Six Reasons Why Outsourcing Projects Fail

Reasons for the Failure of Outsourcing Projects and how to Recognize Difficulties Early in the Project

Three-quarters of IT leaders plan to keep the share of outsourced software development the same or increase it, according to the latest study on IT leadership1 by the opinion researcher Gartner. Whether in the USA, Europe or Germany: the trend is the same. The lack of skilled workers and the resulting increase in personnel costs is a problem for all companies. At the same time, digitalization competition is picking up worldwide. There is no longer any chance of holding one’s own on the international markets without intelligent inner workings.
In Germany, three-quarters of larger companies with 100 or more employees increased their investments in digital devices, technologies, and applications during the Corona crisis2 (Bitkom Research).

The most common reasons to cause outsourcing project fails:

    1. Conflicting, poorly aligned project goals
    2. Intransparency and unrealistic expectations
    3. Indirect communication with the development team 
    4. No customer access management on site
    5. Language barriers cause misunderstandings
    6. Asynchronous work due to time difference

Business research and consultants agree: Outsourcing, remote talent management, and cooperation with digitalization partners are important prerequisites for the upcoming digital push1 2 3.

Nevertheless: Many companies, executives, and project managers locate outsourcing in a dirty corner. Poor quality, difficult communication, and other conflicts are brought to our attention daily by companies desperate to find a reliable and trustworthy provider.

Lionel Born, founder, and CEO of L-One Systems, explains the reasons why outsourcing projects often do not lead to success and how to distinguish good from bad outsourcing providers even before the project begins.

What are the most common pitfalls that lead to the failure of outstaffing projects? Where in the course of the project can they occur?

Born: Let’s start with the end of the project, the objective. This is often the dream scenario: The outsourcing provider understands my problem, my project very well, and puts everything he has into realizing system XY, which is so important for me. Just as I would do it myself if I had the capacity.

Here is the problem with that line of thinking: In most cases, the outsourcing provider and the client have opposing goals. While the software is often a core component for the client’s own business, the project is just another project for the provider. The next customer is already waiting.

The dream scenario: The outsourcing provider understands my project and puts everything he has into realising my system XY. Lionel Born explains how you can tell early on that this might remain a dream ...

Our approach: co-creation. With every project, no one at L-One thinks about the end of the project or the next customer from the outset. We only make long-term contracts that allow us to build up know-how for our clients with us. In the first days and weeks of a project, it’s all about putting the most suitable staff into a project and making sure that the developers are also available for it in the long term. Then our developers work their way into the client’s domain and understand their business. Co-creation does not work in the agency business. In partnerships it does. We make sure that we pursue the same goal as our client and thus create the basis for success.

»While the client expects the provider to go the extra mile to perfect everything, the provider is interested in finishing the project as early as possible to maximize profit.«

Lionel Born, Gründer und CEO von L-One Systems, Darmstadt

Once the project has started, what is important and how do you recognize early on that problems are imminent?

Born: Our customers often report experiences where they were horrified to find out weeks later that the outsourcing provider’s progress is far behind what was agreed or expected. Time delays and even additional costs are then the results. Even worse: your own business depends on the software being able to do what it is supposed to do on time.

An agile way of working is the solution. Agility is promised in every pitch and every offer today, but what is really behind it? We bring our clients’ developers and project managers together with our developers. Ideally, the client can arrange to talk to our developers every day. For example, in a Daily Huddle. The incremental approach and daily reports on progress and problems encountered ensure that everyone keeps realistic expectations and can intervene quickly if problems arise. Transparency is very important to us in our collaboration.

»In our projects, the client talks to the developers themselves. For the duration of the project, it feels to our clients as if the L-One developers are part of their own team.«

Feras Tanan, Leiter der Softwareentwicklung bei L-One Systems

How does the direct cooperation work?

Born: I have often experienced it myself: a project manager sits on the side of the outsourcing provider as my contact person. I don’t know who exactly the developers are. It would create so much trust to simply talk to the developer about a certain problem or to hear his assessment of the progress. Developers communicate with each other differently than with a project manager.

The development teams on both sides communicate with the tools established at the client’s end, such as Slack, Teams or a comparable tool. The distance is as short as possible and there is no middle-man.

Daily reports on progress and also problems that arise ensure that expectations remain realistic. For Head of IT Development Feras Tanan, exchange and transparency in cooperation are very important.

What is the difference between customer success and project managers?

Born: Nothing is more annoying than this: The project manager (or account manager) of the outsourcing provider answers the question “The developers have just confirmed that we are on the last tests. Enclosed is already the invoice.” – Does that inspire confidence? Or should all alarm bells then go off? We have experienced this situation ourselves several times.

About Lionel Born

Lionel Born founded his first company while studying business informatics. With L-One Systems, he mainly equips start-ups and digital risers with customised software solutions. Since 2017, the automated processing of text data (Natural Language Processing, NLP) for AI applications has been part of the portfolio.

At L-One, a Customer Success Manager is involved in every project. Our Customer Success staff are based at our headquarters in Darmstadt and speak German. They are not technically involved in the collaboration – that is the developers directly, as described in the previous point. The customer access person coordinates release dates with our customers, foresees times of higher workload – for example just before the next release – and ensures that client bottle-necks are considered for internal resource planning with our HR staff.

Customer-Success employee and customer: The focus is not on invoicing but on coordinating internal resource planning

How is fluid communication ensured beyond code and data?

Born: Language barriers are a frequent hang-up in cooperation with offshore software developers. Misunderstandings that can massively hinder project progress and software development are the result. Of course, this also assumes that English is not an obstacle on the client-side.

We are a software company and have employed English teachers. How does that fit together? At our company, developers only climb the career ladder if their English language skills are at a top-level. That’s why we train and develop them ourselves.

How effective is asynchronous work due to time difference?

Born: When people work in Asia, we sleep in Germany. And the other way round. That makes direct communication, like Daily Huddles, difficult or even impossible.

The L-One development team is based in Damascus, Syria. There we are centrally located with a large office right in the city centre, surrounded by bars and restaurants – a perfect workplace for our staff. The office has modern equipment with fibre-optic internet access. And: We only have a one-hour time difference to Damascus in Germany. This means we offer the best conditions for synchronous cooperation.