Ailment #5 – The Honeymoon Effect

At the beginning of any relationship, both parties go through the honeymoon stage. The Honeymoon Effect was studied by the Stamford, Conn., research firm Gartner, Inc. In her article “Gartner: Outsourcing deals based on price alone are likely doomed” (published at CIO.com on March 15, 2006) Kate Evans-Correia reported that the Gartner research investigators found that overall attitudes toward an outsourcing contract tend to be positive at the outset, but satisfaction levels drop as the project progresses. Outsource providers often will jump through hoops as they ramp up (and begin to collect revenue) for their new client.

While remaining conscientious about meeting the company’s expectations and maintaining associated service levels outlined in the contract, the service provider does not have an inherent incentive to raise service levels (or decrease the price) under typical arrangements, even if the industry service levels are improving. Over time, the downside of the Honeymoon Effect can lead directly to the “seven-year itch”: the supplier’s productivity levels may begin to decline if investment in its employees and technology begin to lag. Then the outsourcing company, feeling dissatisfied with their supplier’s service levels and productivity, will want to switch to a new supplier. However, as Michael Redding pointed out in his article “Managing the Risks of Facilities Management Outsourcing” (published June 7, 2006, in Real Estate Weekly), suppliers can make a switch to a new supplier prohibitively costly and disruptive.

Read More! Move on to Ailment #6 Sandbagging

Comments

  1. It’s easy to assume that it will be the cheapest price wins. It is not the case in the public sector, with a strong environmental agenda it is not uncommon to see 10% of your marks being on your environmental policy

Speak Your Mind

*