Outsourcing has been around long enough now for the major fault lines to become quite apparent. IT executives have learned the value of planning carefully, managing expectations, limiting scope and insisting on contracts that aren't too long in duration. But failures can still occur, and often--as is the case with so many things in life--it comes down to relationships.

"When you make [outsourcers] true partners, they come to work as part of the team and they care as much about systems as you at that point," said Cara Kinzey, senior vice president of IT for The Home Depot. "It's important to make them a part of what's going on, not just a resource."

The Home Depot tries not to depend entirely on outsourcing for any given task, Kinzey told an audience at the annual SIMposium conference in Atlanta Oct. 5. It maintains a large internal IT resource base, and tends to send support for legacy systems and small projects offshore.   

For the giant hardware retailer, outsourcing is "all about delivery," Kinzey said. "We have a constant scorecard running." The company factors cost and quality of service into evaluation criteria, but Kinzey cautioned that offshoring can get expensive if companies aren't careful in the execution. When quality does not match expectations, the outsourcing firm is not necessarily to blame.

"Sometimes you do so much so fast that the quality starts wiggling," she said. "Maybe the resource pool is getting stretched." Other times, she added, it might come down to poor communication.

Coca-Cola's director of G&A and IT Sourcing, Chris Horace, puts individual relationships at the very heart of successful outsourcing initiatives. "As I explained to one of our CIOs one time," he said at SIMposium, "it's all going to come down to trust."

Sometimes when results don't meet expectations, it can be a matter of clashing personalities. Outsourcers are likely to have the flexibility to move individuals from one project to another, and that step alone can improve the relationship. "A lot of times it comes down to individual personalities, and if you change the mix, it can get a lot better," Horace said.

The Coca-Cola Co. does not outsource tasks that are considered sensitive or key to the business, Horace said. Before launching an outsourcing project, he draws together a wide group of individuals from around the company to get perspectives from different departments. "The first step is getting together and figuring out what people want from this exercise," he said. "If it's someone from finance, they're going to care how much money we're going to save."

Despite best efforts at planning, building relationships and managing expectations, an outsourcing arrangement may still go awry. When it comes to day-to-day issues that aren't working as expected, companies can turn to their service level agreements for a remedy, Horace said. But if problems are systemic, it's time to call in the top executives for a discussion. "Get the right people engaged," he said. "Then you see the big problems moved out of the way."

Regardless of how successful any single outsourcing relationship is, it is important to maintain a multi-vendor supply environment, the experts advise. This not only provides benefits of competition, but it gives customers flexibility if an outsourcing firm hits hard times. However, a multi-vendor environment also brings added costs and complexities because of the variety of governance models, invoicing criteria and contract management procedures involved, cautioned Trent Johnson, principal with the consulting firm Avasant. Establishing some consistency in governance structures can make the job much easier. 

Highly transactional processes, such as help desk services, are good candidates for outsourcing, while high value-added functions, such as R&D, tend to be kept in-house, Johnson said. Often when offshoring arrangements fail, it is because of insufficient buy-in from executives and business units, he said.

Using both carrots and sticks when motivating outsourcing companies is essential, Johnson said, adding that relying solely on financial penalties could be a sign that the arrangement is in jeopardy.

"We've seen situations where it was cheaper for a service provider to pay a million dollars a month than to fix the product," Johnson said. A client's termination rights should be clearly spelled out in a contract, he said, but working on personal relationships can go a long way in avoiding that outcome.

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