Contract Vendor Management

Conclusion: In order to maximise the likelihood of a successful outsourcing initiative, your negotiations to finalise the outsourcing agreement should be based on processes that will lead to a Win – Win outcome. To be successful in such negotiations the buying organisation needs to understand a number of key concepts which can be used to establish the criteria needed for the development of the negotiation strategy.

Conclusion: When outsourcing deals are not working, buying organisations often look at contractual remedies as a way of resolving their problems. This can have unintended consequences, such as a breakdown in the buyer/ service provider relationship or added costs due to contract termination.

Conclusion: Strong vendor management is essential in the successful delivery of critical IT-centric services. Before developing a business relationship or entering into a contract for goods or services it is essential that you have a complete understanding of any proposed supplier. A key part in any formal purchase of goods and services is a detailed understanding of the vendor, its ability to supply and support you, and the processes and resources it will use.

Conclusion: When IT related services are supplied by an external provider successful delivery hinges on the performance of the contract manager. Identifying the right person for the role of contract manager and helping the assigned manager acquire the skills needed is critical for delivery of quality services.

Conclusion: Organisations considering outsourcing are increasingly focusing on the ability of service providers to implement effective relationship management in their outsourcing arrangements. A systematic approach to the evaluation of service provider relationship management capabilities is more likely to lead to the selection of a service provider who will be able to work with the buying organisation to help it achieve its outsourcing goals.

Your organisation is planning to outsource some of its IT functions. You have a competent purchasing group, a long standing arrangement with a firm of legal advisors and an experienced IT management team ready to go. So your expectation is that you should be able to handle the selection and transition to a service provider without resorting to external advisors.

Conclusion: Despite the increasing trend to multi sourcing of IT services there are still occasions where sole sourcing is more appropriate for an organisation. Often this can involve direct negotiations with a single service provider without the use of a competitive bid. In such situations the buying organisation needs to develop an engagement strategy that ensures there is sufficient executive management involvement and competitive tension in the negotiations such that its sole sourcing objectives are achieved. 

Conclusion: Many non finance matters have to be considered before entering a leasing arrangement for IT assets. IT and Finance managers must weigh up the merits of each situation and decide whether it is advantageous to buy the asset and maintain control of it, or lease it and free up the cash for business growth. Having a blanket policy to always buy or lease makes little business sense.

 

Conclusion: Re-negotiation is often the preferred option when restructuring of an outsourcing agreement is being considered. If well managed, the benefits of such an exercise can be positive for both the client organisation and the service provider. However, considerable preparatory planning needs to be done and suitably experienced client resources must be assigned to the exercise if the client organisation is to achieve its objectives.

Conclusion: When outsourcing arrangements fail it is tempting to blame the service provider for the failure. Reasons put forward include overselling by the service provider’s sales group, inadequate service provider resources allocated to the client or problems with service provider management. In our experience, an analysis of the situation often finds the reasons for the failure are rarely one-sided.

Conclusion: As organisations rely increasingly on specialist services and differentiated software or hardware the need to maintain sound business relationships with the suppliers grows as a management priority. Merely insisting a supplier deliver services based on the contract and keeping them at an arm’s length until something goes wrong, is in nobody’s interests.

Put simply:

  • Clients want suppliers that will help them succeed.

  • Suppliers want profitable clients who are prepared to recommend them to others.

  • As an outcome both parties want a long term business relationship, based on trust and meeting mutual interests.

Conclusion: Outsourcing of IT services is increasingly used as a strategic initiative to support the achievement of business strategies for organisations. As a result the contract agreement between the organisation and the service provider has become even more important as it provides the foundation, and sets the boundaries, for the outsourcing. Negotiations associated with the development of the agreement also provide the first opportunity for the organisation and the service provider to develop an effective working relationship.

Conclusion: Of growing interest to senior IT executives is the effective practice of vendor management. Because this is where many client/vendor relationships commence, IT procurement lies at the very heart of vendor management. This is the second in a series of two articles that highlights the critical nature of IT procurement and some of the steps that can be taken in order to gain effective and timely outcomes.

