7 outsourcing nightmares -- and how to avoid them

Poor communication, shortsighted contracts -- don't get derailed by an IT outsourcing agreement gone awry

Outsourcing IT functions can be a smart business move, particularly if your organization lacks specific expertise. IT infrastructure, networking, application development, help desk -- plenty of high-quality service providers are available to fulfill your IT needs.

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But like other major business and technology initiatives, outsourcing comes with risks, regardless of how experienced the outsourcing provider is or how good the move looked initially.

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Outsourcer employee turnover, communication breakdowns, shortsighted contracts: They can all sink an arrangement, resulting in lost opportunities, downtime, or worse. In the interest of forewarned is forearmed, here are seven real-life examples of what can go wrong with an outsourcing initiative -- and how to avoid or resolve these outsourcing arrangements gone amok.

Outsourcing nightmare No 1: Outsourcing employee exodusSeveral years ago, Coalition (Technologies had a project for an important client that it sent to an outsourcing partner to complete. The Web design and marketing firm had worked with the outsourcing partner before, and the experience had been positive. The partner had been responsive and provided a high level of quality and communication, says Joel Gross, founder and CEO of Coalition.

"Everything seemed to be moving along fine, until the project neared its completion date," Gross says. Then the outsourcing company's CEO contacted Coalition to report that more than half of the company's staff had quit.

"They did not have the capability to complete the project," Gross says. "As a result, we had to scramble and find a way to resolve [the problem] internally on extremely short notice."

While Coalition was able to deliver the work without too much added delay, it learned a valuable lesson about the risks of outsourcing. Now, the company tries to keep all of its critical IT work in-house, relying on a dedicated, handpicked (team.

When technology projects pile up, Coalition does contract outside providers to perform basic tasks, Gross says. It might sound obvious, but including every possible contingency in the contract is vital.

"Avoiding contracting nightmares is possible; you just have to lay the (ground rules," he says. "In order to ensure the quality and standard of work, we have a strict and explicit contract that must be signed."

Payment schedules and consequences for late or bug-prone work are central components of those contracts.( Contractors receive 25 percent of cost funded upfront, another 25 percent upon beta (completion, and the remaining 50 percent when the project is complete and has been( certified bug-free by Coalition project managers.

Coalition also requires that contractors submit two or three references that can provide feedback on the quality of work.

Outsourcing nightmare No. 2: Offshore app dev delays shut window of opportunityApplet Studios recently switched to U.S.-based programmers after a nightmare experience with its latest outsourced application development project.

"We had one app live in the App Store doing well," says Chad Grills, co-founder of the company, which creates and sells Web and mobile applications. "We lined up all the promotions and advertising for the Android version, which was being built by( contractors outside the country."

Grills exchanged several emails with the contractor, which assured him that development was on track and the app would be delivered within a week. At the end of the week, Grills received no deliverables and emailed the company again. The contractor responded five days later, saying that the developer had been sick.

"I was understanding and asked for an update on the app," Grills says. "They said it would be pushed back another five days. I was frustrated at this point, but pushed back our advertising just in time."

Some 10 days later, the offshore development team sent a completed application.

"I started testing the app, and to my horror, it was a cruel joke," Grills says. "The screen, features, fonts were nothing like the detailed descriptions and iOS code I had sent."

Things didn't go well from there. The app was delayed another three weeks, still full of problems.

"Our advertising opportunity came and went," Grills says. "The marketing window for action closed, other projects couldn't be pushed back, and we had to scrap the app. Worse, the contractor didn't understand why I was upset."

Applet Studios is now much more meticulous about hiring outsourcers for development work and uses U.S.-based contractors whenever possible.

"The contract we signed with our contractor protected us for a portion of the development costs," Grills says. "However, it couldn't help the fact that we had a huge marketing opportunity/venue that we missed. With the app market being as crowded as it is, a missed marketing opportunity can destroy an app's chances at success."

Outsourcing nightmare No. 3: Offshore communications breakdownPredominantly a Web-based business, California Contractor Bonds has outsourced its IT overseas for the past few years, primarily to India.

"In the beginning we had several huge problems (in designing and maintaining our website that were primarily based on (communication problems," says Jeremy Schaedler, president of the company, an online provider of license bonds for contractors in California. "There seemed to be a constant flow of discrepancies between what we were asking to be done and what was accomplished."

What Schaedler learned is that for design, the best form of communication is written instructions combined with diagrams whenever possible.

"Too much is lost in verbal communication," he says. "Outsourcing IT( overseas is a great way to get quality programming talent at a fraction of the domestic cost, but getting a quality product depends on establishing a clear method of communication."

Providing written instructions solved the problems, and California Contractor Bonds now has few if any communication problems, Schaedler says: "In the last two years I have only spoken to my current programmer in India by phone two or three times, yet we correspond by [written] message two or three times a week on average regarding IT."

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