Next in my mini-series on the seminal economic thinkers who prepared the way for outsourcing I’d like to look at the more current and less theoretical side of the economics of outsourcing and there’s no better place to start than with Freakonomics and the followup mega-bestseller, SuperFreakonomics. Steven D. Levitt and his sidekick and co-writer […]
12 Ailments
Logistics Management, Jan 2010
The Rise of Vested Outsourcing chronicles the evolution of Vested Outsourcing as a premier “next generation” outsourcing model. Learn why Vested Outsourcing is a fundamental paradigm shift in how the outsourcing company and the service providers do business together.
CIO, Jan 2010
Research reveals that outsourcing customers commit a variety of sins when partnering with an external provider. Stephanie Overby, of CIO Maagazine, walks readers through those mistakes in her article titled “10 Crippling Mistakes IT Departments Make“.
Ailment #1 – Penny Wise and Pound Foolish
As we noted in the introductory blog to this series, our research and experience exposed the 10 most common problems in business relationships. These are “ailments” that can plague and potentially destroy an outsourcing relationship. Let’s start with the first and the easiest ailment to identify. The one that materializes when, for example, a company […]
Ailment #2 – The Outsourcing Paradox
A company afflicted by the “Outsourcing Paradox” malady may exhibit a telltale initial symptom: an attempt to develop the “perfect” set of tasks, frequencies and measures. The “experts” within the company try to prepare what they consider the “perfect” Statement of Work. The goal is to tightly define the expected results. After all – we […]
Ailment #3 – The Activity Trap
Many companies that suffer from the “Outsourcing Paradox” often suffer from the Activity Trap. Traditionally, companies that purchase outsourced services use a transaction-based model. Under a transaction-based model, the service provider is paid for every transaction—regardless of whether or not it is needed. Businesses are in the business to make money – and outsource providers […]
Ailment #4 – The Junkyard Dog Factor
When the decision to outsource is made, it means jobs likely will be lost in the transition of work and jobs to the outsource provider. In response, employees typically will go to great lengths to hunker down and stake their territorial claim to certain processes that simply “must” stay in house. We call this disease […]
Ailment #5 – The Honeymoon Effect
At the beginning of any relationship, both parties go through the honeymoon stage. The Honeymoon Effect was studied by the Stamford, Conn., research firm Gartner, Inc. In her article “Gartner: Outsourcing deals based on price alone are likely doomed” (published at CIO.com on March 15, 2006) Kate Evans-Correia reported that the Gartner research investigators found […]
Ailment #6 – Sandbagging
To prevent the Honeymoon Effect, some companies have adopted approaches to encourage outsource providers to perform better over time. Those methods include establishment of bonus payments for attainment of specified levels of performance. Bonus payments can work. Unfortunately, and all too often, however, they create perverse incentives for the outsource provider to achieve only the […]
Ailment #7 – The Zero-Sum Game
One of the most common ailments afflicting outsourcing arrangements is the Zero-Sum Game; outsourcing companies play this game when they believe, mistakenly, that if something is good for a contractor, then it’s automatically bad for the outsourcing company (and contractors play the game, too). Company executives who play this game fail to understand that the […]
