Outsourcing success rides on benefits buy-in from supplier

Success in outsourcing is dependent on forcing the supplier to underwrite the business benefits of the deal delegates at last...

Success in outsourcing is dependent on forcing the supplier to underwrite the business benefits of the deal delegates at last week’s Gartner Outsourcing Summit 2005 were told.

This was the advice from Mark Varley, sourcing executive (special programs), at high street bank Barclays speaking at the event in London. Varley led a two-year selection process, culminating in a £426m six-year deal with Accenture in 2004 to outsource its IT. 

Varley said, “Be prepared to resist unwarranted additional usage charges, equally recognise helpful supplier behaviours.”

He warned delegates to watch out for how the terms and conditions of software licenses could change as a result of outsourcing, since a software licence for an application could be invalidated if an outsourcer took over responsibility for the application.

“Don’t get stiffed,” Varley said. “Recognise that suppliers want your business.”

The way Barclays overcame licensing issues was to choose rights to use contracts for software. However, this approach does mean that the business, rather than the outsourcer, needs to accept liability for the software, he said.

Varley’s comments came as analyst Gartner published its latest research into outsourcing.

The Gartner survey of almost 200 medium-sized and large companies in western Europe found that users were increasingly forcing suppliers into more flexible outsourcing relationships.

It found that 55% of all enterprises with existing IT infrastructure outsourcing arrangements had renegotiated the terms of the relationship within the lifetime of the contract.

Gartner said that if organisations continue to engage in outsourcing simply to reduce cost, the number of contracts under renegotiation will continue to increase further in the next two years.

How to get the best outsourcing deal

  • Selection of the “right” supplier/partner is everything - judge on what you see not what you hope you will see
  • When you are seeking “ground breaking” deals, lock down the commitments gained before the suppliers’ organisational conservatism kicks back in
  • Agree boilerplate schedules and high level principles
  • Do not assume that the suppliers bid and delivery team buy into each others solutions - continually test the supplier's internal alignment as much as your own
  • Do not underestimate or skimp on the level of, cost, quality or resourcing required
  • Keep critical functions close to the program
  • Get executive support to flex timelines to achieve major outcomes
  • Without an experienced, dedicated and proactive executive sponsor the initiative will grind to a halt internally and lack credibility externally

Source: Barclays Bank

Read more on IT for small and medium-sized enterprises (SME)