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9 ways to stop your IT outsourcing deal from leaking money

Stephanie Overby | June 15, 2011
If there were a relatively straightforward way for an IT leader to boost his company's bottom line by millions of dollars a year, chances are he wouldn't ignore it. But that's just what many CIOs are doing as a result of poor outsourcing management.

"That creates an economic incentive to use the smallest infrastructure to support the activity, driving cost down," Hansen says. "SLAs would be used to ensure that the infrastructure isn't cut to the point where it puts the service at risk."

5. Define what value means to you. Is your goal to maximize cost cutting? Improve process performance? Enable transformation? Develop realistic and measureable metrics to track whether or not value is being delivered, advises Lepeak. When it's not, perform root cause analysis to determine why.

6. Recruit experienced and enthusiastic governance professionals. Most outsourcing governance groups are improperly staffed. Very senior IT professionals may get bored by some of the minutiae and perform poorly. Junior people may not have the experience to thrive.

"Performing good outsourcing governance is very different from running an internal, non-outsourced operation, yet quite often those tasked with managing an outsourcing effort have a background and skill set based on running internal functions," says KMPG's Lepeak.

Because CIOs do a poor job of incorporating the group into the overall departmental structure, they turn governance into an IT ghetto. "There is still a ways to go in terms of making governance experience a relevant and understandable step in the career track," says Liz Evans, director in KPMG's Shared Services and Outsourcing Advisory group. "Many companies struggle to find and attract the right resources internally and externally."

7. Go holistic. "Look at governance and the way you govern across your portfolio, whether that be IT or the enterprise at large," advises Evans of KPMG. If outsourcing governance is not aligned with overall IT governance, friction is bound to occur.

8. Beware of non-stakeholders in negotiations.When reevaluating a deal that is underperforming, bring problem solvers-not risk mitigators-to the table, advises Hansen.

"Lawyers are the classic non-stakeholders," he adds. "When a company evaluates a deal for renegotiation, one of the exercises typically involves handing the contract to some lawyers who then look for ways they can 'tighten it up.' To most lawyers it doesn't really matter if the deal as it was written is choking the parties to death, that the economics are not aligned or that the governance is dysfunctional."

Third-party advisors or procurement professionals could also fall into that category. A better option is to put deal leads and stakeholders in a room to analyze how to improve the relationship.


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