In the past 30 years, outsourcing has evolved from a facilities management system for IT to an almost generic method of contracting. In order to identify the common problems that crop up in outsourcing relationships, one must first understand the anatomy of a good relationship. That’s the opinion of John Harris, corporate vice president responsible for strategy, marketing and sales leadership at EDS.
“The basis of the relationship is where both the provider and the buyer have clearly defined objectives that they mutually share,” says Harris. “Those objectives could be cost savings, bringing more efficiency and effectiveness to the IT services. It could be having technology be a change agent as they reorganize their company. Whatever the objectives are, it’s important that both sides focus on them and share the desire to have that outcome.”
When both sides are not focused on the same objective, says Harris, they can prioritize differently. For example, a supplier may believe that the most important goal is driving down costs, while the client is looking to technology to increase competitive advantage. The flip side of that situation would be when a client wants to keep the relationship as lean as possible and the vendor is trying to provide value added services. In either situation, the two parties will be moving in different directions.
In a good relationship, the client’s expectations of how the objectives will be fulfilled also are clearly defined and reasonable, according to Harris. That includes having a good understanding of their current environment, both in terms of service levels and the amount actually being spent to provide the service throughout the enterprise. Answering other questions can help clarify their expectations.
Clients, says Harris, need to ask themselves what they hope to get out of the IT function, where the IT function plays strategically in their long-term vision of their company, and what parts they want to have an outside supplier fulfill.
“The clearer view you have of where information technology plays within your company,” he says, “then the clearer view you will have of where you can successfully use someone from the outsourcing community.”
The contract, of course, is basic to a good relationship. Harris stresses that contractual terms should be fair and flexible enough to accommodate changes, as they are needed. “It has to go both ways,” he says, “both to receive value and provide value to the supplier side.
Beyond the specifics of objectives and expectations, Harris says a good relationship also requires a good cultural mix, where both parties enjoy doing business with each other.
“If you look at an outsourcing relationship, you are becoming a very integral part of a client’s organization,” he says. “You should be able to integrate into the organization in a seamless fashion. Supplier people should enjoy going to work there. The client organization ought to enjoy your being there and feel you not only contribute to their business, but that you also contribute to their culture.”
Key to pulling all these elements together into a good relationship is communication, according to Harris. “It’s like a marriage,” he says. “It may have rough edges, but if you have the ability to be very honest and straightforward in your communication and both sides are willing to listen, you can learn from each other. That is a very important ingredient. A mistake is where you don’t have an atmosphere where that can occur.”
Where Problems Can Occur
Harris points to two specific situations that can create problems in a relationship. The first is when the person on the client side who made the decision to outsource leaves the organization during the contract.
“You are now inherited by someone who was not part of the process,” says Harris. “This is not tied into the service level agreement. This is a fundamental issue of owning the decision to outsource and who the vendor is. It’s the difference between making a decision and owning someone else’s decision.”
Maintaining continuity within client management is key to maintaining a good relationship and avoiding problems, according to Harris. “My recommendation,” he says, “would be to have a strong management team with clear succession where there is a smooth transition of power and responsibility.”
The second situation that breeds problems, Harris says, is where the client and EDS have not adequately benchmarked service levels prior to EDS assuming responsibility. “Then you get two years into the relationship, and there’s not a clear indicator of your succeeding or failing based on the previous level,” he says.
The Challenges of Change
On a more general note, Harris says customers may have been unprepared for the amount of change that has happened in the business environment over the past five to seven years and has affected both customers and vendors.
“I’m thinking specifically of mergers and acquisitions, the introduction of new technology, the shortage of staff, the competitive landscape, globalization,” he says. “All of those factors contribute to a logic of why you should outsource, but as you go through any type of long-term relationship, the number of issues that you’ll have to deal with outside of pure day-to-day delivery are fairly significant.”
Among those changes are the challenges facing the CIO community. “The challenge the customer has now in the CIO organization is to firmly take responsibility for the information architecture of the company,” he says. “There are two sides of the equation. There’s the outsourcing piece, but the greater challenge is how information should be used within the client company. What is the architecture — the intellectual heavy lifting, if you will — that needs to be put into place? It’s only with that foundation that we, the suppliers, ultimately will be successful.”
Lessons from the Outsourcing Primer:
- Understanding the anatomy of a good relationship is key to anticipating potential problems.
- Clients and vendors must be focused on the same objectives and expectations.
- Because the vendor becomes an integral part of the client organization, a good cultural mix is essential.
- Clients should establish management teams with clear succession to avoid the problems that can occur with the client decision maker leaves the organization during the contract.
- Benchmarking before the vendor assumes responsibility provides a level against which performance can be measured.