Report: Half of Outsourced IT Projects Will Fail

In 2003, half of all information technology projects involving third-party consulting will be considered unsuccessful by executives who oversee them, according to a new report from Gartner, because they fail to deliver expected return on investment or operational value.

The research firm’s findings, unveiled at its annual ITxpo in San Diego, California, suggest service providers need to improve how they communicate with clients. In addition, enterprises should set up a series of regular, formal meetings with contractors to ensure projects stay on track.

“Failing to do this, the relationship can be seriously compromised because corrections are not made in a timely fashion,” Gartner managing vice president Linda Cohen said. “Long-term arrangements … must be built for change, rather than ‘built to last.’ Flexibility is the key.”

Turning It Up

Gartner and other research firms have predicted that more enterprises will begin outsourcing many aspects of IT operations as a way to save money while still keeping pace with changes in technology.

IDC research director Ken Presti told the E-Commerce Times that IT outsourcing is poised to explode in the next several years, creating opportunities for blue-chip companies.

“An enterprise needs to feel comfortable if it’s handing over the keys to its kingdom, so to speak,” Presti said. Companies like Cisco, IBM and HP are among those vying for outsourcing contracts. “But any suggestion — and this sometimes seems to be implied by the vendors — that an enterprise just signs a contract and their IT worries are over is definitely way off base.”

In fact, Gartner said, more enterprises need to put in place a plan for handling outsourcing contracts by deciding whether to use a single external source or tap multiple vendors and contractors. Just 30 percent of large and medium corporations currently have defined ways to track and evaluate such contracts.

Gartner predicted that to help ease the burden of dealing with multiple vendors, some 40 percent of large enterprises eventually will turn to a single source to manage or take over all of their outsourced technology work.

Real Timely

Another major theme Gartner emphasized at the conference was the move toward real-time enterprises. A survey of 120 CIOs revealed that 20 percent plan to make investments to cut down the time required to perform routine business actions.

Although Gartner said enterprises are confident they can improve business process cycles, the survey found that many executives do not fully understand what real-time computing means for a business. Still, some businesses reported plans to reduce the time required to perform some functions by 50 percent over the next five years by improving technology.

“The speed of management’s response to narrowing windows of opportunity is a crucial issue,” said Gartner research director Mark Raskino. However, he added, focusing too much attention on speed could be harmful.

“Focus is key, and companies can’t afford to waste precious IT resources on generalizations,” he noted.

3 Comments

  • Over the past several years I have seen a shift away from a focus on the change management component. It appears to be cheaper to code oneself out of a perceived process stalemate than to address how to change human behavior. The growth of offshore code writing is one result of avoiding the resistance to this change. 3rd party consultants are often forced to present this option as a way to meet unrealistic deadlines where little effort has been spent in deconstructing and reconstructing the business model. It is very difficult for companies to understand the costs to support "customization" moving forward. It can literally handcuff you to a partner and cripple your ability to change the application when the market changes.

  • It is always good to deal with one company for outsourcing. Administratively it is convenient and we come to know the organisation’s delivery standards of quality and time. This helps in quotes for future projects. But one major hurdle comes in if at some later stage there is some change in management of the outsourcing agency and some disagreement happens, then we are in a major loss, especially if we have outsourced majority of our work to a single agency. I believe it is very risky proposition, especially in this market, when margins are so less and there is always the LD clause and quality clause in nearly every contract.
    Umesh

  • I think the main reason such a large percentage of projects will fail is because organizations fail to develop a clear scope and achievable schedule at the beginning of the project, same as in previous years.
    Organizations don’t typically do a thorough analysis of their business practices and tend to have unrealistic expectations of what IT can do for them. It’s not a "silver bullet"; if you attempt to automate a BAD PROCESS, you’ll end up with an AUTOMATED bad process =).
    If you don’t know what you expect to achieve and fail to involve all the stakeholders during the design and planning phases, then you’re bound to hit roadblocks during implementation.
    It’s important to determine WHY you want to do something and IF the selected technical "solution" will really provide any operational value, much less any return on investment… in many cases, it simply results in a cost avoidance in one area and increased costs to support the "solution" in other areas.

Leave a Comment

Please sign in to post or reply to a comment. New users create a free account.

Related Stories

LinuxInsider Channels