Outsourcing resolutions vendors should make in 2011

Way back in December 2010, CIO.com presented eleven resolutions for the IT services customer striving to set their outsourcing relationships right in the new year.

But it takes two to tangle up a perfectly good deal. So as we kick off 2011, we offer these additional outsourcing resolutions for the party on the other side of table-the IT service provider.

Resolution #1: I will get help my partner get into shape. Outsourcers were all over opportunities to cut their own costs in 2010. Now it's time they'e shared what they've learned. "Find ways to shed excess costs and bring these forward to your client," says Adam Strichman, founder of outsourcing consultancy Sanda Partners. Don't just sell your customer a new service that promises save them money someday; uncovers ways to shed costs now. "This should not be something which was requested by your client, but something you know needs to be done," Strichman says. Once finished, surprise your client with an unexpected price reduction.

"Providers have very smart people that know the client's business and these people have good ideas for reducing cost," says Mark Ruckman, an independent sourcing consultant that works with Sanda Partners. "Rarely do these ideas make it to the client, because they don't provide increased value or margin for the providers." Forego that little bit of profit for the greater good. The savings don't have to be huge to have a significant positive impact on your relationship.

Resolution #2: I will seek-and offer-clarity. There's not a CIO in the world who isn't trying to figure out where, when, why and how to implement cloud-based services this year. Yet most outsourcing providers remain reluctant to clarify their own vision of "the cloud." "Tier 1 outsourcing providers need to demystify-or better yet, come clean-on their cloud offerings by providing tangible economic and performance data to their customers," says Steve Martin, partner in outsourcing consultancy Pace Harmon. Start with some apples-to-apples comparisons of your legacy IT outsourcing offerings and the equivalent cloud-based service.

"Legacy service providers must resolve to co-opt cloud computing before it co-opts them," says Stan Lepeak, managing director of global research for outsourcing consultancy EquaTerra. Collaborate with key industry players to continue to develop standards for security and interoperability, advises Eric Simonson, managing partner with outsourcing consultancy Everest.

Resolution #3: I will say what I mean. This suggestion rings as true for outsourcing suppliers as it did for outsourcing customers. There's nothing more powerful than exactitude and candor in establishing a new relationship or fixing a troubled one. "Get off the PowerPoint and corporate B.S., and start talking in direct, understandable language with [your] clients," says Phil Fersht, CEO of outsourcing analyst firm HfS Research. Try being forthright, whether you're talking about cloud computing, offshoring, or layoffs.

Resolution #4: I will be honest about my shortcomings. Time erodes the value proposition of any outsourcing deal. "Sometimes it is just a small service, sometimes it is a whole service area," Strichman says. "Vendors know best where these areas are and are often loathe to admit it." You have no contractual requirement to tell a client that they're now paying millions over the market rate for storage or desktop support, but open conversations about where you're continuing to add value and where you are not will strengthen the relationship and likely increase your business with that customer.

"I would recommend providers adopt a Costco-like model where managers are penalized for going above or below a defined margin," Ruckman says. "This will help enable providers refocus on customer value which will help them extend contracts."

Resolution #5: I will avoid bad relationships. Make sure the situation is right or everyone is in for some heartache. "Walk away from bad deals that are being led by procurement rate-card flunkies who only understand price," says Fersht of HfS. "The only way to change the game is to insist on terms of engagement that drive innovation and value-not simply low-cost and squeezed-margins that will ultimately disappoint."

Resolution #6: I will start things off on the right foot. "Why is it that the transition from an insourced or legacy IT outsourcing provider to the new provider almost invariably hits code red status?" wonders Martin of Pace Harmon. Outsourcing providers are good at creating transition plans on paper, terrible at managing them in reality. "Vendors have become systemically weak at project management-ironic, given their heritage," says Martin. "One CIO even asked us whether vendors create issues during transition to create a lasting memory for their customers, making them think twice about starting over with a new vendor in five years."

This year, make sure every new deal has not only a clear transition structure, but also experienced management and quality control processes underpinning that plan. "Pay what's required to attract and retain a disproportionate number of A-team managers, and develop the structure to get this right," Martin advises.

Resolution #7: I will walk the walk. You told your customer you wanted to be a partner, not just a service provider. You sold them on the idea of innovation rather than the status quo. Start delivering. Make real investments, particularly in consulting talent, to help clients move beyond the tactical to the strategic, says Fersht of HfS Research.

Resolution #8: I will focus on what's important. Take a break from the up-selling and concentrate instead on over-delivering. "Don't try and sell every new widget to your client unless the widget brings quantifiable value and fits the IT roadmap for the client," advises Ruckman. "It is a huge waste of time for the clients."

Invest in relationship management capabilitiesinstead. "The ability to create and sustain dynamic partnerships will set the stage for long-term organic growth and joint investment," says Everest's Simonson. "Relationships built on shared-risk models offer the potential of achieving larger returns for both parties in the long term."

Resolution #9: I will share my knowledge. Hard won strategic and tactical breakthroughs with one outsourcing customer are seldom shared with another. What a waste. Let 2011 be the year you actually leverage those discoveries throughout your client community, advises Atul Vashistha, CEO of offshore outsourcing consultancy Neo Advisory.

Resolution #10: I will be myself. You know the importance of market differentiation; now embrace it. "[Outsourcing providers] need to take their real DNA to market and show the industry what they stand for, and what they are trying to achieve," says Fersht of HfS Research.

Resolution #11: I will follow the Golden Rule. It's another oldie but goodie, that holds just as true for suppliers as for customers. Imagine you sign a fixed-price contract to build a new home but shortly after the construction begins the change orders start coming. Oh, you wanted grout with that tile? That's extra. Doors on the bathrooms? Not in the contract. Electrical outlets throughout? Outside the scope of work. Dream home turns into nightmare project.

"Most people don't want a contractor that will nickel and dime them on a home improvement project, yet provider employees go to work every day looking for ways to nickel & dime their clients," says Ruckman. "Providers must teach their managers to treat clients the same way they would want to be treated in their personal life."

Read more about outsourcing in CIO's Outsourcing Drilldown.