Conclusion: As a result of dissatisfaction with their initial outsourcing arrangement, some organisations have decided to move their IT services back in-house or to adopt a selective sourcing approach. Others have rethought their approach to outsourcing and have moved to an outsourcing model that is more flexible and more closely aligned to business goals and strategies. This has necessitated a different approach to the outsourcing relationship, an even greater emphasis on governance, and a more open approach to the relationship between the client organisation and the service provider.

Conclusion: Most major IT procurement activity is oriented around acquiring software or services, the impacts of which are likely to have profound, organisation-wide consequences. As such, the cost of making mistakes, or indeed making poor choices, can be extremely high. Some of the consequences may include one or more of the following: 

  • Business benefits not being realised;

  • Budgets being exceeded;

  • Project execution times being extended; and

  • Organisational reputation being damaged.

Conclusion: The often expressed dissatisfaction with outsourcing has lead many organisations to consider backsourcing their outsourced IT services. This is often done without due consideration being given to another option i.e. selectively sourcing IT services. When this option is considered many organisations have found it to be a more attractive option than backsourcing, with significant benefits and less of the complications associated with bringing IT back in-house.

Conclusion: One of the main requirements for achieving a successful outcome to any outsourcing agreement is an effective governance arrangement between the client organisation and the service provider. This can be one of the more difficult aspects of any outsourcing agreement as it needs to be set up to ensure that it addresses the priority areas in a manner that will also allow for an effective on-going relationship between the two parties. In addition, there must be continuing management involvement in the process over the life of the agreement so that it remains an important part of the outsourcing initiative. 

Conclusion: An ideal time to re-evaluate web analytic solutions (WAS) is when reconsidering web content management (WCM) solutions. However, the purchase of a WAS must be viewed as a separate investment with its own unique requirements.

Conclusion: Conflicts will arise during the process of purchasing IT assets and services unless there is a clear definition of roles. Put simply, IT management’s role is to identify what is required and implement it, while Purchasing’s is to ensure what is required is supplied at the best value for money and the transaction meets probity requirements.

One of the more difficult IT related decisions that an organisation may have to face, is whether to bring outsourced IT functions back in-house. There are a wide variety of reasons why such a course of action might be contemplated.

Conclusion: Successful outsourcing initiatives usually have a number of common characteristics. Using these as a check list in new, or even existing, outsourcing deals can have a positive impact on the success of your outsourcing initiative.

Conclusion: Often one of the unsung heroes in a successful IT management team is the Business Support manager, whose job it is to manage the organisations business management relationship with diverse stakeholders such as suppliers, clients, project teams and finance.

Conclusion: Discussions with IBRS clients have found that a large proportion of outsourcing contracts are re-negotiated or terminated early. The circumstances in which the exit occurs can affect the willingness of both parties to co-operate and for them to agree on the timing and cost to exit. If termination issues have not been negotiated as part of the original contract, then they will need to be finalised prior to the exit. In this situation an organisation is placed at a significant disadvantage, and there is a risk that lawyers will need to be called in. This is unlikely to lead to a smooth and non-disruptive exit.

Conclusion: Determining how to exploit emerging technology, while managing technology for legacy systems, is increasing the span of control of the IT Infrastructure manager. Because the application systems often cross technology eras, as set out in the diagram below, the role of IT Infrastructure has become more complex, intellectually challenging and successful performance business critical. One of the down sides is managers typically have little time to participate in strategic conversations, limiting their career development opportunities.

Conclusion: Multisourcing can provide a number of significant benefits to client organisations however the full potential will only be achieved if the issues of governance and system management tools and processes are satisfactorily resolved prior to multisourcing.

Conclusion: IT Outsourcing in the SME (Small to Medium Size Enterprise) sector can be an initiative which can bring real benefits to many SME’s. There are, however, a number of considerations that need to be taken into account to ensure that the exercise achieves its objectives and provides a positive outcome for the IT staff.

Conclusion: The Service Level Agreement (SLA) is a key part of any outsourcing contract. Done well it can play an important role in improving service performance and can also provide the foundation to a successful partnership between the client and the service provider. Done poorly it can sour the relationship and lead to a bureaucratic exercise of SLA monitoring and review.

