5 Companies That Lost Millions After Choosing Wrong IT Outsourcing Provider

January 7, 2020

If you find the right software outsourcing provider, this vendor can take your project to an entirely new level. We hear that a lot. Simultaneously, business owners have many prejudices for outsourcing. And it is hardly surprising because in history there were a few examples of clients who lost millions because they chose a wrong software development company for their project. So is it a bad idea to outsource software development? Let’s look at some examples of terrible IT outsourcing projects and think if there was a way to avoid failure.

Risks Connected with Software Development Outsourcing

Companies decide to outsource because it allows them to get access to skilled experts. Specifically, people who can create the best solutions for them, are experienced and provide not only technical but also business knowledge. What is more, outsourcing also helps with focusing on core company activities. Therefore, you and your employees can concentrate on your primary business tasks.

It would be perfect if it will always look like that. 

While choosing an IT outsourcing partner, many business owners are afraid that software houses don’t have the experience and capabilities claimed. The most frequently reported reason for outsourcing disasters is a failure to meet expectations. Companies also complain about hidden and unforeseen costs.

IT Outsourcing Biggest Failures

Indeed, in the history of IT outsourcing, we had a few severe failures. What mistakes led to these failures and how serious were the consequences? Let’s explore.

Cambridge University NHS Foundation Trust and Epic

Cambridge University NHS Foundation Trust hired the US software development company Epic to create an online patient record system. It was intended to allow the staff to access patient records on portable devices. Above all, the Trust wanted to improve performance and information flow. 

Unfortunately, the system appeared to be a disaster. The performance dropped by 20%. The system produced inaccurate information creating a risk for patients not to receive appropriate care. What is more, information was not updated correctly, and the staff was confused by how to use the system.

The Trust claimed that they underestimated the scale of the project and the impact these changes could have on patients’ health. The original deal was worth £200 mln. Furthermore, system’s issues led to high additional costs. As a consequence, the Trust needed to put some special measures because of the financial problems it caused for the foundation.

The State of Indiana and IBM

The State of Indiana wanted to outsource modernizing its welfare processing system. They wanted to transform it, introduce a new service delivery model to reduce costs and fix violations. The goal was to allows people to use the system online, be able to make a claim personally or over the phone. The deal was worth $1.6 bn. 

Unfortunately, the created system was full of errors. In consequence, applicants were complaining about the long waiting time. Although, the challenge was enormous and the vendor needed unconditional support from the client to face it successfully. IBM proved in court that they didn’t get it. 

On the other hand, as IBM is a great company, this task overwhelmed them. Texas and Florida examined similar projects before the one at Indiana started, and they failed. IBM claimed that they could manage these issues, and they don’t apply to them, but unfortunately, the company was wrong. This caused a substantial financial loss for the State of Indiana.

The State of Texas and IBM

The State of Texas wanted to consolidate data centre operations. For that task, they chose IBM. In the first two years of the project, IBM had to consolidate data centre operations for 27 state agencies into two data centres. 

Unfortunately, in these two years, they were able to migrate five agencies’ systems. What is more, the vendor wasn’t performing the nightly backups required under a contract. 

The State of Texas lost $863 mln on the original deal. Moreover, IBM couldn’t finish the project causing subsequent financial loss. In consequence, the costs were growing, and finally, Xerox and Capgemini replaced IBM on $1.1 bn deal.

Virgin Airlines and Navitaire

Navitaire provided internet booking, reservation, check-in and boarding system as SaaS (Software-as-a-Service) for Virgin Airlines. All these applications crashed two times in three months. According to their agreement, Navitaire was obliged to resolve that kind of critical system failures in the shortest time possible. 

Unfortunately, this time they were unable to do it fast – it took them nearly 24 hours. During that time, all Virgin Airline flights were grounded, and over 50,000 passengers were frustrated. That caused enormous financial loss for Virgin Airlines. If we choose SaaS, we can experience issues on the vendor’s hardware, and it depends on the vendor how quickly we will get our crucial software back. Navitaire’s inability to correct their problem caused many frustrations and huge financial loss.

Royal Bank of Scotland and Their IT Vendor

Royal Bank of Scotland didn’t disclose the details about their software outsourcing provider to the public. The bank’s system needed updates, and they planned one of the updates for June 2012. Unfortunately, it left millions of bank customers without access to their money. 

As a consequence, commercial and non-commercial customers were unable to withdraw funds, view their balances, perform transactions. Besides, even the bank itself couldn’t do it. What is more, 30,000 social welfare recipients didn’t receive their money. The failed software update paralyzed the whole banking system.

The fact that customers were unable to make payments or receive money had a tremendous impact on local business. It resulted in a backlog that they were clearing for almost a week. The bank didn’t reveal what company was responsible for this disaster.

What Were the Causes of These Failures?

To sum up, we’ve gathered a few causes of these software outsourcing failures:

  • In these cases, vendors didn’t assess their knowledge and capabilities needed for this particular project. Inappropriate assessment of skills on the vendor’s side met with an inadequate evaluation of the project’s scale on the client’s side. Because of that, there were delays or vendors just didn’t cope with their projects. Bad consequences surprised both parties.
  • Some vendors showed unreliability and didn’t comply with their obligations. It seems that in some cases, clients didn’t protect their interests carefully enough. Before the projects start, every client should take precautionary measures and preserve his business in case of any failures on a vendor’s side. Find out how to protect your idea correctly.
  • Big corporations may not be as flexible and agile as smaller software houses. Smaller companies also can cope with significant challenges. In these cases, clients chose the most prominent players on the market, which was not the best idea.
  • Poor project management and no transparency causes many misunderstandings. In some of our examples, vendors didn’t receive the support needed, and clients were not informed about progress or vendor’s needs. What is more, clients didn’t participate actively in the whole process. The communication also wasn’t open, transparent. We can’t achieve the success that way.
  • It seems that in some cases, clients chose vendors too hastily. Before selecting a software development company for our project, we should conduct careful research. Indeed, we shouldn’t choose a vendor on the grounds of thehttps://www.appstronauts.co/6-mistakes-you-need-to-avoid-while-choosing-a-software-development-company/ lowest price or friends recommendations. Every project is different and needs tailored specialists. Above all, careful selection is the key to success. See what mistakes to avoid while selecting the best software development company.

Is Outsourcing Safe Then?

These examples show that we should be careful about choosing our outsourcing partners. Although, on the other hand, we have the newest researches that show that outsourcing is regaining its powers. Companies seem to be more comfortable with handling some of the work to external providers. According to the study, application development is the most frequently outsourced function. So, what to think about outsourcing?

There are many trustworthy software development companies and many highly skilled developers that won’t trick us and will deliver the best solution possible. The key is to find the right ones for our specific case. We shouldn’t be afraid to outsource, but we should outsource wisely. Companies can learn a lot from these 5 failures above. Most importantly, clients need to choose IT outsourcing providers wisely, preserve their businesses and actively participate in the development process.  At Appstronauts, we take special measures to protect our client’s interests and business. For us, trust and open communication are crucial to achieving success in any project. 

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