Lessons from Dutch IT-outsourcing success and failure

Abstract

We present the findings from a Dutch field study of a representative sample of 30 outsourcing deals totalling to more than 100 million Euro, where both customers, corresponding IT-outsourcing providers and their intermediaries (if present) participated. Of the 30 deals, 18 were successful. As the sample is representative for the 700 Dutch IT-outsourcing deals between 2007–2010, the Dutch success rate was about 60% at that time. The main objective of the study was to examine what made some a success and some a failure and how to influence the outcome if possible. For a number of well-known factors we investigated whether they discriminate between IT-outsourcing success and failure in the early phase of service delivery and determined their impact on the chance on a successful deal. We investigated controllable factors to increase the odds during sourcing and rigid factors as a warning sign before closing a deal.Based on 253 interviews with 516 different questions we collected 28 thousand data points (which took several FTEs). From the data and the perceived failure or success of the closed deals we investigated the discriminative power of the determinants (ex post). We found three statistically significant controllable factors that discriminated in an early phase between failure and success. They are: working according to the transition plan, demand management and, to our surprise, communication within the supplier organisation (so not between client and supplier). These factors also turned out to be the only significant factors for a (logistic) model predicting the chance of a successful IT-outsourcing. Improving demand management and internal communication at the supplier increases the odds the most, sticking to the transition plan only modestly. Other controllable factors were not significant in our study. They are: managing the business case, transfer of staff or assets, retention of expertise and communication within the client organisation. Of the rigid factors, the motive to outsource, cultural differences, and the type of work were insignificant. The motive of the supplier was significant: short-term motivations like increasing profit margins or business volume decreased the chance of success while long-term motivations like increasing market share or becoming a player increased the success rate. From the data we inferred that the degree of experience with sourcing did not show to be a convincing factor of success. Hiring sourcing consultants (intermediaries) worked contra-productive: it lowered chances of success. This illustrates that you better not outsource outsourcing.