While it is true that a
http://www.computerweekly.com/Articles/2008/11/18/233441/business-and-it-supplier-relations-must-improve.htm
solid contract is at the heart of any successful outsourcing deal,
this can only be negotiated effectively once the initial process of
due diligence and clear strategy development has been executed
thoroughly, writes Harry McDermott, chief executive at
http://www.hudsonyorke.com Hudson & Yorke.
Too many companies cut corners and fail to build in sufficient
timeframes for a comprehensive strategy review, which leads to
downstream problems and cost-escalation as contracts are negotiated
and delivered.
This is because, all too often, contracts are negotiated without
a full understanding of the environment to be outsourced, exposing
both the client and the vendor to undesirable and unnecessary risk.
Conducting a carefully structured due diligence programme provides
a comprehensive understanding of the contracts, assets, people and
costs currently in place, allowing businesses to better mitigate
risk and improving the quality of the outsourced deal for all
stakeholders.
There are two common reasons that outsourcing deals generally go
wrong: either the contract was badly structured from the outset, or
the contract was well architected but the parties failed to deliver
the expected business benefits.
The first scenario suggests the parties negotiated a bad
contract and were always going to struggle to deliver any form of
business benefit, regardless of how well-intentioned they were. In
the second scenario, the existence of a fit-for-purpose contract
has been undermined by poor governance of the contract.
Whereas the introduction of IT industry standards into the
governance process, such as
http://www.computerweekly.com/Articles/2007/08/08/226075/itil-3-puts-focus-on-business-value.htm
version 3.0 of the Information Technology Infrastructure Library
(ITIL) and
http://www.isaca.org/Template.cfm?Section=COBIT6&Template=/TaggedPage/TaggedPageDisplay.cfm&TPLID=55&ContentID=31519
Control Objectives for Information and Related Technology (Cobit),
has the potential to create solid frameworks for the automation of
contract lifecycle management, the deployment of these standards is
still in its infancy.
Even with well planned outsourcing projects there will
inevitably be some frustrations if expectations are, for whatever
reason, not met. The inevitable outcome of a contract signed
without a solid foundation for reliable negotiations is, at best, a
full re-negotiation within 12 to 18 months and, at worst, a
collapse of the deal.
In either scenario, the costs incurred are likely to cancel out
any financial benefits of outsourcing in the first place. If this
happens, there are really only two effective ways of addressing the
problem: either terminate the contract (for cause or for
convenience) and re-start the process over again (possibly with a
new supplier) or, alternatively, commission an independent review
by a third party to objectively assess the root causes of the
problems in the customer-supplier relationship and to agree a
mutually beneficial way forward for both parties.