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10 steps to ensure your IT outsourcing deal fails

Stephanie Overby | Sept. 30, 2013
Even though the state of IT outsourcing has matured, mistakes in flawed deals are often repeated, and the most disappointing deals share common characteristics. Here are 10 steps that are guaranteed to lead to an outsourcing catastrophe.

4. Start governance two months after the deal is signed. Most outsourcing contracts have robust governance amendments today. But when it comes time for transition, there's no one to fill the governance roles and executives required to participate don't have the time. "There's a lot of excitement and coffee cups and balloons. And they're focused on moving people over," says Carco. Setting up the governance process takes a few months and by then a deal can be in real trouble. "Those first few months are most fragile," says Carco, who advises clients start governance meetings in the months before signing the contract. "Then you have an operational group of people who have gotten over those awkward first meetings and have some practice solving issues."

5. Sign a change order for an existing contract commitment. When a really unhappy outsourcing customer walks in the door chances are Carco will find thousands — or tens of thousands — of change orders have been signed. A customer should only sign a change order when adding a new service or making a material change. "What happens is a provider may be asked to do something that may not be explicit in the service commitment or that they may not be prepared to do yet. So they start writing change orders that say if you want us to do this we'll charge you x," says Carco. "And the client, who wants to get the work done, signs it." Thus begins the "death by change order" process common in troubled deals.

6. Don't fund testing and change functions. In infrastructure deals, where the focus is on standardization and consolidation, the changes made by an outsourcing provider will require testing by applications folks and end users. There may be remediation done to applications. The service provider is prepared to make the changes in the environment, says Carco, but the client will suddenly put on the brakes because they don't have the resources to handle the transformation or they don't want to put projects on hold. That leads to delays and frustration for both parties.

7. Rely solely on termination rights should things go wrong. Most outsourcing contracts adequately address small problems (customer gets a service-level credit) and huge problems (the customer can end the deal for cause). But there's no middle ground. "Particularly nowadays when deals are smaller and shorter, there's a huge cost to get out of them, and the service provider knows that," says Carco. "It's not the appropriate incentive to get the service provider to deliver." There's no best practice for figuring out those mid-range solutions to growing conflict. But Carco encourages clients to map out their options during negotiations, like partial terminations by tower or additional mediation provisions.


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