6 September 2002 Half of all outsourcing deals will fail during the next 12 months because of mismanagement, according to European services consultancy TPI. Furthermore, the cost of these failures could end up costing European businesses more than £500 million (€788 million).

According to TPI, which advises companies on best practice in outsourcing, many organisations are rushing into outsourcing deals in a bid to save money during the current economic downturn. But in their haste to cut costs and get projects up and running as quickly and cheaply as possible, some are neglecting to look at the long-term impact the deal will have on their business.

“Organisations should treat outsourcing deals more like a merger or acquisition than they buying a mainframe,” says Duncan Aitchison, TPI’s managing director. “They should ask themselves ‘What are the dynamics shaping our requirement for this service? What levels of service do we require? and ‘How do we expect to measure these levels of service?'”

One of the most common pitfalls in outsourcing contracts, adds Aitchison, is that the procurement department handled the transaction, and may not ultimately have any involvement with the practical side of the project.

Another potential problem is that the deal may have been based on a loose agreement between senior executives. “Two CEOs meeting on a golf course and shaking hands may not necessarily work in the long-term,” says Aitchison.

TPI’s experience of outsourcing project failure is backed up by recent research from analysts at Gartner, which stated that the chances of outsourcing deals succeeding was “about 50/50” and advised buyers to approach large outsourcing deals with caution.

Information Age will look at how organisations can best ensure success in their outsourcing projects in its October 2002 issue. For a free subscription, please click here.