Thought for the day: Why IT outsourcing fails

IT's love affair with outsourcing need not be a tempestuous one. The key solution is to develop new competencies to manage your...


IT's love affair with outsourcing need not be a tempestuous one. The key is to develop new competencies to manage your suppliers, says Brinley Platts. 



When Prahalad & Hammel published their ground-breaking article on core competencies in the Harvard Business Review in 1990 they gave legitimacy to the wave of IT outsourcing which has swept the world in the past decade and changed IT supply irrevocably.

Unfortunately, we missed the hidden catch and we are now paying for it every day.

Think of a core competency as anything your company performs well enough to create value and everything else as potentially destroying value if you insist upon doing it yourself.

The movement after Prahalad & Hammel argued for a massive re-alignment of industries, where companies maximise value creation through concentrating on their value adding competencies and and contracting with third parties (which have the required core competencies) to do everything else. So why is the IT track-record so poor?

Just what core competencies are we exploiting when we deal with a major outsourcing supplier? The first is their undoubted ability to understand and analyse a prospective deal and negotiate it to a close. This is led by the “A-team” and, before the deal is signed, we also experience the value creating competency of their legal contracts team. Even the most hard-bitten of customers will grudgingly accept their suppliers are very good at this.

After this we will come to understand their core competency in managing service delivery to contract led by a different team, the B-team, sometimes referred to unkindly as the F-team.

For many customers this is not service as they have been used to thinking of it, but a whole new service experience which is capable of generating cash and changing perceptions and expectations every day. This is, undoubtedly, creating new value, often in unexpected ways, which would be most people's definition of service innovation. Unfortunately the value generated is often not shared.

There is more, but now you are getting the idea of competency logic you can fill in the blanks yourself. It is more important for you to work out what you can do to get more of the new value flowing your way.

Right now you need relationship management competency to help create the high-performance relationships you need at every point of contact with your supplier.

Everyone who has any kind of contact with your supplier needs to develop increased personal competency in how you can drive up performance, and stop conspiring in driving it down. This was the missing piece from the very start and it is the competency problem you need to fix most urgently.

What do you think?

How do you get the best from your suppliers?  Tell us in an e-mail >> reserves the right to edit and publish answers on the website. Please state if your answer is not for publication.

Brinley Platts is the founder executive and business development manager of the Impact Programme, a leading network for CIOs.

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