Arriving at a signed outsourcing agreement between a client and service provider is no small feat. In fact, it can be one of the most challenging joint business and technology efforts. In a well-run sourcing exercise, contract negotiations start during the Request for Proposal (RFP) process and conclude with a signed agreement that primarily outlines the responsibilities of the service provider for what is typically a three to five year term. Even when the sourcing exercise is not well run, a signed agreement will result. It may be rushed, poorly written, and not well thought-out, but it will be an agreement nonetheless. Given the average tenure of a CIO, it is also likely an agreement will have been inherited, with many facts about the original deal lost.
So, well-developed agreement or not, what do you do if the relationship begins to falter? Whether the agreement is new or you are new to the agreement, Wavestone’s advice is (in the words of a timeless scene from Fast Times at Ridgemont High): “Learn it. Know it. Live it.” This doesn’t mean that you attempt to repair the relationship by adhering strictly to the letter of the agreement. That won’t be productive for either party—in fact, will most likely favor the service provider! Here’s why:
The service provider designs their delivery organization to meet the service requirements set forth in the agreement. This is usually not the case for the client, who tends to react to the agreement and learns how to best manage it over time. Adding to that, the focus of the outsourcing agreement tends to be limited to simply outlining the provider’s responsibilities, who could argue that they’re not responsible for something that isn’t specifically written. This is one reason why Wavestone ensures an outsourcing agreement captures the intent and language of the service provider’s proposal, which, too often, isn’t referenced when the formal language of the agreement is developed. We believe services relationships work best when both parties share an understanding of both the letter of the agreement and the intent. This balance is what we mean by “Live it.”
The Lose-Lose Whirlpool
One common issue that prevents this shared understanding is that many clients don’t actually know what’s in their agreement. What are the service provider’s obligations and deliverables? These contractual commitments form the basis of any productive conversation. It is important to remember that the service provider builds their delivery processes around these commitments. Relationships start to crack when the client gets frustrated because the service provider isn’t behaving as the client would like or expects (regardless of what was actually agreed to). In many cases, the service provider doesn’t have leadership that can effectively address the issue, and then it defensively falls back on the letter of the agreement, which may or may not provide clarity. Battle lines are drawn and it’s a downward spiral from there. Wavestone has seen a number of these situations over the years, and almost every time, the client ended up taking the services out to market.
Salvage is Nearly Always Cheaper than Abandonment
Wavestone has found these toxic relationships to be salvageable, but they require commitment from the highest levels of leadership from both client and service provider. Given the size, strategic importance, and business impact of these relationships, visibility and executive support must extend above and beyond the IT organization. The joint commitment to salvage the relationship must then be pushed down through both organizations, with a successful turnaround becoming a measurable component of everyone’s job performance. In addition, senior leadership must demonstrate its commitment through periodic, focused meetings to review progress and clear any roadblocks.
Salvaging the relationship also requires that both parties develop an understanding of the agreement and share a willingness to candidly identify and change the things that aren’t working. This isn’t simply a vendor management issue—responsibility for success lies with both the client-retained and service provider organizations. While the journey to a stronger, more effective relationship takes time, immediate results deliver value and long-term satisfaction.
Setting Sail The Positive Way
Given our practitioners’ experience on both client and service provider sides of outsourcing relationships, the value Wavestone brings to these situations is our ability to foster open and objective dialogue about underlying relationship issues, coach the teams on how to improve, and facilitate the executive level discussions needed to reestablish the commitment between the organizations. From a process perspective, Wavestone has developed our sourcing approach to pre-empt the issues that we find in these agreements and relationships. Features of our methodology include maximizing the amount of time clients spend with service providers during the RFP process, starting contractual discussions well before formal negotiations, requiring transparent pricing that effectively responds to changes in demand, focusing on governance early in the process, gaining alignment on solutions before discussing commercials, and other means of fostering transparency and mutual understanding between parties.
Wavestone has seen the benefit of success salvaging relationships and the damage to organizations who have abandoned these relationships. Our preference is to work with clients up front to avoid the likelihood of failed relationships by developing effective and balanced agreements, designing client operating models and organizations, delivering comprehensive transition support, and establishing governance mechanisms for cost effective, sustainable relationships. We also understand, however, that sometimes agreements are not the result of a well-defined or well-thought-out process, and it is necessary to improve those relationships by meeting the parties where they are. However, no matter what drove your outsourcing agreement to the rocks, it’s worth trying to salvage it before abandoning ship.
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