Conclusion: Manyfirst-generation outsourcing arrangements have reached or are approaching their end dates. Users are taking fresh approaches to outsourcing with past lessons learnt being encapsulated into new deals.

What are the major lessons learnt? How will next generation outsourcing deals be constructed? What should be done differently this time around? Where to start?

Conclusion: An often heard complaint from organisations, is that despite issuing an RFP, the process selecting an Outsourcing Service Provider took considerably more time than they had expected and consumed considerably more resources than were planned.

Conclusion: Infrastructure Consolidation has been a hot topic since the IT downturn in 2001/2. Unfortunately, this topic has been hijacked by IT vendors and used as justification for purchasing their latest high-end technology. To date most consolidation efforts have been technology projects with poorly defined goals that rarely go beyond implementing a specific technology. As a result most consolidation projects fail to deliver lasting benefits.

To ensure long term benefits, IT organisations (ITOs) must view infrastructure as an asset to be optimised for an appropriate mix of Total Cost of Ownership (TCO), agility and robustness as required by the business. The critical success factor is the recognition that complexity is the key driver of these characteristics and that a planning process (not technology) is necessary to reduce and control complexity.

Large vendors repeatedly make announcements of their intention to provide products and services to the large market that small and medium sized enterprises (SME) provide. Rarely however, do these marketing announcements translate into usable solutions for SMEs or marketing success for the vendor. Without identifiable returns, vendor SME initiatives are short-lived. To show a commitment to SMEs, IT vendors must identify their market and create products and services appropriate to the needs of SMEs. Vendors must not assume that their strengths and competencies in the consumer or large business market will automatically guarantee success among SMEs. CIO’s should closely examine any ''SME'' branded offering from a vendor for relevance to their business.

Conclusion: The CIO Perspective, December 2004 entitled, 'IT Issues in Company Acquisitions' highlighted the CIO's involvement in two due diligence processes and having to provide an opinion on the state of the business solutions included in the assets being offered for sale.

In the article, two examples were quoted of small but profitable organisations which were being offered for sale and had immature IT service delivery systems and governance processes. In both cases the organisations used IT to provide business support or delivery systems. He was of the opinion the systems and process immaturity did not adversely impact the business performance of both organisations.

Conclusion: For many years organisations and agencies engaged a single IT provider when they lacked the wherewithal to integrate the services and used the engagement to manage the organisation’s risks. As organisations acquired the skills to integrate systems services and manage the risks, many opted to selectively source expecting to reduce their costs and get the right solution. A new management debate ensued.

In some ways the debate parallels that situation which occurs in organisations with operationally critical equipment and where management is unsure whether to enter into a maintenance agreement with one supplier or opt for a per call service arrangement with multiple suppliers.

While the maintenance versus per call service debate focuses on risk versus cost, the analogy unfortunately trivialises the efforts needed to integrate complex business solutions or implement multiple systems components of an end to end IT operation service with ambitious performance objectives.

Implementing complex solutions typically involves integrating offerings from multiple software and hardware vendors, directing the activities of specialist technical staff and coordinating multiple project management activities. The aim usually is to meet a scheduled completion date or deliver a system response time consistent with the project’s objectives.

Conclusion: Reference checks are rarely a key differentiating factor in an evaluation, but they can prevent unpleasant surprises. Use reference checks when evaluating new or unfamiliar technology. A good reference check can be helpful in substantiating claims of viability, validating specific functions or capabilities, and reducing risks of unknown or unforeseen problems related to a technology or architectural design. Poorly executed reference checks fail protect the organisation from sub-standard service and support, poor quality control, and chronic understaffing.

Conclusion: To maintain a sound business relationship, regularly assess every IT Operations and Development service provider's performance and take corrective action immediately unexpected deviations occur.  Providers that act quickly and fix problems position themselves to get more profitable work from the client.   

Conclusion: Better vendors tend to be selective about their clients.  Over the years, I have been in many bid-no-bid meetings where it was decided we would not bid for work with a client because the costs and risks of doing business with them was too high.

