4 Biggest IT Outsourcing Failures: What You Must Learn

7 Dec · 7 min read

4 Biggest IT Outsourcing Failures: What You Must Learn

Cost reduction ranks first (70%) among the reasons for outsourcing. Flexibility is the second justification (40%). 20% of businesses value speed to market. According to Deloitte's graphs of outsourcing statistics, 15% of those asked said having access to tools, procedures, and agility is essential.

To maintain continuing control and focus on their primary tasks, businesses can benefit from outsourcing. In addition, compared to outsourcing, hiring new employees, training existing ones, and spending money on corporate facilities would require a lot of time and money. 

But what if a business faces outsourcing setbacks?

Top 4 IT Outsourcing Failures

Let’s analyze a few examples of outsourcing failures, their causes, and the lessons that might be drawn from these 4 failures:

1) The State of Texas and IBM

With a market cap of $105.66 billion and revenue of $76.5 billion, IBM is the most prominent outsourcing provider in the world. In addition, this global technology company with a New York headquarters employs 383,800 individuals, according to statistics on outsourcing jobs.

The State of Texas contacted IBM for the project because they needed a service for running data centers. IBM was mandated to combine the data for 27 agencies into two data centers for the first two years. However, they only did it for five agencies. Additionally, the provider needed to carry out the nightly backups mandated by the contract.

The State of Texas consequently suffered an $863 million loss on the first transaction. IBM did not complete the project, leading to a future financial loss. Xerox and Capgemini eventually replaced IBM in a $1.1 billion contract.

Causes and Remedies

It is crucial to make a sensible choice because the outsourcing service provider will be your most significant ally for a set period. The ability of the service provider to supply the services must be confirmed. Before hiring, evaluate the partner's prior service history and do extensive research.

Before starting any relationship, thoroughly investigate the vendor's portfolio and track record. Thus, having some piece of mind from knowing that your partner is trustworthy will allow you to concentrate on your leading company. 

2) Virgin Airlines and Navitaire

Virgin Airlines offered online booking, reservations, check-in, and boarding using Navitaire's SaaS platform. The Navitaire software collapsed twice in less than three months. The problems still need to be remedied following the contract. As a result, the flights were grounded for 24 hours, impacting more than 50,000 people. In the end, Virgin Airlines suffered significant losses.

Causes and Remedies

The failure of this project was primarily attributable to Navitaire's slow problem-solving abilities and subpar technology components. Technological elements can lead to significant variances. Refrain from believing that your vendor can provide you with the best technical solution.

Focus on addressing and resolving your doubts before beginning the job to avoid mishaps. Ensure the provider has the knowledge and experience necessary to maintain the collaboration's consistency and ease of use before you start. 

3) Royal Bank of Scotland and its IT vendor

Another infamous episode included the Royal Bank of Scotland, which suffered significant losses in 2012 due to the unnamed IT vendor's inefficiencies. The IT provider changed the system after the bank's software system broke.

However, the update prevented millions of users from accessing their accounts for a week. Many customers moved their money to other banks due to the bank's total breakdown in operation. Being without a plan B during this period also left the bank vulnerable. 

Causes and Remedies

It's more complex than it sounds to ensure excellent communication within the team, and it becomes even more complicated if the team is spread out overseas. Organizations are more prone to errors when poor communication is present. The situation gets worse if your spouse is ineffective.

Communicate your expectations to the partner in a straightforward manner. Make sure you stay in touch with them frequently. It aids in performance monitoring and helps one prevent careless mistakes. 

4) Cambridge University NHS Foundation Trust and Epic

The Cambridge University NHS Foundation Trust recruited Epic to create an online patient record system. They sought to enhance performance and data flow. The system was set up so that staff members could view patient records on mobile devices like iPads.

Sadly, the system suffered severe failures, and its performance plummeted by 20%. It was discovered that the systems were delivering inaccurate data, placing the patients in danger of not getting the necessary care. Much of the information had to be spelled out, leading to misunderstandings among the personnel regarding how to use the new system. 

Causes and Remedies

The dissemination of inaccurate information was the primary reason for the overall failure. A lack of transparency caused the whole situation. It would be best if you informed the third-party service provider of your goals and objectives. It's crucial to be transparent when outsourcing.

To get the intended result, maintain open communication and avoid misunderstandings. Tasks and planned goals should not be subject to assumptions; everything should be made explicit, and both parties should agree. 

Common Reasons for Outsourcing Failure

1) Vague Vision

The client and provider agreement when outsourcing must be open and transparent. Outsourcing could put your business in danger without a solid plan and a clear scope of work. Ad hoc tasks being added or requirements growing as the project goes along could fail.

2) Fruitless Communication

When working together on a project, vendors and clients should agree. They must be able to resolve their questions and generate suggestions for improving the project. Your project may fail even though you have a strong plan and strategy in place because of a lack of communication. 

3) Lack of Expertise

Most of the time, businesses outsource to avoid using internal staff. In these situations, the vendor you outsource to must possess the expertise your company might lack. The success of our project can only be ensured by selecting a vendor based on their quotes or reviews. Even the best software vendors in every technological area might need to be more effective. 

4) Inadequate Planning

Create a thorough plan and reasonable timelines. This will increase your likelihood of success. Ensure you have a solid strategy before reaching out to a potential vendor, including a detailed plan and clear expectations. In the contract, deadlines and priorities should be laid down.

5) Imprecise Estimates

Cost savings is the primary justification for outsourcing, as was already established. Failure to develop a budget following consumer needs or underestimating your company's requirements could spell disaster. To avoid this, list all the "known unknowns" early on in your project and leave room in the budget for them.

4 Ways to Avoid Outsourcing Fiascos

Numerous hazards are associated with outsourcing. So how can you use outsourcing successfully without making those errors? 

The only solution is to start at the beginning and identify the underlying issues. Let’s take a look at 4 ways to overcome outsourcing risks:

1) Consultation With Professionals

Verify the level of expertise your service supplier has. In the case of software development endeavors, this is especially true. With a partner with prior experience and knowledge in your business, it is simpler to share information, rank requirements, and develop solutions. 

2) Thorough Vendor Portfolio Evaluation

Make sure a vendor's previous work satisfies your quality and creative requirements before selecting them. Request a mock-up or a work plan summary if you need clarification on a vendor's competence. To gain your trust, a service provider can give you a detailed plan of what they'll accomplish to finish your project.

3) Cultural Compatibility Assessment

Even though they are an outsourced workforce, the contractors are still a part of your company, particularly when staff augmentation is involved. Your employees will find it difficult to cooperate with them if your company's values do not align with their workplace culture. You should be aware of potential cultural gaps between the parties to improve cooperation. 

4) Alternative Project Execution Strategy Exploration

What degree of participation are you seeking from the project's cooperating team? Vendors may offer dedicated teams or developers on-site and temporary employment of specialists with specific skills as outsourcing solutions. Based on what you desire and what the vendors can offer, your project's price models and budget may change.

Amplify Your Project With Amplifyre

Amplifyre is a data-driven platform that can assist you in finding an ideal software partner. We can help you expand your business thanks to our extensive global network of software vendors, all of which have different skill sets and levels of experience.

Our process starts with a quick discovery phase where we learn about your project's requirements. The criteria you provide are then analyzed by our data-driven matching algorithm based on the Project Type, Industry, Technology, Organization, Culture, and Budget. That implies that we'll match you with the best.

We can help you avoid outsourcing mistakes and provide you with a successful relationship thanks to its hub of qualified businesses and staff of specialists. Get in touch with us for outsourcing needs and queries.

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