The Outsourcing Delusion: Why 63% of IT Partnerships Fail to Deliver Real Value (And How to Fix Yours)

A disclaimer before I start presenting this research and opinion piece - Microsolve have been in the IT outsourcing and service industry since the early 1990's and have witnessed the rise (and fall!) of a great number of "next great thing" companies in the sector.  he one thing that has always stayed the same is need for transparency and clarity in communication.  We don't profess to always get this right, but we do relentlessly improve our processes and measures in this area to minimise impacts and maximise value outcomes.

The Great Outsourcing Paradox!

The global IT outsourcing market will exceed US$1.3 trillion by the end 2025.

ISG reports that 63% of clients feel their providers deliver "mediocre value at best."

AND

Everest Group report 41% of providers claim clients sabotage success through unrealistic - often un-articulated - expectations.

How can BOTH of these be true in a market of such size?

This isn't just about failed contracts—it's about billions in wasted potential. I'm feeling a little scared by these numbers, let's dissect the dangerous assumptions keeping both parties trapped in mediocre partnerships and see where we end up!

Assumption 1: "Contracts Protect Value"

The Reality:
A Gartner study of 200 failed outsourcing deals reveals:

• 78% had "watertight" contracts covering all required and delivered services;

• 92% lacked mechanisms to measure evolving value

Case in Point: A Fortune 500 manufacturer lost $12M annually for three years because their provider met all SLAs... while their competitors used AI-driven maintenance to cut costs by 18%.

Challenge: When was the last time your account management discussions focused on innovation rather than penalty clauses?

Surely the focus of a well performing outsourcing arrangement should be on "what's next" rather than "what happened" - changing the focus can be as simple as changing the order of the agenda for the regular review meetings (there is an agenda, right?).

Assumption 2: "Cost Savings = Success"

The Data Tells Another Story:

• Top 5% of outsourcing relationships (per KPMG benchmarks) deliver 3x more value through innovation than through cost savings!!

• 54% of "cost-focused" deals fail to meet strategic objectives within 24 months (Deloitte)

The Fix:
Our assessment framework forces both parties to confront:
◼ Whether savings are funding strategic reinvestment
◼ How provider capabilities align with the client's 3-year roadmap
◼ If innovation is measured as rigorously as uptime

Assumption 3: "Governance = Meeting Attendance"

The Ugly Truth:
ISG analyzed 150 governance teams and found:

• 67% spent >80% of meeting time reviewing backward-looking reports

• Only 9% had defined processes for strategic course correction

A Better Way:
The best-performing partnerships (per HfS Research):
✔ Hold quarterly "Future-Proofing Sessions" to revalidate objectives
✔ "Explore without Commitment" to find common Innovation ideas
✔ Maintain living documents of shared KPIs (not just contractual ones)
✔ Use midpoint assessments to pressure-test assumptions

Assumption 4: "Providers Should Just Execute"

The Missed Opportunity:
When a global retailer let its provider redesign inventory workflows:

• 22% reduction in stockouts

• 14% improvement in turnover ratio
  Yet, 73% of clients restrict providers to "statement of work" activities (Accenture)

Question:
Are you paying a Michelin-starred chef to follow your recipe?

The core reason for Outsourcing should never be "cheaper" - successful organisations do not race to the bottom - they look for competitive advantage which exists in every industry.

The 8-Point Framework That Changes the Game

Our battle-tested assessment tool (developed from 200+ engagements over the past 20+ years) tackles the root causes of most IT Outsourcing value leakage: 

1. Strategic Alignment
   Like any high performance team, client and provider must be rowing in the same direction - objectives need to be based on common-ground and understanding - no point asking for strawberries when you're at the butcher!
2. People & Knowledge Management
   Custodianship of knowledge is foundation to a common language to drive the success of the various team members in value deliver
3. Relationship Effectiveness
   The effectiveness and willingness of the teams to have difficult conversations on hard topics in near to real time is core enabler of value exchange - no point sitting on a gripe for 12 months when a 5 minute call can clear up a situation
4. Technical Capability & Innovation
   The 4 Rights -- right skills, right place, right time, right reason.
5. Security & Risk Management
   Security is the hand to the glove of Risk Management - some areas only need mittens, others require Hazmat suits.  Know the difference and work accordingly.
6. Service Delivery & Performance
   Validate that performance measures are correct - if uptime only matters at payroll, why measure 24/7? Remember that KPI's and measures drive behaviour - start with the behaviour you need and work to the KPI.
7. Financial Management & Value
   Clarity of financial descriptions, quantities and variations can be challenging - ensure there is a common understanding and a process for assessing and address changes without accusation or blame!
8. Contract Management & Governance
   Clear and shared understanding of what's in and out, why and how is key - intent for changes needs to be documented as the team members at contract establishment is unlikely to be the same for the duration.

Why This Works: Real World Proof

Long term (15+ years!), mutually beneficial relationships with multiple management changes in challenging industry sectors have been a hallmark of Microsolve.

Case studies on a number of these key relationships are available below:

Your Move: Break the Cycle or Become a Statistic

Our diagnostic tool gives you in 20 minutes what typical partnerships discover too late:
◼ Value Thermometer: Quantifies if you're in the top 5% or danger zone
◼ Partnership X-Ray: Reveals hidden risks/opportunities
◼ Future Roadmap: Prioritizes 3-5 high-impact adjustments

Final Challenge:
Of the $1.3 trillion spent on IT outsourcing this year, analysts estimate $420 billion will be wasted on "zombie partnerships"—deals that meet contracts but miss opportunities.

Will yours be part of the bleed... or the breakthrough?