Relationship and contract issues of it outsourcing

relationship and contract issues of it outsourcing

In view of this, an emerging trend of research has explored either the contract or relationship issues in successful IT outsourcing. However, few efforts have been . literature on relationship and contract issues of IT outsourcing. We The main stream of relationship issues of IT outsourcing focuses on. This change could be an initial outsourcing contract, a significant change within an existing outsourcing relationship (involving scope, technology and/or.

In our experience of dealing with hundreds of these situations, we have found that it is often the case that though you may believe a relationship has fallen into the abyss and is at its darkest point, it would be extremely unusual for it to be completely irrecoverable.

The above said, relationship managementcontract management and strategies for building commercial trust should never be considered an afterthought. They should be built into the very foundations of your delivery programme, written contract, governance and budget.

If you have the right ICF Intelligent Client Function team in place, they should be generating a four to eight times return on the investment you put into them. There are some key steps you can undertake that we have found to be highly effective for driving ongoing value in complex outsourced relationships.

Your relationships should benefit from the years of experience you have to offer and the learnings you have acquired along the way. Keep communication lines open and ensure that business and relationship goals are clearly and regularly conveyed. Help both your internal team and your outsourced parties to keep abreast of the changing goals and objectives your organisation is facing. Communicate what your organisation is doing to align itself to the new challenges —what its values are and what others now expect of it — and how all this translates to the goals of the delivery objectives you are working on together.

On the other side, when matters are not going to plan, it should also mandate how often progress meetings should take place, how to handle disputes and so forth — a roadmap to how the relationship can achieve best value for all parties.

relationship and contract issues of it outsourcing

Create and share your plan of action. Once it is agreed, let everyone have a copy. In most cases, it goes without saying that the documentation that goes to make up the written record of expectations and responsibilities under best practices in relationship and contractual management should be safely stored in a secure and organised facility and regularly updated with current versions.

However, even today, we still find organisations that are unable to find signed copies of contract terms, schedules and change variation notices.

Wheedle out and eradicate any ambiguity. Lack of clarity in verbal, written or contractual communications can send parties off on completely the wrong track. Keep in mind that contractual documents do tend to be quite lengthy by their very nature, and excessive attention to detail could have a negative as well as a positive effect giving the other party the impression that you do not trust in their ability, or overcomplicating mattersso clarity and brevity when discussing KPIs, SLAs and suchlike, must go hand in hand here.

Clients may postpone making staffing decisions and communicating changes until they are sure about the final outcome of the outsourcing agreement. Clients expect that since they are outsourcing the work, the service provider will take care of everything and the client can "wash its hands" of ongoing management responsibilities, resulting in a lack of governance staff. Client Retained Team Lacks Required Skills Even if a client puts a retained team in place to manage the outsourcing implementation and ongoing operations, the team may not have the right skills required for their new roles.

McDowell Purcell | Outsourcing - the Big Issues - McDowell Purcell

Only 20 percent of clients feel like they provide enough ongoing training for their governance team. However, these people sometimes have a hard time making the switch between performing or managing the day-to-day work and holding the service provider accountable.

The uncertainty can cause this staff to look elsewhere for employment and leave either before or during the outsourcing implementation, causing a need to either backfill the resource or reduce the amount of work performed by the organization. In addition, some of the client staff is temporarily engaged for knowledge transfer to the service provider during the implementation. If the staff is not properly motivated or if the service provider does not do a good job with knowledge transfer, this can cause decreased efficiency in service delivery and possibly introduce operational risk.

These two issues can be significant problems if not addressed. However, it is in the middle of our rankings because clients and service providers both recognize the importance of these issues and generally make a reasonable attempt at mitigation. Inability to Meet Pent-Up Demand for Services Prior to an outsourcing implementation, the client organization may curtail big projects and non-essential spending. This is for two reasons: However, the ways in which the new initiatives are prioritized, estimated, evaluated, approved, scheduled and performed may all be in the midst of change during transition to the new outsourcing model.

This results in "a pig trying to fit through a garden hose"; only a trickle of demand is fulfilled until the new model is in place. End-User Resistance to Adopting New Methods Oftentimes, a third-party service provider is brought in to be a "change agent.

Outsourcing & Contract Management

However, for many outsourcing services, the provider is not in complete control of the end-to-end result. The users on the receiving end of new methods can inhibit the achievement of business objectives through lack of compliance, strategy disagreements or delays in executing their required responsibilities.

