The Little Things That Count | Article

Broken outsourcing relationshipWhen a marriage falls apart, the problems frequently aren’t big ones. They are, rather, little things that build up until they threaten the relationship. The same is true in an outsourcing relationship, according to Dean Davison, senior research analyst with Meta Group.

“I often see people in an outsourcing agreement who haven’t been communicating,” he said. “They haven’t been talking back and forth, airing their dirty laundry and resolving the problems that are coming between them.” The marriage analogy is not a casual one. “I know the marriage analogy is not unique in outsourcing,” said Davison, “but of all the places I use it, this is the one where I use it the most.”

“Outsourcing relationships and marriages are similar,” he said, in that all relationships go through various levels of maturity. In the beginning, parties in both marriages and outsourcing agreements go through a period of coming to a mutual understanding of how one another does things and how responsibilities will be divided. It’s just a matter of figuring out some of the things that need to be done,” said Davison. “Hopefully, through the contractual negotiation process, you’ve laid out a good division of responsibility, but eventually there’s going to be something that goes wrong.”

The challenge, according to Davison, is to recognize the difference between a “blip and something that’s becoming a serious problem.”

In addressing renegotiation or restructuring, the first step is to try to avoid acrimony. Davison recommends the establishment of a good relationship management process, where the customer and the vendor are communicating at multiple levels.

Speak Up…

“The fault or success of that lies most heavily with the IT organization that has contracted the outsourcing agreement (the customer)” said Davison. “They have a significant responsibility to make sure they’re managing the vendor, that they’re telling the vendor the things they don’t like or where they need them to go if they’re not in the right place. The outsourcing agreements I see that get into trouble are the ones that don’t have that as a fundamental principle at the starting point.”

In this area also, the situation compared with a marriage, according to Davison.

“If a husband and wife haven’t spoken for three months and the first thing they say when they come together is ‘I haven’t liked x or y about what you’re doing,’ that’s not going to work,” he said. “Unfortunately, that’s how a lot of outsourcing agreements work. They only get together every three months, and then all they do is yell at each other. Eventually the two parties are going to be fed up with dealing with each other.”

Recognizing Signs of Trouble

Even with good relationship management in place, problems and obstacles will occur. Davison cited two symptoms that indicate a relationship is in serious trouble: “meetings where all the parties do is disagree and argue, instead of moving on to the next agenda item, and a complete lack of communication, such as the customer being unhappy but not being able or willing to tell why.”

At that point, said Davison, “both parties recognize that they have fought over certain issues for so many months that they cannot find a breakthrough on their own.”

The time has come to bring in a ‘marriage counselor,’ some third party who is not in the middle of the battle to help the parties find a path to resolution of their problems. “They can bring in lots of types of companies,” said Davison, “consulting firms, some of the law firms. Companies such as Meta Group and Ghartner Group certainly play that role from time to time.”

Gaining a Fresh Perspective

If the ‘marriage counseling’ doesn’t work, the nextstep may be the renegotiation process. At that point, according to Davison, the parties say, “Instead of severing the relationship entirely, we can go back and start over.” That often means both the customer and the vendor assign new people to the relationship.

“So you have a whole new set of fresh blood in there,” said Davison. “They can come in and attack the problem with a different perspective and put together a completely different agreement that can, perhaps, at least the companies together.” Bringing in that ‘fresh blood’ is important to the success of the renegotiation, according to Davison. “Both parties need to realize that the financial implications could change significantly,” he said. “The biggest challenge in most cases is the vendor is getting the best of the deal, and it’s the client that wants to renegotiate. If there are no contractual stipulations or triggers that force renegotiation, it’s often a very difficult process for clients to kick off.”

“Those triggers dictate points at which the parties have the right to go back to the negotiating table. They can range from mergers and acquisitions to simply documenting a certain degree of dissatisfaction to a change in the scope of the services required. It can be anything,” said Davison.

When Divorce is Inevitable…

Even with outside help and attempts renegotiation, the relationship sometimes cannot be salvaged. “The next issue is to say marriage counseling will not work. We are going to have a divorce. Then it’s really figuring out how to make the best of a bad situation,” said Davison.

One thing that helps in that situation is having the rules of termination in the original contract. “It’s a bit of a prenuptial agreement,” said Davison. “What that does is make sure the rules and responsibilities what the vendor must deliver before they pull their people out, which people from the vendor will transfer back to the IT organization if they want to move it back inhouse, etc. — are documented.”

Not having that termination agreement built into the contract, according to Davison, increases the risk that some element of the process will be overlooked or neglected, either intentionally or unintentionally, by the parties involved. The risk also increases when the customer is replacing one vendor with another.

“Basically, you’ve just fired your first vendor,” said Davison. “Don’t expect them to do you any favors. As you prepare for the ending, be aware that you need to make the transition as soon as possible. Get the old vendor out and the new vendor in and get the thing behind you. Get on with your lives.”

Termination obviously is the last resort, and the goal is to avoid that action, if possible. According to Davison, following the steps he outlined –having a relationship management team in place, ‘marriage counseling’ and renegotiation — can help, but they are no guarantee of resolution. “Nothing is going to be perfect,” he said, “but IT organizations that do these things have a much better chance of salvaging a longer term relationship than someone who’s ignoring them.”

Lessons from the Outsourcing Primer

  • The first step in avoiding acrimony in a re-do is to have a good relationship management team in place.
  • Meetings where all the parties do is disagree and a complete lack of communication are two symptoms of a relationship in serious trouble.
  • A ‘marriage counselor’ may be able to help the customer and vendor resolve problems.
  • If the situation moves to renegotiation, ‘fresh blood’ should be brought in on both sides.
  • If termination of the relationship is the only solution, make the transition quickly.

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