Outsourcing Success: It's All in the Governance: Making Deals Work Daily Takes a Long-Term View

Outsourcing is one of those topical perennials that bloom, wither, and rebloom in the business landscape. Deal styles evolve, then change. Traditional approaches involving simple information technology services are tried, ended, and retried in-house, or with other vendors. Or business transactions take on a global cast, emerging in firms scattered amid the sacred cows of India, in the upstart capitalist hubs of China, the tropics of the Philippines, or in Eastern Europe's workhorse zones, only to be brought closer to home in Mexico or Canada. And yet a few traits stay constant. One of them is that many firms fail to maintain a sourcing strategy overall. Another is that many deals unravel, even among well-schooled bank management, as if entropy were engrained in their structure. Like a garden prone to being overtaken by weeds, recent findings suggest, many outsourcing arrangements seem unable to sustain an organized cultivation. London-based PA Consulting conducted a survey of senior management at a mix of companies earlier this year. It found that when it comes to IT deals anyway, a lack of planning, mishandling of day-to-day activities, and general neglect all contribute to so-so results. Conversations with other experts left the impression that non-IT business process outsourcing faces similar challenges. And yet those who are bullish on offshoring--exotically situated outsiders doing work for you--point out that it is a growing market, which suggests something else is going on. "If most deals didn't work themselves out and yield results, you wouldn't see the growth in international markets," says Jeff Gullo, senior executive, financial services, with Accenture, based in Dallas. "This isn't for the faint of heart, but for many, it is working. " Brian Smith, partner, financial services industry, TPI, The Woodlands, Tex. , agrees. He says the deals that fail are the flash and burn stuff of news, while successful situations often go under-reported. Once again a routine option Why the perception of trouble might linger around outsourcing, we'll get to in a minute. For now, consider that in this country, despite recent political rhetoric and media theatre, having another firm take over non-differentiating process or technology work is once again a routine executive management decision. The financial services industry isn't tentative about new locations and shifting terms of engagement. One in three financial services firms may be turning their backs on global sourcing, according to Deloitte Consulting, yet many are taking steps to extend their commitment for labor savings and quality enhancement. JPMorgan Chase made headlines earlier in the year, when CNN Money reported that the bank was "one upping" other capital market rivals that had taken on BPO vendors. How? It booted key stock analysis and report writing functions to India. And there are ample statistics indicating that outsourcing in all forms will likely be a hearty plant, inclined to appear, if not always thrive, wherever it finds itself. Research firm IDC, for instance, says that U.S. spending on payments-related BPO spending reached $3.3 billion in 2005 and will experience growth at a five year compound annual growth rate of 5.5%. Meanwhile, the Asia Pacific BPO market is projected to reach $14 billion by 2010. Gartner Research says that retail banking deals around ATM handling, network management, and check processing are also getting traction into 2006, albeit with outsources closer to home. "Cheap to manage" and other myths Co-existing with the upbeat stats is a reality that has shades of quiet alert. One bad practice underpinning deals that unravel, it turns out, is poor governance aided by miscommunication. It's not a problem limited to the banking industry but it is one shared by it. …