In terms of corporate culture, the client and service provider may have different norms in terms of speed, style, decision making and organizational structure. Another aspect of potential corporate culture clash is the fact that outsourcing represents a commercial relationship between two separate entities. Sometimes both organizations can take extreme, inflexible positions that serve to create tension or distrust e.

Also, expectations regarding the level of open debate, acknowledgement of potential problems, and willingness to veer from the defined process in order to complete work may vary between regions and nationalities.

Even for organizations that initially change behaviors and processes to achieve success with outsourcing, there can be a significant tendency to revert to old ways of doing things. TPI sees clients start to cut back on dialogue with their business stakeholders and service providers, reduce governance staff and reduce process rigor over time. This retrenchment usually occurs because the client believes benefits will continue to occur automatically, and therefore "we can eliminate unnecessary cost.

Business Impact from the Top 10 Problems Our findings indicate that unmanaged changes are the biggest problems clients face in outsourcing implementations — not issues related to specific contract terms, pricing or technology. The sum total of these problems causes significant degradation in the expected business case during implementation and beyond. Overcoming Problems and Driving Success: A Framework for Action While the problems listed above may seem significant at first glance, they can be readily overcome with awareness, attention and focus.

relationship and contract issues of it outsourcing

In fact, by recognizing these issues in advance, clients and service providers are ahead of the game and can drive early — and lasting — success. In our work with client organizations and through our liaison activities with service providers, TPI has identified a set of drivers for the entire outsourcing Change Management process. These drivers provide a framework for developing specific actions and techniques, help categorize issues to mitigate problems and enable the realization of intended benefits created by the change implementation.

By themselves, the drivers do not represent groundbreaking innovation — the principles and techniques associated with Change Management are well-known to experienced practitioners. However, it is the application of the drivers and overall commitment to Change Management by client sponsors that is required to make an actual impact.

The lack of sponsorship and commitment is the reason that issues related to Change Management and governance are so prevalent on our Top 10 list.

Change Management may sound like a "nice to have," but — as evidenced by our Top 10 list — it is essential to achieving expected results. To demystify the concept of Change Management, the following drivers provide a framework to lay out a vision, make sure everyone understands their roles and goals, develop a road map to make it happen and then execute.

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The drivers include the following thematic elements: Leadership Vision and Commitment: Organizational and Procedural Alignment: Change Acceptance and Adoption: Leadership Vision and Commitment Mitigation for Problem 1: The client sponsor must be aware of the need to design new processes, and assign necessary resources and importance to these activities.

Mitigation for Problem 2: The client sponsor for outsourcing must hold substantial one-on-one discussions with each key leader during the pre-contract stage and during implementation. At the appropriate stage, the service provider executive responsible for delivering the outsourcing services should also meet with the client sponsor and business unit leader. Mitigation for Problem 4: Even though the client is outsourcing, it does not abdicate responsibility for results.

relationship and contract issues of it outsourcing

Senior management within the client organization must paint this vision, and commit an appropriate level of management staff to achieve intended results.

The contract or service provider — by itself — is not enough. Staff Effectiveness Mitigation for Problem 3: Poor Mutual Understanding of the Contract.

To enhance future effectiveness, continuity and mutual understanding, the negotiation team should include executives from both the client and service provider who will be responsible for future delivery. Mitigation for Problem 5: Outsourcing necessitates modification to some roles and creation of new ones in the client organization.

Assess internal staff to see if the necessary skills and capabilities exist to fill the roles, and whether they will be able to make the adjustment to a new way of working. Mitigation for Problem 6: All employees and contractors are important in achieving outsourcing success, but in the early preimplementation stage, the client should identify the top 5—10 percent — essential due to their knowledge and skill base.

Specific retention strategies and sometimes contractual requirements are created or applied to this group. Organizational and Procedural Alignment Mitigation for Problem 1: The client and service provider should jointly design key operational processes and decision rights prior to the implementation period.

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Integrated with the design of processes and decision rights listed above, the client must initiate and complete organizational design for the overall retained organization. This allows inclusion in the business case for outsourcing as well as a full end-state vision of the operating model. These policies vary from reliance on communication and trust to bonuses being paid to all or a subset of staff based on their continued employment and achievement of specific goals and knowledge transfer.

relationship and contract issues of it outsourcing

Governance Readiness Mitigation for Problem 3: