When everything is said and done, the problems that sink a relationship usually fall into two categories. That’s the opinion of Syd Hutchinson, consultant for COMPASS America, Inc.
“I tend to see two problems pop up consistently in people who have problems with their vendors,” he said. “Number one is as they are going into the contract, the customer underestimates future work they will require the vendor to do for them. Number two is a failure up front to say what work is in scope and what work is additional. My experience has been that those are the two most common reasons for relationships that so south pretty quickly.”
By underestimating future work, customers can create a situation where they are hit with additional resource charges (ARCs).
“ARCs are expensive,” said Hutchinson. “The bill goes up, and it goes up fast. All of a sudden, 18 months later, the charges are significantly higher than the customer thought they would be.”
Failing to define adequately what work is in scope also sets the stage for conflict.
“For example,” said Hutchinson, “a customer is going from one type of disk or tape storage device to another. Some vendors have told clients that’s not part of the contract and they have to pay for that separately. From the customer’s perspective, that’s a normal technology transition and should have been built into the contract. From the vendor’s perspective, they’re providing additional/better/faster service than was under the original terms of the contract. So if the customer wants it, they should pay more for it.”
Another point of contention in day-to-day management can be a misunderstanding on responsibilities. For example, a manager of the customer’s data center frequently is retained in-house to help manage the vendor. That manager is familiar with the way the customer used to operate the center.
“Just because you used to do it one way does not necessarily mean that’s the way the vendor is going to do it,” said Hutchinson. “Sometimes that causes a lot of grief for a manager who may have been managing the area for 20 years. That person has to adapt and realize it’s not their call to make those decisions anymore.”
Managers on both sides need to have good people skills, according to Hutchinson.
“It doesn’t do a lot of good for a vendor to send somebody who technically may be the best person alive, but from the people perspective, can’t or doesn’t want to bother with selling their approach to the client,” he said.
Most management problems, however, are not “people” problems, but problems with what they are trying to manage, according to Hutchinson. He echoes the prevailing message in the industry that good management begins with the contract.
“By and large, everything comes back to the contract that was negotiated and subsequent renegotiations that happen around it,” he said. “Getting that as close to reality as possible in the first place is going to save massive amounts of time and headaches down the road. Take time to get it right up front, before you jump off a cliff.”
Having everything spelled out in the contract also gives the customer another advantage. It helps them understand what they are asking the vendor to do.
“Who’s going to make these technology transition decisions? Who’s going to decide if you’re getting the right service levels? There has to be someone who’s knowledgeable in those areas to make those calls,” said Hutchinson. “If you don’t maintain expertise in-house, you’re going to be relying totally on the vendor to provide it. That’s okay for small contracts but not for big ones.”
The customer needs to maintain enough expertise to know what needs to be done, and only the customer can determine which service levels are important to them and which aren’t. That sets up a truth that is common to all outsourcing relationships: Customers have to make their needs apparent — and vendors have to listen.
Lessons from the Outsourcing Primer:
- Correctly estimating future work that will be required from the vendor can reduce the expense of additional resource charges (ARCs).
- Clearly defining work that is — and is not — in scope can forestall some disagreements with your vendor.
- Understand that the way things have been done in your existing data center are not necessarily the way the vendor will do things.