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Infrastructure Management Outsourcing

Mike Jones, CEO and President (i)Structure, an IT infrastructure supplier based in Broomfield, Colorado, was a CIO early in his career. Like most CIOs, he thought his company had negotiated a fair and workable outsourcing contract with its new IT supplier. Things started out fine. Then, two years into the relationship, difficulties arose.

Here are some of the problems Jones says CIOs face in an outsourcing relationship:

• You discover you're paying too much!

At the beginning of your relationship, the cost of the services looked competitive. Then, you needed a report that was not included in the supplier's standard roster. This is a report you've used for years. You have to have it! You got the report, all right, but a new charge appeared on your bill. You thought that report and a lot of other things you used to have were included in the original agreement. Now you discover all of them cost extra.

"When you add up all the additional charges, you discover your supplier is now the most expensive, charging you more than the original bids of its competitors," says Jones. "And now you've lost leverage on the pricing issue, since now it's just you and them."

• Your supplier ignores you.

You're a small account for your supplier. From your point of view, you feel you are not getting the attention or the service that's appropriate. You now discover some service providers do not treat all their customers equally. To paraphrase George Orwell in "Animal Farm," some customers are more equal than others.

• You worry your supplier will not survive the current economic downturn.

You see signs you don't like, making you concerned about the economic viability of your provider. "You outsourced because you want them to invest in the IT infrastructure you need. Now you question their ability to invest in the capacity you need to help your business grow," says Jones.

Ways to Solve the Problem

What should an unhappy company do? Jones, who points out he can see both sides of the issue, says the best option is to try to work with your current supplier since breaking up is really hard to do.

The (i)Structure CEO has found communication is the most effective tool to resolve difficulties. "Let the executives at your supplier know why you are unhappy. Then, give them an opportunity to correct the problems," he offers.

Jones suggests both parties work together to craft a detailed plan to remedy the situation. Thereafter, each party has to be committed to the success of that plan.

Jones says if your complaint is about pricing, tell your supplier exactly how you feel. Then, let them explain why they feel their pricing is justified. Then, create a bargaining situation. Offer to extend the contract in return for winning concessions for what you feel is important. Listening carefully will tell you how much leverage you still have in this relationship.

Sometimes feelings have hardened. "Then it's time for a marriage counselor. Hire a seasoned third party intermediary who can provide guidance," Jones explains.

Finally, Jones says if you don't get the results you want, you have to be willing to step up to the plate and change suppliers. Of course, if you believe the supplier will go out of business or be acquired by another supplier you don't want to deal with, you have no choice but to break up.

Negotiating with a new supplier should yield fairer prices. "Selecting a smaller supplier who offers each customer its own account manager will provide the attention you need. And only due diligence will give you comfort that your next supplier will weather this economy's storm clouds," Jones concludes.

Lessons from the Outsourcing Journal:

• Typically, IT outsourcing relationships can get into trouble three ways:
  1. You discover you're paying too much.
  2. Your supplier ignores you.
  3. You worry your supplier will not survive the economic downturn.
• If your complaint is about pricing, tell the supplier how you feel. Ask them to explain the aggressive pricing, then create a bargaining solution.
• If feelings have hardened, hire a marriage counselor -- an outsourcing consultant.

Publish Date: October 2002

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Copyright © 2002 - Everest Partners, L.P.

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