Five Key Principles for Continuous IT Cost Optimization
Dealing with IT outsourcers can be difficult under the best of circumstances, like when the scope of the project is relatively small, and only one or two key suppliers are involved. But when you’re thrust into a multisourcing situation where multiple suppliers are contracted to handle various parts of a large-scale project, it can be a nightmare of “not my job” buck-passing and finger-pointing when something goes wrong. Multisourcing can be a mega-headache.
The pain is likely to get worse before it gets better. According to Information Services Group (ISG), a Stamford, Conn.-based technology services consulting firm, the multisourcing model is becoming increasingly common, and we’re on the cusp of seeing a surge of these contracts being negotiated. A record 901 outsourcing contracts valued at $25 billion expired in 2012, ISG says, and another 886 contracts valued at $21.2 billion will expire this year.
I discussed all of this in a recent interview with Lois Coatney, an ISG director who has been in the trenches and has seen the challenges inherent in the multisourcing model. She has said that one of the biggest challenges lies in the fact that “providers are financially motivated to get the highest possible fee for the least amount of work,” and that “you often see individual providers conclude that it’s in their best interest to protect their turf and to find ways to show that fixing whatever problem arises is the responsibility of another team.” Before joining ISG, Coatney worked at HP Enterprise Services, so I asked her if she could share any tips based on HP’s strategy in a multisourcing environment that would have been very helpful for the customers if only they’d known. She responded that she couldn’t speak on HP’s strategy, but she could speak from a supplier’s perspective:
Suppliers, whether they’re large or small, want to preserve their business with their clients—that’s the end game. There are a couple of ways to be the go-to supplier for any client. One, you’re providing services based on what was contractually obligated of you, so first and foremost, that’s what you’re looking to do, and you want to do it in the most efficient way that you can. At the same time, you want to be the easiest supplier to work with—there is a negative to having a poor relationship with the client, and being the difficult one. My experience as a supplier, and we worked in an environment with lots of other suppliers, is we wanted to have a fairly standard way of working with the client. So you knew, if you were part of some incident, if you played your role, the other suppliers were obligated to play their role. There was some level of agreed expectations across the space so that you understood what your level of effort was going to be in delivering those services, and you could properly deliver up to that level of expectation. What was important was your client also understood what was expected, and could understand how those pieces fit together so that no one supplier was doing the extra effort.
We talked about the need to build collaboration expectations into the contract and into any SLA that is negotiated. Coatney stressed that creating a cross-supplier SLA is especially hard work:
To build an end-to-end, business process SLA, the client needs to understand their business really well, to understand how they’re going to knit these bits and pieces together in order to put in a proper SLA across them. That takes some time; you need to have a pretty robust CMDB [configuration management database] in order to do that. You know what are the most important business transactions that are happening, and how they use the various components from the suppliers. When you’re going through that contracting process with those suppliers, you often don’t yet know for sure how all of those components are going to come together, and how they’re going to be used over the next five years. The components you need in place—we sometimes refer to it as your business service portfolio or catalogue—the design requires some time and foresight to build that, and to then put the SLA together. We often see those kinds of “next generation” SLAs put in for the next round of work, when they have a better feel for how those services are going to be used.
SLAs aside, I asked Coatney how commonplace it is to include collaboration expectations in the contract. She said it’s not as commonplace as it needs to be:
It hasn’t been a standard practice of making sure those are in at the level of detail that we would like to see, that we now advise clients on. Because you can’t just put in a statement, “You will collaborate with your peer suppliers.” That doesn’t have any description. What does that mean? [You seed a description that says] every week you will attend a meeting on this topic. So we try to be much more prescriptive upfront as to what collaboration really means. Based on our experience, we know what it means to bring those suppliers together, and know what works, so it’s taking that knowledge and building it into the contract. Clients are starting to recognize, yeah, let’s put that into the contract.
I asked Coatney how much pushback outsourcers tend to give in agreeing to some sort of a collaboration metric, and how hard-nosed customers have to be on that point. She said it’s difficult, because there are a number of factors they consider before they’ll agree:
One, they want to make sure the environment is fairly mature. If the client is outsourcing for the first time, they’d be worried about their ability to receive the right attention, and to have issues addressed in a standard way. They want a very standard operating environment—suppliers like that. If they don’t feel like that standard operating environment is going to be there, and that they know they can depend on a way to make sure their services, or their piece of that end-to-end deliverable, are going to be there, and they have an avenue by which to address issues with other suppliers, they’re going to be very hesitant to sign up on it. So I think there is still quite a bit of discussion as to whether it’s a pain sharing, where if some incident happens and there’s some penalty, suppliers can figure out who’s going to pay. There are all sorts of examples of how to do that, and coming up with the right one that makes sense, that suppliers are comfortable with, I think we’re still working through those details to make sure they have one they’re comfortable that they have the right ability to influence and drive that, and protect themselves.
Coatney also shared some valuable insights into how to foster collaboration between outsourcers in a multisourcing environment. I’ll cover those in a forthcoming post.