Good vendors treat good clients like gold.  Difficult clients on the other hand often attract two types of vendors - vendors who are not good enough to win business from good clients or vendors who charge difficult clients a hidden premium.  Difficult clients can expect low quality service from both types of vendors.  Even the better vendors will put their weaker performers on the accounts of difficult clients.  After all, why would anyone put good people on a painful and generally low profit account?

A critical factor in the successful management of PC leasing contracts is the availability of accurate and consistent data that will facilitate the tracking and management of the assets. This factor is frequently overlooked in a Lease vs. Buy decision that is typically focused on TCO and NPV. In most cases, asset information can only be obtained from multiple sources.

Conclusion: There is no time like the present to get Executive buy-in to invest in a Records and Document Management (RDM) framework and technical solution. Pending legislation in USA (Sarbanes-Oxley and Bio-Terrorism) and CLERP9 in Australia, a synopsis of which appears in Note 1 below, is likely to put RDM on the radar screen of many CIOs and IT managers.

Since the IT industry continues to consolidate, with acquisitions of both large and small companies a weekly event, users must keep several questions and action items in mind to respond effectively if and when one of their main suppliers is suddenly acquired. It is important to remember that all acquisitions are takeovers – there is no such thing as a friendly merger – and if you are a customer of the acquiree you have to be extra diligent.

Conclusion: Carried out judiciously a benchmarking exercise can yield unexpected and significant benefits. Conversely, when few performance measures are captured and unit costs are unclear, the exercise is a waste of time.

The scarcity of skilled in-house IT staff and strong project managers in Medium Enterprises is increasingly leading to the use of multiple outsourcers for major projects. However, poor selection and inadequate management of the relationships with the outsourcers that occurs through the lack of project management and outsourcing management skills are critical factors contributing to IT project failure. A disciplined approach is required to enhance the success rate of IT projects. The most important thing that a CIO can do is to ensure that the business managers understand the goals of the outsourcing and the impact on business operations.

Conclusion: Consultants can be a potent weapon provided you are using the right consultant for the right reason; you manage the assignment appropriately; and you insist on a deliverable that is implementable in your organisation.

CIOs should review their selection and management processes for consultants. Consultants should win assignments based on value for money outcomes - not on daily rates - and assignments should be managed end to end from the pre-proposal stage to implementation.

 

Conclusion: “Offshore outsourcing” or the practice of outsourcing IT or business functions to other geographic regions is growing, with similar trends forecast for the future. While offshore outsourcing offers cost-cutting opportunities, it does possess risks unique to offshore projects, which have resulted in mixed success when adopting this strategy. Detailed risk assessment, strategic planning and ongoing management must be conducted by any organisation considering an offshore project, or commercial benefits will be lost, ultimately negating proposed cost savings.

Conclusion: If you know your organisation’s records and document management processes are out of control and do not propose a viable solution, you are putting your job, and the CEO’s, at risk.

Why Records and Document Management?

One of the hidden and unavoidable costs of running an organisation is that of manually filing, retrieving and disposing of records and documents. This cost often runs concurrent with the hidden risk from not being able to find key documents when required for evidentiary purposes or completing an asset sale. How can the costs be avoided and the business risks minimised?

To answer the question, let’s look at what has been happening in many firms of all sizes in the last couple of years.

 Conclusion: While certain types of IT sourcing deals (such as large “mega deals”) have been criticised by commentators, it may not be beneficial for all organisations to alter their current IT sourcing strategy. All potential cost and management problems must be carefully considered prior to altering any sourcing strategy.

Procurement of PCs, software, servers or services can seem overwhelming due to the complexity inherent in the process, market and business volatility, and uncertainty in the vendor community. Buyers should use a formal process - including the establishment of documented best practices and standard document templates - tailored to that organisation’s culture and structure to bring discipline to the process. Ultimately such an approach will reduce TCO. A successful negotiation requires a complete understanding of the product or service, how it will be used, user profiles, and identification of vendor negotiating levers.