Vendor management key to outsourcing success

Vendor management is key to your outsourcing success. Better in-house contract management could help keep the rope from breaking completely.

Making vendor management a priority is the key to success in any outsourcing relationship.

The best vendor management decision Ellen Barry ever made in regards to managing her company's outsourcing contract was to bring it back in-house.

You need both sides to understand the challenges of working with a remote development group, particularly one that is not part of your internal culture.
Daniel Doman
COOAccoona Corp.

 As CIO of the Metropolitan Pier and Exposition Authority (MPEA) in Chicago, Barry made the decision to insource an array of technical services the MPEA uses to help clients prepare for the massive conventions and expositions held at McCormick Place, one of the company's properties.

"I was concerned about outsourcing direct contact with our external customers," she said. While outsourcing is often viewed as a way to minimize expenses and maximize profits by attaining labor, expertise and systems at less expensive rates, "I viewed this issue from a customer-service approach first and a revenue approach second." Simply put, Barry believed MPEA could offer superior services.

Not surprisingly, the outsourcing vendor balked at Barry's proposal, appealing to the Illinois state legislature and the office of the mayor of Chicago in a bid to keep the lucrative contract. When they did that, "I figured [the decision] was right on," Barry said.

Barry's vendor management method -- rigorous, regular evaluation of outsourced projects and a willingness to bring them back in-house regardless of disruptions that may arise -- is the ideal strategy advocated by outsourcing experts.

Managing the contract

"The biggest thing we see," said Harry Wallaesa, president and CEO of IT management consulting firm The W Group in Malvern, Pa., "is the lack of focus on how the deal will be managed after the contract is signed."

When an outsourcing deal fails, he added, it's most often because transitions, system growth and other variables were not addressed in the initial contract.

During his tenure as Bechtel's CIO, Hank Leingang observed some of these very oversights. When he first arrived at the company, he plowed through its contract to outsource desktop support and network management to Electronic Data Systems Corp. -- "it was three inches thick" -- and immediately found areas he thought should be tweaked.

For one thing, Leingang's predecessor had put in place "no metric to measure success. It should be there so you can make sure [the outsourcing vendor] is performing and knows how it's being evaluated."

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 Leingang and his team renegotiated the contract to include quantitative and qualitative metrics -- not only the per-seat cost of outsourcing the IT help desk, but also a measurement of employee satisfaction with the support they were receiving.

Vendor management decisions of all sizes also must be revisited over the course of a contract. Wallaesa points to the importance of having a clear governance structure in place for effective management of the relationship between outsourcer and outsourcee. To that end, Leingang appointed someone from his staff at Bechtel to serve as the point person in charge of the EDS contract; no such person had been named prior.

"The devil is in the details," cautioned Leingang, who served as Viacom's CIO before joining Bechtel and is now CEO of Mountain View, Calif.-based ITM Software Corp.Addressing foreign vendors management issues

When it comes to outsourcing IT projects to foreign vendors, myriad considerations must be addressed. Different time zones, variations in training practices and certain cultural differences must be weighed during negotiations.

In a bid to ensure the quality and security of applications it's developing in India, the CIO of a healthcare firm who requested anonymity said his organization hired a risk-management firm to assess physical and information security procedures at the site.

"It's a very large effort," said this CIO. And since "you can't always look over people's shoulders," contractual mechanisms must be in place for delineating staffers' responsibilities and removing underperformers.

Grasping cultural differences includes being aware of variations in workplace norms.

"You need both sides to understand the challenges of working with a remote development group, particularly one that is not part of your internal culture," said Daniel Doman, COO at Accoona Corp., a Jersey City, N.J.-based Internet services company "Imagine a normal development project where you are all in the same office; the specs are in flux and the requirements are being evolved. Imagine if you throw these half-baked ideas to people halfway around the world… who may not have the surrounding anecdotal knowledge of your business."

Accoona has outsourced some development to China -- work that will yield not only applications aimed at American users, but also software specific to the Chinese market. "I don't look at it as outsourcing so much as partnering," said Doman, who regularly visits China.

Making the decision to outsource

The MPEA's Barry noted that there is a time and place for outsourcing when an organization lacks the expertise or time needed to complete a certain IT project. Relying on lieutenants to convey information about the day-to-day status of outsourced operations, "the CIO needs to look at things from a business perspective, not an IT perspective," she said.

For example, unmet service-leval agreements can be observed by alert in-house network staff, which can then bring the situation to the CIO's attention.

"When the process is not working as it should," Barry said, "CIOs need to recommend changes."

Amy Rogers Nazarov is a freelance writer based in Washington, D.C. Specializing in technology and business topics since 1994, she is expanding into food and travel writing.

This was first published in November 2006

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