So You've Inherited a Crummy Outsourcing Contract...

CIOs share tips for fixing problem relationships

Outsourcing boomed over the last decade. So it's not surprising that a lot of incoming CIOs are inheriting some crummy outsourcing contracts. These deals are potential hornet's nests if not handled quickly and carefully. CIO Executive Council members who have dealt with this issue point to renewed governance and realigned expectations as the key to turning around these situations. They offer the following solutions.

Turn to the Experts

CIOs sometimes don't have staff with the in-house experience needed to easily sort out whether it makes sense to ride out a poorly performing outsourcing contract or move on to a new one. In this situation, turning to a consultant may be the most effective option.

When Lynn Willenbring became CIO of the city of Minneapolis, she recognized that despite the benefits of the current outsourcing contract, it was not being effectively managed and there were ambiguities in its language. She also felt that the in-house IT staff needed to focus more on strategic management and less on dictating the details of how to accomplish each of the vendor's tasks.

To help determine what changes were needed, Willenbring turned to consultants with experience in contract governance to advise her staff on industry best practices. The consultants initially came in to help evaluate whether to stay with the legacy vendor or to issue a new RFP. When the decision came to renegotiate, they became the lead negotiators under city oversight.

Realign Expectations

Not meeting expectations is a common complaint about outsourcing contracts, usually communicated in language such as, "I'm not getting anything I need out of this."

Whether those expectations are for financial gain or for service improvements, the first task for a new CIO who wants to provide a better outsourcing experience is to understand why the organization is outsourcing any part of its IT in the first place, says David Patzwald, CIO of Schneider Electric North America. The complexities of a contract and of user needs are only going to increase over time. Until a company understands what it wants out of the relationship, the vendor is not going to be able to deliver to anyone's satisfaction.

Part of being a good customer is not expecting what you didn't ask for, says Patzwald.

At Freescale Semiconductor, the expectation is that its help desk outsourcing vendor will not only resolve customer problems quickly and fully but do so in a manner that keeps users happy. So new service-level agreements incorporate customer satisfaction survey results: On every call that is taken or handled, the customer can fill out a survey about how the vendor performed.

While increased efficiency is a good metric, high custpomer satisfaction is an even better one for ensuring a smooth relationship, says Freescale vice president and CIO Sam Coursen.

Implement Neutral Governance

Whether expectations have been the problem or there are new needs that must be incorporated into a contract, redefining service-level agreements is not as easy as just changing a few words. It requires full collaboration with the vendor and should be overseen by people who are not directly involved with the contract, Schneider's Patzwald says.

Patzwald created a governance group that stands apart from the contract, almost like an ombudsman. The group is responsible for everything from managing meetings among all the participants to publishing SLA scorecards for the entire company to see. This semiexternal management is particularly effective if a contract involves more than one vendor, each of which has an associated project or contract lead, Patzwald says. The governance board can serve as an impartial coordinator or as the mediator in disputes and can settle questions of responsibility between vendors.

Put Staff Skin in the Game

As a company changes a contract, it is critical to invest the internal IT staff in making it a success. Convince them that it is to their benefit to have a "make-this-work" attitude, says Freescale's Coursen, because if they want to defeat any outsourcing effort, they can do it easily.

To reinforce the point that his IT staff was on the hook for a successful outsourcing relationship, Coursen incorporated vendor performance not only into his contract managers' performance reviews but into the reviews of all of his IT personnel. Such tactics have their place. Ultimately, however, it's the CIO who is accountable for making sure an outsourcing arrangement—new or preexisting—is delivering what the organization needs.

Diane Frank is content development specialist for the CIO Executive Council.

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Copyright © 2008 IDG Communications, Inc.

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