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Research & Insight

Research & Insight

Business challenge

Six Ways to Tell Your Outsourcing Relationship Has Become Too Informal

Frank Usher, Managing Consultant

Renewing and renegotiating outsourced relationships is a great learning experience about what can go wrong in a relationship. One prevalent characteristic is the informality of the provider/customer relationship in long-standing relationships. Contracts that have been in place seven-ten years often lapse into an informality that has the provider acting more as an internal IT department than an outsourcer in a buyer/seller relationship. This informality manifests itself in several areas: Documentation is generally out of date. For example, the procedures manual and knowledge management database are months if not years out of date. The process and procedures themselves are also out of date. Often, a misalignment between the customer procedures and the provider procedures developed, yet no one on either side has made the effort to reconcile them. There is no formal methodology for prioritizing projects or a disciplined procedure to deliver them. There is a haphazard completion pipeline.  The partners prioritize via informal discussions and react to the most vocal requestor. The costs of change are not inappropriately allocated Asset and applications lists are not current for the configuration management database. Or, if the list exists, it is incomplete and out of date. Vendor management has become a monthly meeting to discuss an agenda that is largely provider-generated. They discuss metrics in a vacuum instead of associating them with the achievement of business objectives. Neither party purposely planned to have things turn out this way. Instead, they evolved over time through benign neglect. An outsourced relationship requires much more discipline on the part of the customer than when in-house resources performed the function. Outsourced relationships also require dedicated management of the overall service management.  Development of a customer vendor management function is critical in establishing the discipline and control required for a successful outsourcing relationship. Almost without exception, a lack of discipline and good management by the customer will create an under-achieving environment where the provider assumes more of a defensive position in doing the minimum required to satisfy the customer on a day-to-day basis. In these situations, the service provider may not consider the actual contract requirements. What is the answer to avoiding this malaise? It is acknowledging that outsourcing does not abdicate the need to manage. Management of the provider can’t be a “corner of the desk” activity, one of the many operational tasks assigned to customer IT service delivery. The customer must commit several resources half- time or more to manage the provider. In larger engagements where the buyer outsources several hundred positions, these oversight positions need to be full time to assure that the outsourcing arrangement will actually achieve value. In all cases the management of change needs to take on more importance to control overall costs and ensure that each party pays for changes as appropriate. This is not to say that a good “informal” working relationship cannot exist. But informality only works within the context and discipline of a well-managed relationship.  

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