10 Signs Your IT Outsourcing Provider Wants to Dump You

IT service providers and their customers have gotten better at building arrangements likely to work for both parties over the long haul, but sometimes relationships fall apart. Here are 10 ways to know your outsourcing provider wants to break up with you.

By Stephanie Overby
Fri, June 29, 2012

CIO — It can happen to any relationship-one partner falls out of love with the other. While IT service providers and their customers have gotten better at seeking out outsourcing engagements likely to work for both parties over the long haul, sometimes they weren't built to last.

Some of the biggest IT service providers have programs in place to extract themselves from relationships with the bottom 10 percent of profitability. "Providers today are much less likely to live with bad deals or money-losing accounts," says Stan Lepeak, KPMG's director of research for advisory services

[Related: How to Win at the IT Outsourcing Negotiating Tabl]

But breaking up is hard to do. The termination clauses of a contract may make it prohibitively expensive for unilateral provider pullout. So the vendor may back away from the account in more subtle ways, either to protect its margins or nudge the customer toward termination--or both.

"When deals become unprofitable--for any number of reasons--the vendor must try to raise the profitability," says Adam Strichman, founder of sourcing consultancy Sanda Partners. "When they start to take very aggressive actions toward profitability, this is the first--and best--signal that the deal is unprofitable. When their actions become too aggressive, that can also be interpreted as trying to get out."

"If the client's only goal is to squeeze the rates as much as they can and they start playing up to get penalty awards for sub-par performance, they quickly become not only unprofitable, but also a risk for spreading a poor image of that provider's performance into the market," says Phil Fersht, founder of outsourcing analyst firm HfS Research, who estimates that one in five outsourcing customers falls into that category. "Their providers quickly start to figure out how to either 'lose' them at renewal to a competitor or simply churn them via an arbitrator if this bet really bad. [But] there are many more examples where providers are having a terrible time trying to service clients which simply make them no money and they can't get rid of them"

[Related: Putting a Dollar Value on IT Outsourcing Contract Term]

So how do you know if you're one of the "problem" clients? Here are 10 telltale signs your IT outsourcing provider wants to dump you.

1. We Need to Talk. "The one thing that is relatively certain when a customer falls to the bottom 10 percent of a vendor's portfolio is that the vendors will not be shy about letting them know," says Steve Martin, partner with outsourcing consultancy Pace Harmon. "In these problem scenarios, a provider's first course of action is generally to voice their concerns to their customers and attempt to propose remedies through the standard governance process, rather than immediately developing subtle termination plots. They may also attempt to renegotiate the deal or work through critical issues in executive-level meetings."

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