focus. It’s all too often organizations take a myopic view on outsourcing and focus solely on the cost saving it can provide. Big mistake. First, outsourcing doesn’t guarantee savings, more so, it takes money to save money so chances are you will need to increase your burn rate before you can decrease it. In vendor selection excessive focus on $$$ is likely to drive you towards wrong vendor, proverbial “you get what you’ve paid for”.

5) Lack of commitment. Organizational commitment, executive sponsorship, team buy-in are key components of any initiative. Lack of commitment to selected vendor, or insufficient buy-in by stakeholders is a disaster waiting to happen. The worst case of lack of commitment is a “hands-off vendor selection” where is the team / person in charge of selection is merely involved in the process (see this for the difference between “involved” and “committed” :))

6) Technical (skills / experience / background) mismatch. The best cook on the planet is not necessarily the best pilot. Same goes for vendors – some companies are great for ERP implementations, some for iPhone development. So, back to the first point – match vendor technical capabilities to the task (objectives) at hand, and don’t expect one-fit-all providers to be the best (or any good) at the same time. And if you have complex initiative, consider multisourcing, supposedly not putting all eggs in one basket has its benefits

7) Personality mismatch. In the key to success of personal relationships is often a personality match. Same goes for vendor selection. This topic is complex and a voodoo of sorts, never the less it’s extremely important. In my book (due for publishing sometime late this year) I plan to cover this topic in more details. Fill out this form if interested, I will be happy to let you know when the book is ready.

8) Master / servant mindset. Selecting a vendor is selecting a partner, not a disposable pen. Whether it’s abusive RFP process or ruthless negotiations treating vendors poorly is likely to setup the relation for failure in the long run.

9) Lack of transparency. Many organizations hide their intentions from vendor, often to gain an upper hand in negotiations. Funny enough, this approach is unlikely to provide any advantages in the negotiations and instead is likely to mislead vendors and/or the vendor selection team. The more clarity is given to prospective vendors the higher the chances of find that illusive Mr. Right.

10) And last but not least, not talking with me. Just Kidding, at least partially. The point I decided to save for last is simple – read up, learn about vendor selection process, reach out to friends who’s done it, hire outsourcing advisor. Jumping into vendor selection process without appropriate knowledge / experience / background is the biggest mistake of it all.

3 thoughts on “Top ten mistakes in selecting an outsourcing firm

  1. Hi Nick – Good to see you’ve found the time to start blogging again. I hope that means that things are going well.

    Your point 8 seems so obvious but is apparently not. In my top 10 this would be much closer to number 1. I have witnessed, many times, negotiations where it simply appears that the customer has a definite “Win-lose” scenario in his/her head. I assume in their heads they’re ‘looking after their business’ but there HAS to be something in it for both parties to ensure success.

    I’ve also seen these deals be entered into where might (the customer) does get the initial deal (either because they’re a prestigious name which the vendor wants to leverage, or with the carrot of a larger portfolio of potential work in the pipeline) but the relationship can quickly sour if the workload vastly outstrips the committed resources, or if there is massive resistance on the part of customer staff, or if margins are paper thin and the specifications poorly documented.

    Competitive Multi-sourcing is another tool that, if used poorly, becomes a stick to beat a vendor with rather than a carrot.

  2. Thanks David – i appreciate the insight and agree with you wholeheartedly. If you plan on being in the Bay Are please ping me – i would love to catch up in person. Thanks, Nick

  3. Hi Nick! Nice post! Thanks for this list. It’s a big help for us to avoid committing these mistakes. I think commitment and transparency as some of the important things to consider in choosing your outsourcing firm.

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