To prevent the Honeymoon Effect, some companies have adopted approaches to encourage outsource providers to perform better over time. Those methods include establishment of bonus payments for attainment of specified levels of performance. Bonus payments can work. Unfortunately, and all too often, however, they create perverse incentives for the outsource provider to achieve only the minimal amount of improvement in order to qualify for the incentive. Consider Ukrainian pole vaulter Sergey Bubka, a world-class pole vaulter who earned $50,000 every time he set a new world record. From 1983 to 1998 he set world records 35 times – never by more than a quarter of an inch, according to records on the Internet.
That incremental approach makes use of the tactic of sandbagging, which is the act of intentionally concealing or misrepresenting one’s true position, potential or intent especially in order to use it to advantage.
Let’s look at a typical outsourcing example of Sandbagging. Typically during contract negotiation, someone on the company side, frequently at the senior management level, will ask, “Just how much can I save?” Rather than establish the highest level of savings achievable as early as possible (which would be most beneficial to the company outsourcing), the outsource provider will Sandbag and produce savings in smaller increments over time.
The same is true with service improvements. Why deliver dramatic improvement all up front when your hardnosed customer is just going to hammer you for more next quarter or next year? Companies know that the savings are made of up “low-hanging fruit” and long-term savings. Consequently, vendors often hold back or “Sandbag” some of their short-term improvements in an effort to manufacture savings opportunities down the line, in case they don’t perform in future quarters or years.