IT Outsourcing: How the Maturity of Contractors & Providers Influences the Success

In this article I'll explore briefly an aspect that is key to understand the success (or not) of the relationship of a company that took the decision to outsource part of its business support using an external IT provider.

To start with, IT Outsourcing isn't something that has an universal solution model that could be applied to any company. Just like most of other business decisions, the IT Outsourcing Strategy needs a deep and systematic understanding of many variables. In fact, it is almost impossible to a large company to engage on such a task without having the assistance of a trusted advisory partner. Even companies in the same market segment may adopt extremely different strategies, given the decision should take into consideration the particular aspects of each business model, market environment, available options and maturity level of itself and potential IT providers.

Another important consideration is that “IT Outsourcing Strategy” isn't something that ends when a provider is chosen or when it assumes the execution of the business support services defined in the contract. In fact, a good strategy needs to foresee the most common potential issues, based on the previous experiences of other companies, and possible tactics to workaround and fix them.

One of the most common issues found is related with the expectations that each side of this relationship has. From the contractor's perspective, the main expectation is to receive a service with quality enough to sustain its business without significant impacts. From the provider's perspective, that has the IT service as its core business, the main expectation is to have and maintain a profitable contract. Despite these are obvious objectives that should be clear to both sides, they are often neglected.

This usually happens even before contract signature, mainly due to the high level of competition seen on some IT market segments. Some players will easily drop their prices to unreal levels, promoting a pressure that reaches both competitors and the contractor company itself, as no IT executive would like to pay more than the fair price for the service he is quoting. Again, without the assistance a qualified advisory partner, the IT provider choice can result in disaster to the company core business, given that a financially strangled contract will not be able to accomplish the necessary service levels. It is still likely that the provider counts on contract extensions or revisions to recover the lost margins, but this expectation also trends to promote more conflicts than solutions.

Other circumstances can lead to a similar scenario. The misalignment of parts expectations can appear along the contract term, for instance if the decision makers change or if new guidelines arises due to economic pressures. This remembers the importance of a well written contract, defining as clear as possible the deliverables, assumptions, metrics and conditions that may require a re-negotiation. The contract should have mechanisms that allows it to be as adaptive as possible, turning viable in a short timeframe to accomplish the contractors business new demands and the additional provider revenues necessary to grant enough resources for the service delivery.

Both sides need to understand each other, actively trying to evolve to a concrete partnership model, instead of regressing to a “tug of war” relationship model. Both contractors and providers need to reach a consistent maturity level to be able to build a successful case together.