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IT outsourcing contracts: Get the most from providers during recession
06 Nov 2008 | SearchCIO.com
1. Build and manage a deal that aligns with your IT and business environment. Are you looking for a utility provider or a shared-risk partnership? Consider which deal archetype best suits your business requirements, then structure a healthy outsourcing contract -- with forward-looking provisions for service. (See sidebar)
2. Build relationships knowing that the landscape will shift. IT service provider consolidation is not over. This is not necessarily bad for clients. Acquiring firms usually want to keep the clientele of the provider they're acquiring and may be open to cutting deals. Even so, sourcing teams should count on a topography that will continue to change with mergers, acquisitions and divestitures.
3. Structure contracts for those future provider changes. Change-of-control clauses should be structured to grant clients rights to terminate on their own timeline and protect against expenses associated with moving the work from the incumbent to another provider. Outsourcing contracts should also include provisions for significant revisions or termination with evidence of financial trouble (e.g., if the bond credit rating assigned by Moody's or Standard & Poor's falls below a stated minimum).
4. Embrace the global delivery model. The economic impetus driving outsourcing is that cost models are changing in virtually every industry, and the wage arbitrage lever can be a powerful tool to save money. Sourcing groups should challenge their assumptions about traditional definitions of IT "offshoring" and identify what really can and can't be delivered from lower-cost delivery locations.
5. Consider bundling lines of service along the IT supply chain. Successful IT outsourcing providers of the near future will be able to aggregate many lines of service, including infrastructure work, applications outsourcing, business process outsourcing, systems integration project work and consulting. Service convergence can be good news for buyers willing to craft a sourcing strategy that aggregates demand with a smaller number of providers linked together by a strong delivery process foundation.
6. Use the current economic turmoil as fuel for an IT-to-BT transformation. Regardless of current weaknesses in the broader economic market, smart decision makers will leverage technology as a business accelerator rather than as a commodity cost. The evolution from IT to BT (business technology) should not go on hold, even in an economic recession. Service-level agreement architectures should include baseline operational metrics as well as business-oriented outcomes.
Let us know what you think about the story; email: Linda Tucci, Senior News Writer