The various reasons why outsourcing contracts fail are:
- Overdependence on the third party: If the critical functions are outsourced on which other functions are dependent, the managers cannot work further without the rely from the third party. In such a case, one mistake on the contractors side can cause problems for the company.
- Loss of logistics innovative capacity: Company when thinks the contractor is not fit for the processes due to use of obsolete technology or not evolving with the times, they might call off the contract.
- Clashing firm cultures: Cultures of different organizations are different. If there is fight between the management of the companies, they might not want to work with each other due to lack of trust and loyalty.
- Latent information asymmetry: ends are just not important but the process is equally critical. The contractor if does not reside trust in the company and tries to hide important information from the managers to protect its reputation and image, it might be harmful if the manager later finds out from someone else and feel cheated.
- Loss of control over third party: The third party if starts dictating and makes rules, the company might not want to depend on such a contractor.
- Hidden costs: While signing the contract, certain areas are strictly discussed, later if the contractor demands for hidden costs which the company never knew of, it is possible that there is clash of interest and fight.
- Problem evaluating and monitoring third party: The third party needs to understand the problem at redressal and try to solve it. If it doesn’t perform according to the needs of the company then there is no point working together.
- Inefficient management: The management of the contractor might not be true to their work and inefficiency in their work performance might lead to lack of trust, and contract failure.