IT Outsourcing Contracts: Heaven or Hell? You Choose
publicado por Alfredo Saad
After being manager, during 12 years, of two big and complex IT Outsourcing contracts (one as a client, the other as a provider) and after having observed, during additional 6 years, more than 100 IT Outsourcing contracts, in charge of their risk management process, I could identify an enormous variability in their degree of success, when we compare the results effectively achieved with the potential benefits initially targeted.
To make it clear, let us depict two scenarios, which we will call “Hell” and “Heaven”, which show two extreme and opposite status, frequently found.
Typical profile of the “Hell” scenario
– Contract motivators
Focus only on cost reduction
Predominantly operational motivators, sometimes conflicting, non associated clearly to business objectives
Negotiation with a technical approach only, with no strategic guideline or executive sponsorship
– Contract operations – latent conflict state brought forth by:
Ambiguous definition of contractual obligations by both parties
Ambiguous definition of services quality indicators
Badly (or non) administered client expectations
Ineffective communications with the users about the real limits of the contractual obligations
– Relationship between parties:
Growing feeling of mutual distrust about the other party having obtained unfair benefits during contract negotiation:
Concerning the agreed prices
Concerning the amount and skills of resources allocated to the contract operations
Growing demotivation of both teams due to difficulties to:
Create additional deals
– Observed evolution
Progressive instability on services delivery
Conflict resolution discussed at the wrong hierarchical level
Client dissatisfaction reaches an intolerable level
To the provider, costs out of control and reduced profitability
Possible contract cancellation
Typical profile of the “Heaven” scenario
– Contract motivators
Solid definition of deal purpose guides the negotiation strategy
Negotiation sponsored by the correct hierarchical levels, consistently with the business objectives aimed at
– Contract operations – based on solid governance by both parties:
Permanent expectation administration and immediate corrective action taken to correct any perceived deviation
Eventual conflicts discussed and solved transparently involving the adequate hierarchical levels
– Relationship between parties
Progressive feeling of mutual trust as both parties pursue common objectives:
Growing client satisfaction
Stability on services delivery
Innovative ideas arise during day-to-day discussions
Growing motivation of both teams :
Through the cultivated partnership mindset
Through the permanent implementation of new projects
Through the mutual perception about the good results achieved
– Observed evolution
Provider is seen as a relevant participant of the client´s business planning, estimating all impacts over the IT environment coming from the planned business projects and planning all IT projects derived from them
Permanent discussion about new deals to support the client’s business
Anticipated contractual renegotiation, with an additional price reduction (good for the client!) and an additional term extension (good for the provider!)
Such learned lessons can also be useful to deal with cloud services, whose successful implementation also depends on some relevant aspects such as the definition of the business drivers which impel the decision, the contract negotiation and its governance. The risks associated to each of these steps, including those inherent to a cloud environment, will be discussed in future posts.
Other topics about IT Outsourcing contracts, especially those concerning the relationship between parties, can be seen in the post “IT Outsourcing Contracts: Relationship between Parties”, published in TI Especialistas in November 17, 2015.
Do the readers of this article agree with the concepts presented? Please contribute with your comments!
A versão em português deste artigo, com o título “Contratos de IT Outsourcing: Céu ou Inferno ? Você Escolhe”, foi também publicada aqui no site TI Especialistas. Para vê-la acesse o link abaixo:
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.