Outsourcing: Strategic Partnerships in the Mid-Market

Achieving sustainable value in an outsourcing strategic partnership is difficult for a company (and a vendor) of any size, with the odds of success equal to that of winning a coin toss—a very expensive coin toss. It might seem that the problems diminish for midsize companies because they have fewer people and process issues. But for mid-market CIOs, setting up and managing a strategic partnership has its own challenges.

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This article accompanies the story Big Deals, Big Savings and Big Problems.

Hal Fedora, director of IT and audit for the California Insurance Guarantee Association (CIGA), sought out a strategic partner to help him deal with the drastic fluctuations in his organization’s IT needs. CIGA, created by the California legislature to bail out insolvent insurers, sees its business come in waves. And in recent years, the waves were growing bigger. So Fedora signed a five-year deal with Data Return to provide everything from infrastructure and disaster recovery services to applications support, retaining in-house only the IT services most closely tied to the business of resolving insurance claims.

Finding the right partner was the most critical, and difficult, step for Fedora.

The EDSs and IBMs of the outsourcing world have the most experience with strategic partnerships, but smaller clients may fear getting lost in the shuffle of Fortune 500 customers. “We looked at some of the big names and we looked at some of the smaller players,” says Fedora. “But when it came down to it, we were a midtier company and we wanted a midtier vendor.” The field was narrowed even further by Fedora’s needs. “We wanted someone who could provide us overall IT services. There was no problem finding an outsourcer to provide IT infrastructure and disaster recovery support. But when you start talking about application support, they all backed off. They don’t like to go into that area.” But Data Return did.

In some ways, Fedora’s experience with his vendor offers him more flexibility and customization than a Fortune 500 client might get from one of the Big Six outsourcers. Because of CIGA’s size, Data Return has gained an intimate understanding of CIGA’s systems and processes. “When you have a huge Fortune 500 client, it’s very tough to get your arms around every application they’re running,” says Tom Radle, managing partner for Data Return. “With our mid-market customers, we can figure that out.”

But Fedora can’t command the dedicated resources a larger customer could. He has access to three Data Return employees full-time, and he shares another team of 12 with other Data Return customers.

The relationship isn’t perfect, says Fedora, but it works. He’s been able to bring IT costs down, thanks to the variable capacity the outsourcer provides. “We run into some issues with [Data Return],” admits Fedora, who takes great comfort in having the phone number of the vendor’s president at the ready. “But they’ve provided us with some other services we didn’t even contemplate when we first signed the contract.” For example, when CIGA encountered problems in the process of replacing its critical claims processing system, Data Return stepped in to provide some programming expertise as well as infrastructure support to help in the data conversion between the old and new application.