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Painful lessons from IT outsourcing gone bad

Ephraim Schwartz | Aug. 26, 2008
Outsourcing has worked well for many companies, but it can also lead to business-damaging nightmares, says Larry Harding, founder and president of High Street Partners

Horror No. 2: Manufacturing efficiency doesn't extend to marketing

Executives in charge of a small consumer product group at Hewlett-Packard were under the gun. They were told in no uncertain terms to cut all costs related to getting the product into the big-box stores like Best Buy and Circuit City, recalls Margaret McDonald, then marketing manager for the HP department and now president of her own company, McDonald Wordsmith Communications. (McDonald would not name the product and would only say that it is sold today at places like Best Buy.)

"We were trying to get as much work as possible over to the Taiwan manufacturer with the goal to get the cost for these products down as low as possible," McDonald recalls. The Taiwanese outsourcer had a great deal of experience in getting the bill-of-materials costs lower, and HP was seeing that benefit. So managers started pushing for more savings elsewhere, insisting that the entire project be handed over to Taiwan -- everything from manufacture to writing the instruction manuals to all the marketing materials.

"These execs were being evaluated on cost, not on the quality of the brand," says McDonald. When she tried to tell her managers that what they wanted was unreasonable for an outsourced manufacturer to deliver, they accused her of just trying to hold on to her job.

As she predicted, the project turned out to be a disaster. Take this example of the Taiwan-produced marketing materials: "This glamour of new product will perfectly fit to your daily life from any of locations!" Of course, non-native English prose like that never saw the light of day, but it wasted six months until the higher-ups finally realized what was happening.

McDonald isn't sure her managers learned a lesson. She sees the failure not due to the offshore firm hired or even the miscommunication between the U.S. and Taiwan firms. Instead, she sees the problems as a failure within HP, between its own internal organizations. "The main [HP] branding people had no idea was going on." And the local managers reacted to the extreme cost pressures in a vacuum, with no concern for protecting the brand, McDonald says. The fact that the job was outsourced simply created the right circumstances for these internal flaws to finally become evident.

Horror No. 3: Giant telecom stumbles in transition to offshore

Steve Martin, a consultant and partner at Pace Harmon, a company that is often called in to help fix outsourcing deals gone bad, recalls the giant telecommunications company headed for disaster: It never considered the fact that although its new offshore provider, though good at coding, did not understand the business side of telecommunications.


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