Get More From Outsourcing

April 16, 2007 (Computerworld) -- Most of us fear outsourcing, and with reason: Our jobs are on the line. Still, most of us work for organizations that will engage in one or more outsourcing deals. Learning how to deal with the changes outsourcing brings can actually work in our favor. Here are some tips.

Work on the outsourcing relationship.

Bruce Stewart

Most companies put little time or effort into these relationships, which soon become little more than a battle over invoices, due dates and other contract-related issues.

It’s critical to treat the relationship formally, assigning specific point personnel to handle it (even if at this point you have only a small internal office of the CIO). This is especially critical when most of the people on the “other side” are your own ex-colleagues. You might like the “feel good” factor of seeing your former colleagues continue to identify themselves as members of your team, but beware. I’ve seen some who still did that 18 years into an outsourcing relationship. The problem is that those people never made the transition to representing their new employer and thus were unable to bring its best thinking to bear on the client’s interests.

Focus on the future. Most long-term sourcing transactions go through at least one major contract renegotiation midstream. There’s nothing wrong with this — few of us are brilliant enough to anticipate 10 or more years of changing needs. But if you’re going to go through a year’s worth of renegotiation, why settle for a few minor tweaks in the pricing algorithm and not much more?

It’s not enough to enter into renegotiations focused on what has changed about your company’s IT needs since you engaged the sourcing firm. Focus on change itself, the inevitable byproduct of passing time. You’ll see, for instance, that tying the sourcing partner’s resources to the configuration just makes it difficult for the partner to make changes that could save power, servers and other underlying costs. You might also decide to build staff redeployment and retraining into the contract. You could pay a defined sum toward them each year while putting in safeguards that would protect you from paying for severance if the outsourcer must lay off some staffers because of a lack of work. Another idea for renegotiation: Pay the sourcer a bonus for cutting costs more than expected or consistently delivering quality results.

Commit yourself. When you outsource a business process, do it cleanly. I’ve seen outsourcing relationships in which a single transaction passed back and forth over the sourcing boundary five or six times. Commitment can only come with trust, but it’s important to make up your mind that your objectives are indeed trust and commitment. And, make no mistake, a failure to commit shows up as a lack of success — on both sides of the table. Once you have established trust, you will be less concerned that you might be able to get something done a little cheaper through someone else, and you will become comfortable with not spelling out precisely how the partner should do everything. In other words, you will learn to treat the partner like the next department over.

By the end of 2008, more than $120 billion in outsourcing deals will be up for renewal. Many clients are in deeply unhappy relationships, yet most will end up outsourcing again. Now is the time to hone your ability to form partnerships. You’ll be mastering an in-demand skill.