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Outsource magazine: thought-leadership and outsourcing strategy | October 31, 2014

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How to be a first-time outsourcing customer: post-contract

How to be a first-time outsourcing customer: post-contract

More and more companies are looking at outsourcing, which means that there are more and more first-time outsourcing customers. Outsourced IT is very different from insourced IT, and first-time outsourcing is very different from the second time around.

Outsourcing has been around for long enough that there is lots of knowledge around. The pre-contract process of RFI, RFP, BAFO etc is reasonably well understood, and many companies get external advisors to help them through this process. By contrast there is much less written about the post-contract period, when the customer has to make large changes in the management of IT. Even if we take into account that much of the pre-contract work is very important for the success of the agreement, it is still surprising that a lot of attention is given to the (say) six months leading up to contract, and then we jump over the next five (or seven or…) years of operations.

Governance is different

Governance isn’t something that arrives with outsourcing; companies have rules and processes by which they run themselves. But with outsourcing the normal rules change. In the insourced world a conflict is resolved using some combination of hierarchical and political power, and some definition of ‘the good of the company’ as understood by whatever executive person or group an issue is escalated to. In the outsourced world it comes down to a contract and the effect of various agreements made outside the contract, and to evidence in the form of documentation: minutes, emails, SOWs.

This requires a different attitude to dealing with differences of opinion, and also the habit of recording and storing information in a form that you can retrieve.

What you pay for

You should realise that the services are being delivered by someone who computes the profitability of service delivery, and has an incentive to maximise that. Moreover, that the supplier is entitled to make a profile once the contracted service is delivered; profitability doesn’t mean the customer is being cheated.

This means that you shouldn’t expect the supplier to do work that isn’t in scope, and should expect a change request if scope increases. Of course you need to raise change requests for reductions in scope that save you money.

Specifications

Be clear that you know what you’re asking for, as requirements are expensive to determine, especially if there are multiple passes of workshops. Also, specifications that are too wide might lead to a solution that is too general and therefore too expensive. Remember that the specificity of specifications is what give you the power to accept or refuse a deliverable, or to require re-work, and therefore any vagueness may leave you in a position where you can’t get what was actually required.

Revisit loose ends

There never is an outsource deal where the negotiating teams are told to take their time and make sure that no detail is left undone, however small. There may be any number of such loose ends; a common one is the baseline of software, hardware and contracts. Also the performance baseline against which performance will be measured, whether for contractual reasons or by the internal audience.

In a first-time outsource, baselines are typically uncertain even after due diligence. It might be worth while to do a second due diligence; while the results of this will probably be chargeable, at least you get it over with and prevent a steady drip feed of exceptions that damage the relationship.

With respect to equipment, remember that it’s not only the physical existence that matters, but also the responsibility for capacity changes and refresh.

Managing relationship vs managing operations

The retained IT organisation is normally formed from a cadre selected from the existing IT organisation. This is inevitable and there are a number of good reasons for it. However it also comes at a cost and some thought has to be given to how to deal with this cost.

Managing a relationship with a service provider is very different from managing staff that manage operations. The ‘can do’ people who did well in operations might not do well in roles where they are middlemen between the business users (who have generally been told how good the outsourcing relationship will be) and the service provider (who will be working to achieve service levels).

It seems to me to be very unfair to expect people to make this transition themselves, unaided, at the same time as all the other changes take place. A better approach might be to invest in some team-building to form common outlook and expectations across the service provider / customer divide, and to provide for third-party coaching to help the retained organisation settle down to their new roles.



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