In the manufacturing industry, CIOs have come to the awareness that cost reduction alone is simply no longer enough. Outsourcers and managed service providers almost always provide for cost reduction, but often fall short in the area of operational efficiency and overall contribution to company productivity.
In this article we will review the reasons most frequently associated with failed outsourcing engagements.
So, what is it that causes IT service engagements for manufacturing organizations to fail?
Unclear expectations, poor communication
At the negotiation stages, critical issues are assumed to be agreed upon when in fact they are not. A prime example would be in the area of process. IT departments assume that service providers are coming in with a defined process for providing service, whereas service providers assume that they will be adopting processes already in use by the IT departments.
Poor communication results in a failure to understand and properly address true customer priorities. Critical datacenter assets may have been identified, but what about critical functions? Will a one hour time-to-resolution for bar coding printers at a large, multi-bay warehouse cause trucks to line up, blocking traffic and straining relations with the city? What happens if purchasers lose access to centralized supply chain management software, even though the system is working at the datacenter? Without considering these and other peculiarities that are unique to an organization, the seeds of future dissatisfaction are sown.
Not mutually beneficial, misalignment of interests
Service provider’s calculated pricing, resource levels and associated engagement overhead is based on achieving Service Level Agreements for a given population of users and devices. Although SLAs are necessary in any engagement, the true goal of a manufacturing company is not SLA compliance, but production. It is entirely possible for a service provider to meet all SLAs while actually becoming an impediment to production.
Multiple service supplier scenario
Multiple managed service vendors, each addressing a different area of the overall IT infrastructure, quickly devolve into a management nightmare. In some cases, the level of managerial involvement in the day-to-day service provider support activities exceeds that which occurred when support was fully in-house.
Excess management overhead generally comes from the fact that there are both overlaps and gaps in service coverage between the different service providers. Cries of ‘that’s not our area’ regularly impede quick problem resolution. Make sure that at least one of your vendors specializes in Gap Management, a relatively new trend that focuses on catching process failures before they impact business.
Not a cultural fit
Service providers, in order to maintain economies of scale, often adopt a ‘cookie cutter’ approach to service engagements that leave little room for flexibility. As manufacturing companies generally develop distinct ways of doing things based primarily on the needs of producing specific output, this lack of flexibility leads to dissatisfaction early on.
No successful business is stagnant. New opportunities and changing conditions require that IT infrastructure adapt. Unless a service provider shares in this process of change and adaptation, Interests diverge. Customer interests are process improvement and contributing to the growth of the business, service provider interest is in maintaining the status quo. This problem may not become evident until several months into an engagement.
A service provider that does not participate actively in this change and provide strategic vision and guidance in order to ensure that IT infrastructure continues to be a valuable contributor to the success of the company will not be able to bring value to the customer throughout the engagement.
When considering an engagement with any IT outsourcing or managed services provider, it is critical to keep all of these points in mind throughout negotiations.
A service provider that understands and mitigates these potential pitfalls will be an asset to production and your organization as a whole, whereas one that does not, an impediment.