Girlfriend experience expectation syndrome : How IT service provider relationships often suffers from biases

[Mental models and its application for better product management decisions]

It is very common that companies who outsource product development to external IT service providers expect that they help the company reduce product development uncertainties by being true partners i.e. charter unknowns technology landscape by taking risks alongside, understanding unknown technical choices, trying them out and recommending what would work best in the project. In IT services parlance, this concept is sold to the customers using fancy terms like skin in the game, extended arm of customers, true partners, etc etc. 

Most often this arrangement never works, we almost always hear the disappointment from the product managers that a particular service provider is not adding value, they just are not up the curve to be able to provide the right technical choices to be made and at best they execute what is being told to them and thats about it.  

Expecting an outsourcing IT service provider to be a true partner is like expecting a stripper or a hooker to provide a girlfriend experience. The reason that does not work is due to incentives. The incentives of a professional hooker are in the hours of employment and not in sharing your happiness or problems in life, she has enough troubles of her own. A wife or girlfriend’s incentive on the other hand are in same life goals hence sharing risks work.  'Incentive caused Bias', a powerful cognitive bias in Behavioural sciences explains this. People do what they perceive is in their best interest and are biased by incentives.

  ‘Show me the incentive and I will show you the outcome’ – Charlie Munger 

There is no reward for the IT service provider in making risky technical choices. Contracts make the vendors accountable for lost productivity or fixed deliverables. All contracts - body shopping, T&M, capped T&M, Fixed bid, fixed capacity, value based etc follow a similar structure without any provisions for shared risks and rewards. The mismatch in expectations vs incentives and topped with the fear of being branded with failure prevent the IT service providers from taking risks. 

The behavioural differences due to incentive bias are also apparent in relationships between individual employee vs external contractor, Strategy manager vs management consulting firm, company sales Vs outsourced sales agencies, etc. The differences often leads to the ‘Agency problem’. The agency problem is a conflict of interest inherent in any relationship where one party is expected to act in another's best interests

“The rabbit runs faster than the fox, because the rabbit is running for his life while the fox is only running for his dinner.” — R. Dawkins

So what works ? 

If you are very clear on the output from the IT service provider, It would be reasonable to expect that they deliver the output with high quality, within committed time & budget. With clear and shared expectations on engagement, delivery, technical approach, processes etc. it becomes easier to work together and manage costs. Key decisions like choice of technology, tools, changing requirements are best decided by the company on time and communicated to the service provider. Quality execution is a reasonable expectation from the service providers. What IT services firms generally do well are building a cost effective execution team, build and retain knowledge of client environments, replacing non-performers, Manage time and budget on fixed deliveries etc. 

For expectations of shared risks, taking decisions on the unknown, the contract should provide for such an expectation. Perhaps a reward of building a competency on project cost. I have not come across many successful working examples of such models. For now, I just do not know for sure if that works!