Outsourcing: Breaking Up Is Hard to Do

When your outsourcing relationship is on the rocks, here’s how to manage the split:

1. Figure out why the deal’s not working. Conduct focus groups within the company, look at user satisfaction data, reexamine how the relationship has been managed?get as much information as you can to figure out the root of the problem.

2. Check the math. If anecdotal evidence shows that service levels are not meeting expectations, take a close look at the metrics your outsourcer is providing and conduct your own service-level studies.

3. Talk. Negotiation is an everyday occurrence for outsourcers, says Jerry Gross, Washington Mutual executive vice president and CIO. They expect renegotiation during the life of an IT outsourcing contract. With IT services providers struggling, experts say, they’re anxious to please.

4. Find a way out. If renegotiations fail, check the fine print. “If the outsourcer isn’t willing to play, bring in someone who’s got experience fixing bad deals,” says Cecilia Claudio, senior vice president and CIO of Farmers Group.

5. Approach insourcing with care. Build a cost model for doing the work in-house, conduct an internal skills gap assessment, and maintain a focus on service-level requirements just as you would with an outsourcer.

6. Sell in-house capabilities. If you decide to reinsource, the first question the board will ask is, Can the IT department handle the work? Conduct a full-scale pilot to show your team’s readiness, or improve service levels in the work your group is already providing.

7. Ease employees into it. When bringing outsourced IT back in-house, CIOs face a double challenge: getting existing IT staff on board with the idea and luring some of the outsourcer’s staff to sign on full time. The key to handling these problems is honesty. Be up front about the possibilities in the new arrangement.

8. Make outsourcing management a core competency. Even if you never outsource again, these aptitudes can be used in any kind of vendor relationship. That may mean setting up an entire department devoted to vendor management or seeking outside assistance.