Research Library

Mapping #1: A Practical Guide to Avoiding Outsourcing Problems

Mapping has been well documented for its ability to help organizations deal with uncertainty and gain competitive advantage. To demonstrate potential use cases for mapping, A Practical Guide to Outsourcing is the first of a series of papers that helps contextualize the principles of mapping and how to apply it to well understood, but often challenging, business drivers and requirements.

The Problem

Over the past couple of decades, the subject of outsourcing has been covered many times and in some depth by different researchers and practitioners, and a pretty consistent storyline has emerged: outsourcing can do a lot of good, but only if applied appropriately.

Outsourcing can do a lot of good, but only if applied appropriately.

Even publications a decade or two old1 report that outsourcing projects executed as a part of a bigger, strategic initiative have greater chances of success than those executed solely to cut costs or out of financial necessity. Unfortunately, despite that recognition, financial considerations are still a primary motivation to outsource2. That fact is often exploited by vendors3,4 who promote outsourcing as a way of lowering the cost of doing business, without going into much detail and without mentioning how many outsourcing projects fail.

Among all this noise, it is quite difficult to spot more considered observations about IT outsourcing, such as:

"It is also difficult to specify future needs…. Unless perfectly specified, the work … will either: a) not meet the organization’s ACTUAL requirements, or b) will (and should) cost more than originally priced5."

What you don’t know can cost you.

Or, in other words: specification is crucial and what you don’t know can cost you6.

While these comments acknowledge a problem, they do not nail it. They suggest that if you put in enough effort, you can create a perfect specification. This is one of the most misleading assumptions one can make about outsourcing. Uncertainty is a part of our life, and even if you are working in a stable environment, you cannot know what the future will bring. Therefore, it is impossible to write a perfect specification.

The perfect specification, or the perfect contract, does not exist. Some parts of your business are changing; some are new and experimental. In these areas, the only way forward is to experiment, learn and improve using what you have learned. This unfortunately limits planning to one step ahead, because you never know what you are about to discover.

This means that you have to accept that uncertainty is a part of business, and that it cannot be systematically removed. You need to learn how to deal with uncertainty.

Only recently, we started seeing public recognition of uncertainty. In 2016, Oliver Hart received the Nobel Prize in Economic Sciences for his lifetime study of the impact of ownership and incomplete contracts on the structure of companies7. Hart’s research aligns with the work of LEF researcher Simon Wardley, who has invented a way to measure uncertainty and proposed how to deal with it efficiently.

You need to learn how to deal with uncertainty.

Before we dive deep into that framework, let’s look at whether you have an outsourcing problem, and how big it is.

Please download the full paper to read more.

 

 

  1. https://www.sciencedirect.com/
    science/article/pii/S0969701297000014 
  2. https://www2.deloitte.com/content/
    dam/Deloitte/us/Documents/
    process-and-operations/
    us-cons-sdt-gos-exec-summary-2016.pdf
     
  3. https://www.orientsoftware.net/
    software-outsourcing/why-outsourcing/ 
  4. http://ddi-dev.com/blog/case/
    seven-commandments-successful-outsourcing/ 
  5. https://fedtech.quora.com/
    Outsourcing-Federal-Systems-does-it-work 
  6. http://ww2.cfo.com/it-value/2012/06/
    it-outsourcing-what-you-dont-know-can-cost-you/ 
  7. https://en.wikipedia.org/wiki/
    Oliver_Hart_(economist) 

DOWNLOADS

Position Paper

PDF (1.5 MB)

AUTHORS