With Brexit pending, British Organisations are starting to plan a new cycle of outsourcing contract relets. Research reveals that 75% of organisations are considering renegotiating existing arrangements or even bringing services back in-house. After decades of experiencing the consequences of poorly negotiated contracts, its time we returned to proven best practice argues Richard J Hannah of Streamwire, if we want to avoid wasting our investment in technology and technology services.
The outsourcing of IT and non-core services has taken on many labels over the last 40 years. We have had bureau services, managed services, off shoring, near shoring and shared services to name but a few. Technology alone has become less important as businesses have focussed on service, process and what we lazily call Digital'. Outsourcing may once have changed the shape of british industry, but we cannot say it was an unqualified success.
Many of us bear the scars of the early outsource arrangements and bringing services back in house is not just being considered, but may actually be preferred. Outsourcing became expedient, but resulted in a sharp increase in contract disputes and some of the bigger Service Providers garnering a reputation for sharp practice. Was it entirely their fault? perhaps some good old fashioned best practice guidelines may have protected both parties. The fact is negotiating outsource contracts is painstakingly detailed work. It takes patience and resolve to get what you want. There are no short cuts - 'AGILE' has no place in this discipline because: –
- Your IT Leader must set and own the Transformational (Outsource) Strategy;
- The negotiation and the subsequent service implementation must be carried out by a quality team (You cannot commoditise people) ;
- Your negotiation team must be armed with a comprehensive analysis of existing sourcing strategy;
- Your team must be empowered and supported by the organisation to create, catalogue and prioritise detailed business requirements;
- Your organisation (and not the Service Provider) must control the procurement process.
Although appearing obvious at first glance, these simple best practice rules are rarely followed. A study has revealed that a whopping 75% or large organisations are actively considering renegotiating or retendering two or more recent outsourcing deals.
Back to the future
Digital Transformations are currently in vogue. They are just business transformations with a different emphasis and subject to the same issues of failure that all large programmes have. Programmes fail because they are ill-conceived, no matter how determined the IT Leader or how skilfully the programme is managed. So our advice is - let's go back to how it used to be done. Let's work to a thought through strategy and build on some formal guideleines.
A formal outsource strategy, underpinning the corporate strategy, must exist to give the deal shape and purpose. It is perfectly reasonable (even smart thinking) to use a contract relet to correct the sins of the past. It can drive continuity, consistency and commitment to a new corporate strategy. However, it still holds true that one should never seek to ‘outsource a problem’. You can outsource 'the doing' but ultimately risk and responsibility lies with you. Notwithstanding the assertions of the Service Providers Sales Team.
Your organisation must control the pace of any negotiation. The Service Provider will naturally seek to increase momentum to secure a sale as quickly as possible. This is always at odds with the need tobe thorough. This is evidenced again by a Study which revealed that 40% of organisations polled said that too many details were left to be completed post contract signing. Unseemly haste to meet a commercial or political agenda undermines securing a well-constructed contract. Set realistic timescales, to enable your negotiating team to be effective.
Create a multi disciplined negotiation team
Avoid a procurement led, purely commercially driven contract negotiation. You need a balance. Your most senior IT Leader or a dedicated Transformation Director should be at the helm. Remember that the contract is part of wider strategy. Build a dedicated team from the outset - not after you have decided who you want to buy from.
Analyse the existing outsource
Carry out a comprehensive review of existing arrangements. This is vital because there is always disparity between:
- what should be delivered;
- what is actually delivered;
- senior management perceptions and;
- end user experience.
It is not uncommon for non-chargeable work to be the glue that holds your service together. Work that your executive management may have no visibility of and yet is vital to 'keep the lights on' and needs to be carried forward in the contract negotiations. So encourage critical analysis, flush out the best and the worst aspects of the current service. Then make appropriate adjustments to your strategies and reflect your findings in your business requirements capture.
Create Comprehensive Business Requirements
Never use your Service Provider to create your business requirements. It is true that the Service Provider will understand the delivered service better than your own people. However, the party that controls the drawing up of the requirements ultimately controls the negotiation. Use (or hire) your own business analysts to provide the detail and a fresh eye. Invest the time to get business requirements documented in detail. Involve all stakeholders in the requirements capture process because it will reduce change resistance later in the process. Finally, capture both functional and non-functional requirements in a comprehensive catalogue and prioritise them.
Compete your requirements
I would suggest you always go through a formal tender process even if you have a preferred service provider. It is an excellent way to incent your supplier tnot take your business for granted and bring in new players, with new thinking:
- Always insist on your own terms and conditions – the Suppliers standard conditions are designed to protect them not you;
- Create and enforce governance that includes strict rules on how meetings will be conducted; disputes resolved and the composition of project boards;
- Create a ‘get to signature’ plan and have your team drive the timeline not the Service Provider;
- Research appropriate cost models to pay for services, do not assume that contracts need to be fixed price or time and materials;
- Look to understand and leverage performance based cost models and place a value on innovation and flexibility - the world of technology and technology related services moves quickly.
The Importance of Governance
No matter how skilled your team, it is likely that they will not be as experienced as Service Provider teams. Controlling the process is vital to provide your team with as much of a commercial edge as you can. You should never cede control in the interest of so called ‘partnership’. Instead focus keenly on:
- What am I buying? Covered by detailed service descriptions.
- To what standard and quality? Covered by documented Functional and Non Functional Requirements.
- How much am I paying and when? Cost Models and Service Credit regime
- How do I get out of this if it all goes wrong?
Consider your Exit Strategy
The only thing certain about the agreement you sign is that it will end. A common weakness of poorly written contracts is the absence of detailed exit provisions. It has been known for Service Providers make more money at exit than in live service. Create your exit provisions in detail during your negotiation.
So to recap:
- Avoid the temptation to ‘just get on with it’;
- Start the contract negotiation process early;
- build a dedicated team;
- create your own requirements in detail;
- research cost models and;
- keep tight control of the process as a whole.
This approach supports the Service Providers
Now, it may seem that I have given the Service Provider a hard time. Infact, adopting this approach actually gives them a fighting chance of delivering the solution ypu need. I would go so far as to say it protects them and encourages ‘intelligent, straightforward business relationships’.