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why outsourcing fails

Why outsourcing fails and what CIOs can do about that

Outsourcing does fail. According to Statista, 50% of outsourced projects all over the world either fail outright or fail to meet the client’s requirement. The reasons for why outsourcing fails are varied: 76% believe that the core issue lies in the management effort of the vendor and hidden costs, 30% admitted there were communication problems within the vendor. And what about the most important aspect: finance? Riley Panko, a Marketing Communications Manager wrote on The Clutch “Less than 50% of outsourcing projects meet the expected financial objectives. Other business processes besides software development also get the mutual same modest results”.

And yet, according to a report from Gartner, 85% of the world’s logistic leaders have anticipated a surge of the outsourcing market for the year 2020. And seeing where we are now despite all the chaos of the COVID-19, CMC Global thinks it is safe to say that their prediction was true.

The ITC outsourcing market is now larger than ever: The global IT outsourcing market is predicted to rise by $98 billion by the year 2024, according to a compilation of IT outsourcing statistics on The Fortunly. Now, people stop asking questions like “Should I outsource” but instead, “How much should I outsource?”

If it is THAT wonderful, why outsourcing fails? Why is the number of failures so high and yet people are still investing billions of US dollars onto it? Let’s find out the top 6 reasons explaining why outsourcing fails sometimes, and what we can do about it.

Failure to define project expectations and objectives 

Failure to define project expectations and objectives

Clients, especially those whose core competencies are not IT, often underestimate the importance of providing clear-cut project requirements to their outsourcing partners. Every project has its own mission and failing to give the software outsourcing company the detailed pictures of what they have to do will surely affect both parties in terms of deliverable product and outcome.

The consequences here root from the unfamiliarity with the software development process. This makes clients frequently change their orders, causing money and time wasted on non-prioritized features, delays, and cost overruns. Sometimes, clients who don’t really know what their systems need, demand a new and non-beneficial-business feature that increases the costs and extends the timeline of the project. 

Knowing why outsourcing fails, what businesses can do here is to plan out concise standards and preferences with transparent and realistic goals. You will need your outsourcing provider to be on the same page as you have the same vision towards the future scenarios. 

Failure due to technical expertise insufficiency 

why outsourcing fails due to technical expertise insufficiency

The main reason for outsourcing is to have a large pool of IT Talents of all levels and expertise, instead of hiring local permanent employees. However, if businesses are not careful enough, they may find themselves signing contracts with an IT service provider who lacks technical knowledge, expertise in software development and project estimation.

What they can do is to evaluate the scale of the company, their fame, previous projects as well as industrial certificates and awards.

Failure to fine-tune the contract for the project

Failure to fine-tune the contract for the project

You need to have a broad picture of the industry landscape, your company’s expectations and the competencies of your IT service provider. Only after defining all of these can you sign the project contract.

A failure to include all relevant issues under the legal document can certainly lead to an unexpected dispute between the two parties. To prevent that, you need to write down all issues that can happen during the project period, from data and information ownership, final product ownership, communication structure and frequency to warranties dealing processes and methods. 

Moreover, to avoid any possible conflict, you should have your outsourcing company sign a confidentiality agreement/ NDA (non-disclosure agreement) to delineate their security responsibilities. This act helps create a confidential relationship between both parties when the outsourcing company is bound not to disclose any information covered by the agreement.

Failure due to impractical project plans

Failure due to impractical project plans

Unfamiliarity with software development processes can make companies have unrealistic deadlines and estimations. On the other hand, we can’t cross out the scenarios of a software provider writing an impractical and tempting proposal to win the clients over. Many things can lead the outsourced project to failure.

Any impractical attempt to cut time and costs can lead to technical debt – the kind of debt that can’t be paid by money only, but a lot of money, time, and effort. In better scenarios, you may end up with an unsatisfactory product and spend more on reworking the project.

So, what you can do is to set your priorities straight from the scratch and plan your project thoroughly before deciding the product’s release date. You should have a consistent methodology for project planning and execute such as the Agile Project Management methodologies.

Failure to communicate within the two teams 

outsourcing fails to communicate within the two teams

For clients who are not familiar with IT outsourcing, lack of communication can be the reason why outsourcing fails. This common mistake may happen because what the clients think is apparent can be confusing to the outsourcing company as they do not fully understand what they are supposed to accomplish. 

Failure to communicate can also happen due to cultural differences, language barriers, and time differences, especially if organizations choose to outsource the project offshore. And yet, choosing a nearby provider doesn’t guarantee the free flow of information either. When both parties do not share necessary information actively with each other, the chance of tiredness, bad morale, and working mistakes are looming.

What CIOs can do here is sharing every detail of the project with them and even overshare sometimes to make sure the two parties are on the same page. Make sure to close the communication gap through team meetings, video conferences and feedback giving regularly. 

Failure to Hire a Reputable Firm

CMC Global, top IT outsourcing service provider vietnam, outsourcing software development

All reasons why outsourcing fails above can be down to one core cause: You have hired the wrong IT outsourcing company. 

Software development companies play a vital part in the success of any IT project. They must be the ones who actively collaborate with companies, define the requirements clearly, have well and practical plans to implement and so on. Active and experienced IT service providers will lead their inexperienced clients throughout the process and effectively avoid any failures listed above.

That means when you decide that you will need an extended team to take care of the IT part for you, you need to look around carefully, shop around before making up your mind about a preferred firm. It would be a big mistake if you rush to hire a provider without doing your own due diligence in which you research, check for ratings, and interrogate some of the past case studies they have completed.

See success stories of our customers: https://www.cmcglobal.com.vn/what-we-do/successful-cases/

CMC Global

CMC Global is the IT outsourcing service provider you can trust. CMC Global is the youngest member company of CMC Corporation. Established on March 31st, 2017, the company has had 3 years in running and 650 staff members working in many regions of the country such as Hanoi, Hochiminh City, Da nang, and abroad in Japan, Korea, Singapore,…

  • We offer technical advice and consultation to get your outsourcing strategy right.
  • We scale your project to provide you with the information you need
  • We offer a huge IT Talent pool of any expertise in the need for the most desirable outcome.

Check out CMC Global’s case studies to see our previous project and what customers talk about us.