Outsourcing advisers can damage healthy relationships with suppliers, report warns

Clear service level agreements are key to making complex contracts work

Clear service level agreements are key to making complex contracts work

IT outsourcing deals are becoming as complex as mergers and acquisitions but the trend for users to employ outsourcing advisers may sour the relationship with the supplier.

These conclusions emerged in a report into global outsourcing by professional services firm Ernst & Young, published earlier this month.

The annual report was based on interviews with eight senior figures at the sharp end of the outsourcing industry. Respondents included John Yard, chief information officer at the Inland Revenue, Yard, who last year broke a £3bn, 10-year outsourcing relationship with EDS in favour of a Cap Gemini Ernst & Young consortium, Bill Thomas, president EMEA at EDS, and Guy Hains, UK president of Computer Sciences Corporation.

One of the biggest challenges IT directors face is dealing with the growing scale and complexity of outsourcing deals, the report said. There is a need for clear service level agreements to avoid any misunderstanding between user and supplier.

"Both parties should keep assumptions and guesswork to an absolute minimum, ensure service level agreements are agreed , clearly defined and explicitly seek to be clear as to why they are doing the deal," said the Enrst & Young Technology Insights report.

Judging whether service level agreements have been met can be a contentious process, due to the subjective nature of customer satisfaction, the report said. It pointed out that suppliers and users need to develop mutual trust.

"Openness, honesty and flexibility are key to any long-term relationship, but these qualities will only work if they are provided by both parties," the report said.

For suppliers, a suitable demonstration of commitment could be ensuring that their sales people do not oversell their company's capabilities and the benefits of the deal.

A report from Gartner, published in April, said building trust between suppliers and users was an uphill struggle. In a study of 20 European outsourcing deals, the analyst company found that more than half fell short of expectations.

Specialist advisers have become commonplace in outsourcing deals, acting as an independent arbiter between the two parties. However, according to the Ernst & Young report, they can damage the relationship between user and supplier.

"[Specialist advisers] can get in the way of a mutually beneficial relationship if they push too hard for the cheapest deal," it said. "Some advisers may be branded adversarial by suppliers - by taking such a stance in negotiations they may not be serving their client's best interests."

According to Richard Hawtin, partner specialising in outsourcing at law firm Baker & McKenzie, users need to get back to basics and be clearer about the reasons for outsourcing IT.

"Often the real purpose of the deal has not been nailed down, such as cost savings, improved quality of service, or consolidation of the IT infrastructure," he said.

Hawtin added that IT directors should be prepared to argue with others in their organisation for at least a few months to agree the purpose of outsourcing before starting negotiations with the supplier.

"Time spent preparing the deal is usually time saved later, as the deal can usually be negotiated quicker and the deal has a better chance of being successful," he said.

Read more on IT outsourcing