pproximately 70% of IS outsourcing contracts are restructured sometime during their tenure, and up to one-fif
th of those deals end up being terminated, according to a recent survey of 250 IT managers by Gartner Group, an IT advisory firm in Stamford, Conn.
Still, of the 15% to 20% that are terminated, IT customers usually end
up turning over their services to another vendor, rather than bringing them back in-house. "Once you outsource IT operations, it's very difficult to bring them back in," says Len Bergstrom, executive VP of Gartner Group's benchmarking
services unit Real Decisions, also in Stamford.
There are a number of reasons why outsourcing contracts don't work out. Often the expectation of the client and the abilities of the vendor are not realistically set in the beginning of the relationship, he says. "Many of the companies that have outsourced a few years ago are now wondering if they're getting a good deal," Bergstrom points out. "They want to know if what they are paying is comparable to what the market's going rates are like now."
Real Decisions has offered benchmarking services for custo
mers planning to outsource, in order to help set goals for the arrangements based on the client's current costs, productivity, technology, and other factors. The company now offers a suite of benchmarking services for existing deals. Real Decisions' Outsourcing Performance Assessment aims to help clients evaluate how their current outsourced relationships are faring. "We come in and take an audit of the arrangement, act as an arbitrator of the deal," says Bergstrom.
Hard To Measure
Finally, while there have been some high-profile "risk-reward" types of outsourcing pacts, where the service provider's fee is based on project performance and quantifiable deliverables, Bergstrom estimates that "less than 10% of the outsourcing deals signed in 1997 will be true risk-reward." That's because "it's often hard to measure what a vendor's actual contribution will or should be."
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pproximately 70% of IS outsourcing contracts are restructured sometime during their tenure, and up to one-fif
th of those deals end up being terminated, according to a recent survey of 250 IT managers by Gartner Group, an IT advisory firm in Stamford, Conn.
