When systems outsourcing goes wrong

The commercial and strategic arguments for a CEO to drive systems outsourcing can seem compelling. Designing and implementing new systems and processes is a complex activity; it requires specialist teams for brief periods; and it’s not core to most businesses. So it can seem like a no-brainer, and I’m?not?arguing against outsourcing at all. But here’s why it so often goes wrong.?

We frequently work with mid-market Board leaders who are frustrated by how their systems and processes are limiting expansion, creating constant issues, and generally acting as a drag on the business. Their systems no longer fit their needs, there are often deep data problems, many ‘off-system’ workarounds, and highly manual reporting. These issues really show up when businesses want to expand into ecommerce, modern automation and AI, or scale up.?

I meet companies stuck in this rut, about to embark on major system transformation initiatives, but it’s all too often obvious to me they will end up back in the same place soon.??

The underlying reason in both cases is that most system replacements are outsourced, and once you’re on this track it can create its own momentum that eventually takes you back around the same circuit.?

From the CEO’s perspective, why does this happen??

Typically, the trap is that outsourcing logic allows managers to increasingly distance themselves from the project and to focus on handing off responsibility to the supplier. Your team may begin to think of the interaction with the provider as ‘zero sum’ and to focus only on minimising internal disruption and risk.?

Gradually your people end up with very little understanding of what they have, why they have it, how to use it, or how to change it. At every turn, the outsource provider will offer to do anything and everything (at a price!), and this progressively deskills your team. The result is that your business lacks any overview or strategy for its systems, processes, and data, and it lacks the proficiency and expertise to ensure that you get value from your IT investments in the future.?

And, going forwards, the contractual barrier with the supplier entrenches this problem. You can’t even have a conversation about new opportunities and ideas without being on the clock.?

Once you’re in this situation, instead of making small changes to your systems to stay in line with your change and growth, your team implement workarounds. When your people leave or retire, knowledge of existing system capabilities is lost, and good use turns into misuse and disuse. And if your team don’t know what they’ve got, they will fail to adopt the features and future proofing you have already paid for.??

Ultimately, your team recreate the kinds of problems, manual steps and deficiencies that they had previously.??

So how does a CEO avoid these problems???

Instead of allowing your managers to distance themselves from the project, maximise?your teams’ engagement with new systems and processes. It’s the same if you’re outsourcing or tackling it in-house: your managers need to be expert supporters, and their teams need to be expert users.??

As for the Board, it’s critical they understand and advocate for the systems strategy as part of the business strategy. You’ll never be able to expand, automate, or scale up if you don’t have the IT to support your plans.??

At a practical level, upgrading your systems is an opportunity to simultaneously upskill your entire business and to create new energy. A new systems implementation is an opportunity to get your people deeply involved with workshopping and even documenting your requirements. With help, your own people can design your new processes, and experts amongst your staff can own new systems and train the others. By giving people small, ongoing budgets, they can commission small changes to easily adjust the systems as the business changes.?

Done right, good systems and processes can keep pace with internal and external changes and have a very long and highly productive life. Good systems can have a truly transformational impact on your team and your business.?

Your tech, your tech supplier relationships, and your evolving systems strategy are strategic assets to your business; treat them accordingly!?

If you’ve got questions about your systems or suppliers, do get in touch. We're always happy to help, even if you never become a client.?

For more no-nonsense articles on systems and processes in the mid-market, see our Digital transformation knowledge centre