The Challenges faced during a Vendor to Vendor Transition in IT Outsourcing Engagements

Outsourcing has become a valuable strategy for businesses looking to reduce costs and dispense with low-value operations. In fact, 76 percent of businesses, surveyed by Deloitte, outsource some facet of information technology, more than any other function.

Now, when it comes to IT Outsourcing Engagements, a study by Gartner has revealed that over 75% of IT Projects fail, and one of the major reason is failed vendor transitions.

Outsourcing transitions can run aground when the relationship between the client and the vendor, or vendor and vendor breaks down. Their interests are most closely aligned when the contract is signed but can start to show cracks as the transition begins.

So a properly planned and an efficient transition is important for an outsourcing project to succeed.

In this article, I will not talk about how to plan a transition but I will state the challenges that are faced by organisations during a vendor to vendor transition. I came across these challenges during the research that I did for my dissertation on the topic "Vendor to Vendor Transitions in IT Outsourcing Engagements".

So, let me first start by talking about what is IT Outsourcing?

A definition given by Gartner states that “IT outsourcing is the use of external service providers to effectively deliver IT-enabled business process, application service and infrastructure solutions for business outcomes”

The next question that comes to mind is why do companies outsource?

Outsourcing enables enterprises to reduce costs, accelerate time to market, and take advantage of external expertise, assets and intellectual property.

IT outsourcing lifecycle consists of 6 major phases:

1. Investigate and Prepare

2. Select Provider

3. Negotiate Contract

4. Conduct Transition

5. Manage IT Provision

6. Evaluate Options and Cancel or Renew Contract

At the end of the IT Outsourcing lifecycle, there are three potential options for ITO clients on how to proceed at the end of the contract.

1. Switch the ITO Provider

2. Source the IT Back in-house

3. Continue with the Incumbent provider

Now, the next question is what is Transition in IT Outsourcing?

Transition happens when the IT services are transferred to a new provider without any changes. This means that neither the services itself are changed nor the way in which they are provided.

While Transformation means that the services which are transferred will be changed and are not identically transferred to the new provider. This means that either the services are changed or the way in which they are provided.

A pure transition approach is not used in switching IT outsourcing providers, so a mixture of transformation and transition are used.

Types of Transitions in IT Outsourcing Engagements:

1. Client to Vendor (Insource to Outsource)

2. Vendor to Vendor

3. Vendor to Client (Outsource to Insource)

The scope of my dissertation was restricted to Vendor to Vendor Transitions due to the lack of research done on this topic.

The challenges that are faced by organisations during vendor to vendor transitions are as follows:

1. Outgoing Team's lack of co-operation in sharing knowledge

2. Passing of incomplete and incoherent information to the incoming team

3. Time taken to make the transition

4. People Management (Transfer of people from one vendor to the other)

5. Business Disruption

6. Proper Ownership of transition activities and service delivery not defined

7. Confusing ownership of key resources (Login ID, Domain, Scripts, Source Code)

8. Loss of Process Knowledge of the company over time

9. Knowledge Transfer (More theoretical Less Practical)

10. Different Organizational Structure and culture

11. No transition or exit plan in the service agreements

12. IPR Issues (The earlier vendor owns the IPR and refuses to transfer it)

The below graph shows the number of times that the challenge is being talked about in different papers out of the papers that were reviewed during my dissertation.

 After reviewing 16 papers regarding vendor to vendor transitions and the challenges during transitions published in journals ranked in the ABDC ranking, the most number of times that a challenge appears in the papers is Knowledge Transfer (12 papers) followed by Outgoing Team's lack of co-operation in sharing knowledge (10 papers) and Passing of incomplete and incoherent information to the incoming team (10 papers).