Beware the commoditization of IT outsourcing

By Stephanie Overby, CIO |  IT Management, outsourcing

The first thing that should come to mind when looking at this list is that these flaws would be difficult to detect in a commodity buying process. And having a "compete on the components" mentality often over-leverages the buyer, which, in turn, can lead customers to get their outsourcers to overcommit. This may make for a good contract, but not a good deal, easily leading to a death spiral where the customer seeks to enforce a contract that was destined to fail. But CIOs are adamant about the need to derive business value--not just cost-cutting--from their outsourcing relationships. How did we get here?

Hansen: It's one thing to talk about value, and another to sponsor a process that actually produces it. There's an old adage that roughly holds: nobody ever wants to spend the ten dollars and a week to do something right, but they're always willing to spend the 100 dollars and years to slog through it once it's done wrong.

It's reasonable to think that a faster buy process will start to yield business value faster, since all the benefits of the deal can start earlier. But this is only true if the time line ends at steady state instead of contract signing. The overriding buy goal should be to get to steady state as quickly as possible without destroying the customer's change management program. This means making it through transition intact, which is almost always more difficult than it sounds, and most buy processes don't support this kind of success.

There has been historical failure on the part of the industry--on all sides--to realize and then take action on the basic flaws in the outsourcing economic model (the elements of the relationship that drive behaviors). This has led to brute force behavioral corrections---SLA credits, contracts that go on for thousands of pages, and so on--but has often neglected the most important elements for success. Yet, when we fail to spend the time and effort to get this right, we have to rely on behavior modification through a contract, rather than the natural alignment of business interests to make a deal work.

Many in the industry are starting to come around to thinking about these deals differently. But while the thinking is getting better, we're in a rapidly changing environment where constant good thinking needs to happen to really drive the value in these deals.

And in the middle of all of this, we are starting to see a push to commoditize the advisors who will most likely fuel this thinking and drive positive change in this area. So at a time when the industry should be converging around unlocking value, the thought-leading advisors should be in a position to help their clients do very well.

Originally published on CIO |  Click here to read the original story.
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