Avoid the pitfalls of badly negotiated contracts. Make
it clear from the outset exactly what you want from your supplier,
says Les Graney.
UK companies spend 25%-30% of their IT budgets on external
services. Yet Gartner estimates that badly handled relationships
cost European businesses £4bn a year in wastage.
Surveys by D&B reveal that 20%-25% of all outsource
relationships fail in the initial two-year period and that 50% fail
within five years.
Having been involved in outsourcing from its earliest days in the
UK with BP, through to last year's outsourcing of Royal Mail
Group's IT services and now as an IT outsourcing adviser, I have
gained insight into many of the pitfalls in this arena.
One hazard for inexperienced users is the complexity of the
contract negotiation process. The service provider will have plenty
of expertise in the specifics of outsourcing terms and conditions,
but the client may have little IT outsourcing experience.
Risk and reward can be skewed in the supplier's favour and contract
terms, which seem reasonable at the time, become minefields for the
future.
For example, at one UK telecoms firm an element of the fee was
based on server numbers. This meant that server consolidation and
commensurate cost savings for the user were discouraged.
At Royal Mail, another insight gained was to steer clear of
specifying how a supplier goes about providing a service. If you do
you will stifle innovation, incur costs and lose service
benefits.
As long as the service provided is delivered to the right quality
at the right price, how it is done must always be the supplier's
domain; that is part of the expertise you are engaging the company
for.
But probably one of the most complex areas is in specifying,
monitoring and managing performance. You must set business-level
service goals, not just technical ones. You must also define what
aspects to report on, how to measure them and to whom they will be
reported.
Determining where the data and other evidence will come from to do
this is complex and, of course, you must minimise the delay between
actual performance and reporting if issues are to be spotted and
resolved before harm is done.
Since my time at Royal Mail, performance definition and service
measurement/governance software tools have advanced to the extent
that they can add substantial value, especially when both parties
share the metrics.
The best products collect data from many thousands of sources and
can relate and measure these to a few core business-level
objectives. Performance indicators, intelligence and alerts provide
early warnings of deviations or potential threats in real
time.
IT outsourcing is still a relatively young phenomenon. But as
experience builds and with improving processes and the application
of powerful tools, astute organisations will bring the risks under
control and get to grips with the true benefits.
What do you think?
Do you have any top tips on getting the best from your
suppliers?
Tell us in an e-mail >>
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Les Graney is associate director of Digital
Fuel, a provider of service governance products. He was formerly
group IT director at Royal Mail