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Why are outsourcing customers so unhappy?

We often hear that customers are dissatisfied with their outsourcing services.  Most service providers are quite competent so, why are so many customers unhappy?  Customers complain of lower than anticipated service levels, slow responses to problems, and a lack of new ideas for improved practices. I believe there are five common contributing factors for this customer dissatisfaction.

1. Different Expectations

Customers often enter an outsourcing arrangement without clearly defining and communicating their goals. They typically want reduced service costs and improved service performance.  Service providers on the other hand want a secure net income stream. These goals are in conflict and unless they are clearly identified by both sides, there will be discontent. It is important to have openness of expectations and assumptions during contract negotiations.

The root cause of customer discontent often lies in the failure to clearly articulate what services will be provided and how performance will be measured. Service providers excel at selling their services, however, what is presented in the sales presentation is not necessarily what ends up in the contract and what is eventually delivered. This can lead to frustration, disappointment and mistrust. When expectations are different, both sides need to revisit the vision and goals of the relationship, set clear, agreed on objectives, and re-visit their service, performance and financial expectations.

2. Failure to Manage Change

Outsourcing is a complicated exercise. Transferred workers or those who stay behind cannot be expected to continue in a “business as usual” way.  Both groups of workers experience dramatic changes in their roles, accountabilities and expectations. Failure to provide substantial transition support and change management will result in conflict, non-performance and relationship breakdowns. Transition plans, with well-documented training, education, orientation, and communication components, are critical to success. Ensure that costs and expectations for managing change are addressed in the business case.

3. Processes not Redesigned

If an outsourcer does not improve on the processes that were transferred as well as the interface processes between the two organizations service improvement will be unlikely. Outsourcers are able to provide improved services at reduced costs through labour arbitrage and through process reengineering including the application of new technology. Reengineering expectations need to be clearly defined in the contract and progress needs to be monitored.

4. Breakdown in the Relationship

Relationships between service providers and their customers are intimate, risky and unpredictable. Mutual trust and respect between the organizations and effective communications are critical for a sustainable working relationship. Experts agree that a high percentage of outsourcing arrangements fail to live up to expectations because of poor or damaged relationships.

The following are critical to a successful relationship:

  • Trust at all levels
  • Capacity to resolve conflicts
  • Openness and quality of communication
  • Comfortable working together
  • Ability to put the relationship first

Customers and service providers need to allocate sufficient resources to relationship management.  Relationship health should be assessed frequently, and enhancements should be made on an ongoing basis.

5. Ineffective Contract Management

Commercial relationships need to be managed on both sides. Many customer organizations fail to effectively monitor service provider performance against contractual commitments.

Effective governance frameworks include:

  • Clearly defined decision-making authorities
  • Properly aligned interfaces between the organizations
  • Well-defined contract management processes and committee structures

Best practices define that between 3% and 8% of annual contract value should be set aside for managing the contractual relationship.

Many customers of outsourced services are dissatisfied because they don’t get what they thought they were paying for. The five factors outlined above are the root causes of much of this dissatisfaction. Clearly, it takes a concentrated effort on both sides to create and maintain effective outsourcing relationships.

About the Author: Rob Cooke is a leadership advisor, strategist and coach. Drawing on a strong background in business and organizational development, Rob utilizes his extensive consulting experience to help leaders address emerging challenges, seize opportunities and execute approaches to achieve personal, leadership and business goals.  He also helps organizations enhance the value of their internally shared and outsourced services.


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