Challenge Your Outsourcing Vendors:
Enhancing the Value of Outsourcing Partnerships
To fully leverage outsourcing partnerships, you may need to reevaluate the factors that motivated your decision in the first place. Are you offloading undesirable IT functions? Are executives seeking departmental cost reductions? Perhaps management wants to refocus on core competencies. Whatever the initial motivation for outsourcing, avoid pursuing tactical considerations to the exclusion of comprehensive, long-term opportunities. Define your information strategy, and challenge your outsourcing vendors to find a way to help get you there.
Outsourcing vendors offer value beyond lowered aggravation levels and short-term cost savings. Opportunities for leveraging a broader range of vendor skills can (and should) be found in most partnership agreements. Consider a five-year contract that shifted maintenance support to an outsourcing vendor in 1995. The service level agreement omitted language dealing with the year 2000 issue. As a negotiated solution to this dilemma, the vendor sent systems offshore to be fixed. The code returned riddled with errors, and the vendor was forced into a last-minute remediation project. The client and the vendor were exposed to unnecessary risks because the agreement did not broadly assess long-term requirements for those systems.
Line-Item Dissolution
One major challenge in crafting multifaceted outsourcing agreements is to anticipate and accommodate changes in the business and technical landscape and build these into service level agreements. One way to reduce risk in this area is to incorporate the concept of line-item dissolution. This approach allows you to discontinue one service while maintaining other vendor services.
Take, for example, a company that hired consultants to maintain legacy Cobol systems while launching an inhouse Web-enablement project. In this case, it might make more sense to build the Web-enabling requirement into the overall contract and transfer inhouse personnel to the vendor’s payroll. This approach provides the vendor with the personnel to maintain the existing systems and the knowledge needed to Web-enable the legacy environment.
If the vendor is performing well on the maintenance part of the contract, but struggling in the e-business area, you can invoke the line-item dissolution clause in the agreement. This would allow you to cancel the e-business portion of the contract, but continue services under the maintenance portion of the agreement.
Many vendors can offer tactical and strategic value under an outsourcing agreement. In the near-term, vendors could re-document systems, rationalize data definitions, deploy a data warehouse, and Web-enable key functionality. Over the long-term, a vendor could redesign core data structures, retool supply chain/EDI solutions, transform architectures into Web-oriented solutions, or deploy a package.
Many times, however, outsourcing vendors are not asked to disclose their full range of offerings by a prospective client. Challenging vendors early in the proposal cycle to offer a full range of solutions allows you to eliminate vendors that cannot meet all of your needs and forces other vendors to disclose a broader set of solutions.
Challenge your vendors and challenge yourself to look beyond short-term solutions and draw the best value out of your outsourcing partnerships.