Can't get no outsourcing satisfaction?

Cost-conscious outsourcing could cripple your business for years if you don't hammer out innovation expectations up front

Over the length of the contract, the service provider is expected to continually innovate. Respondents, however, were consistently disappointed in this aspect of the outsourcing arrangement. They felt that, at the conclusion of the outsourcing deal, they had fallen behind in their respective market. This was identified as a chronic problem.

And here is the real danger.

"The longer you outsource something, the more you fall behind," Lowes says.

The solution seems obvious, but let's put it down on screen, so to speak.

Services should be broken up into smaller pieces for shorter durations. Rather than a single $1 billion deal, sign smaller deals focused on smaller services. Outsource your desktops to one provider, servers to another, and your network to a third.

"Do a three-year deal instead of five years, or a seven-year deal instead of 10," advises Lowes.

Also, by breaking up the scope into more discretely defined pieces, you will find service providers who have deeper expertise.

It is also important to define an innovation plan going in and agree on how it will be delivered.

Be prepared, however, to drive that innovation with additional capital every couple of years. You can't just go to the lowest bidder. You have to make it worthwhile for the service provider.

Lowes says that past Deloitte surveys indicate the more profitable the relationship for the outsourcer, the happier the customer is, because the service provider has an incentive to do a better job.

Although it sounds like a no-brainer, many companies never think to align their outsourcing strategy with their business strategy. Blinded perhaps by the allure of cutting IT overhead by 25 percent or more, companies fail to do their homework, thinking all it takes is a financial business case to justify jumping into an outsourcing deal.