When Don Borgschulte, managing director of information technology and services, New Century Energies, arrived on the job in November 1996, his mission was clear. He had been hired to ‘fix’ his company’s badly faltering outsourcing relationship with IBM Global Services.
When 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.
Outsourcing’s maturation as an industry has created a substantial body of experience in ‘renegotiating’ and ‘restructuring’ outsourcing contracts. Today, these transactions — sometimes referred to as re-do — are more the rule than the exception.
American firms continue their rapid expansion of service and product outsourcing. Companies signed major new contracts for information outsourcing alone in 1994 worth $11 billion; in 1995, $20 billion; and in 1996, $33 billion, and all signs point to vigorous growth ahead.
The past decade has seen a move toward outsourcing as a way to decrease operating costs. The outcome has not been a record of unblemished success, but unanticipated results have played a role in reshaping outsourcing, according to Ellen Quinn, vice president of administration, Yankee Energy.
Partnership: More Than a Fancy Phrase. One of the most telling changes in future outsourcing will be the reshaping of relationships as companies continue to move away from cost reduction as the single key driver.
Outsourcing: The Big Picture. The outlook for pure outsourced big deals will decrease in the coming year, according to Jim Champy, chairman of outsourcing at Perot Systems.
By the year 2002, over 50 percent of everything that is spent externally on IT services will be expended around e-business activities. That’s part of the e-business explosion predicted by Doug Elix, general manager for IBM Global Services.
The proliferation of outsourcing is just phenomenal across types of activities, across industries and at every level of the organization.
There are two problems that pop up consistently in people who have problems with their vendors. 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.
Why do some outsourcing relationships succeed and others fail? One key lies in the day-to-day management — and that management can be facilitated by defining effective communication mechanisms early in the planning process and including those mechanisms in the contract.
Managing an outsourcing relationship can be fraught with challenges. Day-to-day decisions impact long-term goals. Lack of planning and misunderstandings can create difficulties in implementing strategies. Personality clashes can cause rifts in smooth operations.
Dresser Industries was looking for an outsourcer who could maintain the customer-sensitive spirit the company’s computer services team had established. As Dresser began the process of documenting its existing services and service-level requirements, it was clear that there were several key objectives beyond the basic specifications.
The information technology (IT) outsourcing industry was launched by an explosion of rapidly changing technology and companies’ needs to access benefits of that technology at the lowest possible costs. The bottom line was cost containment. Today, that line is a bit blurred. Although cost containment continues to be a major issue, many companies have other goals as their primary reasons to outsource.
Long-term Information Technology (IT) relationships have always been fraught with challenges. Today, long term relationships patterned after those of the past don’t have a prayer for success. Why? Because the static nature of the agreements dooms them to failure.
Outsourcers that have the infrastructure and more importantly the expertise within a given process will be able to capitalize on that opportunity.
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