When the outsourcing honeymoon ends
DO YOU CONSIDER outsourcing a major IT function? If so, bear this in mind: Like an eager suitor, the vendor will promise the moon. But the courtship period is often the best part of the relationship. IT leaders should look at working with outsourcers more like a marriage with the potential for divorce, says Peter Vogel, a Dallas attorney. "If you know you're going to get divorced -- and I use this analogy -- you should start thinking about who's going to get the record collection and who gets the furniture," he says.
Some IT managers don't plan for problems, because they don't want to envision failure of the relationship. With the economy pinching both IT departments and outsourcers, flexibility and solid agreements are key to surviving tough times in the IT/outsourcer marriage. Deciding whether to seek a new vendor, renegotiate, or bring a function back in house is daunting. The following case studies illustrate paths that IT executives have followed when a relationship with an outsourcing vendor has soured.
Reworking the marriage contract
In 1999, Robert Nelson overhauled his company's outsourcing agreement with IBM Global Services for functions from help desk to distributed network management to application development. Because of mergers and QoS (quality of service) issues, the former director of IT services for New Century Energy (NCE) of Denver (now part of Minneapolis-based Xcel) determined that the agreement had to be renegotiated. "We were pretty dissatisfied with the services and the contract," he recalls.
Signed in 1995 and worth about $500 million over 10 years, the original contract lacked flexibility. Because NCE was among the first in the energy industry to craft such an arrangement, there were few examples to follow. The decision to outsource to IBM Global Services (then called ISSC) was made at the executive level and without competitive bidding. At the time, IBM was one of NCE's largest customers for electricity, so the deal was seen as part of a broader strategic relationship.
The catch point, Nelson says, was that different NCE business units wanted varying service levels from IBM; but the initial service agreement was "one size fits all." That wouldn't work going forward. "We wanted to create a more competitive situation where the onus was on [the outsourcer] to demonstrate that
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