When to Pull the Plug?

The only viable time to abort a transformational outsourcing initiative is before it starts. Remember, we’re not talking about conventional outsourcing programs that never make it onto the CEO’s radar. The company’s very future rests on the success of the transformational outsourcing initiative. Failing carries huge consequences. So before company executives— and their counterparts from their outsourcing partner—sign up, they must acknowledge that failure is not an option. They will do whatever it takes to make it work.

In earlier chapters we have talked about stakeholder analysis, business-model design, scenario planning, partner selection, and risk management as ways to reduce uncertainty and ensure success. Some companies take one additional step. They take a hint from the recent U.S. requirement that chief financial officers personally certify that their companies’ financial statements are fair and accurate. They ask key executives to register their personal commitment to success as they sign the contract. This represents each individual’s promise to make the initiative succeed. In my experience, executives find it easy to nod their heads in the right direction. When they have to sign their names, they get much more serious.

When the initiative hits a rocky patch—and it will—someone will remind the group that they all committed personally. This will help keep them from defensively retreating to their corners to point fingers and lay blame and, instead, to work through the challenges they face.

If executives cannot satisfy themselves that the initiative will succeed, they should not go forward. The governor of Connecticut did this in mid- 1999.^[1] The governor and CIO of Connecticut had decided to outsource the state’s entire information-technology capability with an objective of reducing cost, improving capability, and driving economic development. They managed a careful tender process, evaluating bids from several multinational providers and the Connecticut State Employees Association, the union representing many of the workers who would be affected. After an extensive tender process, Connecticut chose a vendor and began detailed contract negotiations. The contract negotiations broke down at the eleventh hour over financing. To make the deal politically feasible, the governor needed the outsourcing provider to absorb costs in the first three years of the contract that the state would repay in latter years. The provider was reluctant to invest, asking instead for its cash flow to be more even. The difference was a deal-breaker. After all the effort, the two organizations simply walked away from the table.

^[1]Jane Linder and Thomas J. Healy, ‘‘U.S. State and Local Outsourcing: Leadership in Value,’’ Accenture Government Executive Series report, August 2003.