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Crisis in IT outsourcing contracts: how to solve it … and what you should have done earlier

publicado por Alfredo Saad

Figura - Crisis in IT outsourcing contracts: how to solve it ... and what you should have done earlierHave you lived a crisis in an IT outsourcing contract? What actions should be taken to solve it? Even more, what could have been done earlier to avoid it?

  • Six clues to check for a crisis

At least 6 clues typically mould a crisis in an IT outsourcing contract.  All of them evidence some kind of discomfort inside the buyer organization which has the perception that…

…the quality of the services provided is unsatisfactory,

…the resources consumption reports are incomplete and, still worse, error prone,

…some requested services are not executed allegedly because they would be out-of-scope,

…the amount and skill of resources allocated to the contract operations are insufficient

…the resources allocated by the provider are not aware of the buyer’s business priorities

…the provider action is always sluggish and reactive and never come up with an innovative solution

Such clues, when not timely addressed, tend to deteriorate the relationship between parties, making it difficult, little by little, the achievement of the potential outsourcing benefits.

Such deterioration can be identified through some clear signals, made explicit by both parties, such as:

  • A feeling that each party is trying to take undue advantage from the other party
  • Emotional discussions at the wrong hierarchical level inducing insurmountable personal conflicts
  • Intolerant attitude during discussions about divergent visions around contract terms
  • Difficulties to openly discuss and agree a solution for the problems found
  • Inability to argue through the utilization of solid facts and data
  • Actions to solve the crisis

In an extreme situation, such crisis scenario can reach levels which may irrevocably prevent its reversion, leading to a contract cancellation, which typically results in a tiring and traumatic process for both parties.

Crisis remediation mandatorily compels both parties to admit the seriousness of the scenario and to recognize that the conflicting points must be discussed and solved in a frank and fair way. Some actions typically adopted are:

  • The replacement of the previous interlocutors, exhausted after so many personal fights, by freshly new experienced negotiators, sponsored by the adequate executive level of both parties.
  • Their clear and objective mission can be summarized as:
    • to find fair solutions for the identified conflicting points, also eliminating any past financial misaligned viewpoints,
    • to document the agreed criteria, aggregating them into the formal contract terms in such a way that future divergent matters can be solved rapidly and with no ambiguities
    • to improve the quality measurement mechanisms and also the report on consumed service volumes, formalizing the agreed terms into the contract, in such a way that accurate data turn out to be the basis for future discussions and
    • when applicable, to define action plans to remedy all failures identified, with their respective owners and deadlines, whose progression will be periodically tracked by both parties, including the executive sponsors
  • Along the process, the negotiators must be supported, when needed, by some experts (legal, financial, etc) to discuss, frankly and openly, some specific questions concerning their area of expertise.
  • How to avoid the crisis

Actually, the actions proposed above constitute a reactive action to an undesirable scenario that already exists. However, some previous actions should have been taken to drastically minimize the probability of a crisis occurrence.

To achieve it, full attention must be devoted during the negotiation of some critical items of the contractual terms and conditions, such as:

  • Quality indicators effectively associated to the most critical business activities of the buyer organization and also a continuous improvement mechanism agreed in the contract
    • Contribution to the crisis, if ignored: the perception of bad services may exist even when the agreed Service Level Agreements are fully complied with
  • Clear and objective resource consumption metrics which reflect the real requested amount through the use of automated tools and real-time reports, accessed by the buyer organization via a web portal
    • Contribution to the crisis, if ignored: perception of undue or exaggerated invoiced values without any reliable foundation
  • Unambiguous definition of services which are within the scope (and in many cases also those which are out of scope), with the participation of key-users of the buyer organization
    • Contribution to the crisis, if ignored: a vague scope definition generate an obvious conflict zone and it also makes it difficult to manage user’s expectation
  • Experience and skill level of the resources allocated to the contract, including, when applicable, proof of market-recognized certification and also the limits of use for subcontractors
    • Contribution to the crisis, if ignored: effectiveness and quality of service will be impaired if the competence level of the provider team is inadequate
  • Mechanisms to encourage innovative solutions, to be continuously prospected and proposed by the provider and evaluated by the buyer organization, with beneficial consequences for both parties
    • Contribution to the crisis, if ignored: perception of services ineffectiveness due to the growing misalignment between fixed and immutable services and buyer’s business requirements, which demand an increasing agility and flexibility

Do you agree with the viewpoints here presented? Enrich the discussion with your comments.

A versão em português desse artigo, com o título “Contrato de terceirização de TI em crise? O que fazer … ou o que deveria ter sido feito?” foi também publicado aqui no site TI Especialistas. Para vê-la acesse o link http://www.tiespecialistas.com.br/2015/09/contrato-de-terceirizacao-de-ti-em-crise-o-que-fazer-ou-o-que-deveria-ter-sido-feito/


Alfredo Saad has been acting on IT area since 1970, taught more than 100 lectures in Brazil and abroad (USA, France, Portugal, Chile, Argentina & Uruguay). He has been acting on IT Strategic Outsourcing Services area since 1997. He negotiated and managed, as Varig's IT Technology Manager, the contract signed with IBM (1997-2004). In 2006 he published the book "IT Services Outsourcing" (Brasport Publishing House). He managed (2006-2009), as an IBM Project Executive, the South American section of Michelin's global outsourcing contract. Risk Manager of all IBM Strategic Outsourcing contracts in Brazil (2009-2014). From March 2014 on, he has been acting as an independent consultant, lecturer and writer on IT Outsourcing as the principal of his own company, Saad Consulting.

Alfredo Saad


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