InformationWeek
Defining The Business Value Of Technology
November 16, 1998
 Print this story |
continued...page 4 of 5
All of which means that IT organizations risk losing even more key people to service providers. What can be done? Aside from the training, career path, work environment, and compensation improvements that every IT organization must make to retain critical skills, rules of engagement can be built into contracts with service providers. These range from prohibitions against any recruitment of internal staff for at least a year after the engagement ends, to requirements for training of internal staff and knowledge transfer from the contractor to staff.
Bank One Corp. took a unique approach in its recent outsourcing contracts with AT&T Solutions and IBM Global Services. All IT employees, whether remaining with the bank or transferring to one of the vendors, will have opportunities to work on projects with either of the vendors as well as the bank. In addition, the partners are developing a curriculum with local schools to provide continuing education and training for all IT employees.
As the number of integration and outsourcing deals proliferate, the potential for legal disputes between supplier and customer will also rise, especially as the year 2000 data-field problem comes to a head. "Some of these [disputes] will be caught in what will start out as year 2000 cases," predicts John Halvey, partner and head of the intellectual property and technology group at New York law firm Milbank, Tweed, Hadley & McCloy. "As they go through a systems audit trail to see what failed, where, when, and how, it will lead to some of these systems integration projects. Some of the older contracts didn't take year 2000 into account."
In many cases, it will be the integrators and outsourcing firms that are responsible for ensuring that systems are compliant, says Stuart Smith, a partner at Gordon & Glickson, a Chicago law firm that serves both IT organizations and service providers.
Some of the big service providers are shying away from year 2000 work. Rod McGeary, vice chairman of consulting at KPMG, says the firm has stayed away from year 2000 remediation because it's not strategic to its clients' future. Andersen Consulting has taken on year 2000 work "on a very select basis, typically for clients with whom we've had a longstanding relationship," says Newkirk. "It's a necessary evil."
Legal skirmishes with IT service providers could also increase because customers have become much more sophisticated with what they're doing and what their expectations are, Halvey says. Furthermore, adds Smith, "as these contracts mature, we're starting to see more disputes over whether the service providers are performing in accordance with the contract terms. It usually takes a year or two after the deal is signed for these things to come up."
How can disputes be avoided? The vast majority of lawsuits stem from "disharmony" between the terms of a contract and what customers expect, Halvey says. "You can eliminate a lot of these disputes if you can bring long-term expectations into alignment with what's in the contract," he says. "Customers can be more cautious with their deployment plans. If it sounds too good to be true, it's unlikely it will be true. Since there's usually a rush to get something done for good business reasons, both vendors and customers often suffer from the 'ready, fire, aim' syndrome."
Making It Work
Beyond legal issues, many analysts say the parties in a service agreement must better align their goals in general. Much of the responsibility lies with IT managers, who must improve their skills in planning, negotiating, and managing service agreements.
"There is no training for IS managers on services contracts," says Gartner Group Inc. analyst Linda Cohen, "and that absolutely causes dissatisfaction. There has to be wholesale change in the IS organization's mission and how they resource, and they are just not ready for it."
Gonchar of Compass America notes that many CIOs have unrealistic expectations about life with service providers. He says he's amazed at how many CIOs go to the negotiating table with little sense of what their companies hope to get out of the deal. "In some ways it's the Wild West, with a lot of opportunity and risk," Gonchar says. "Some people are heading into this expecting a modern city and instead they end up at the O.K. Corral because they're not putting forth the effort to research and manage these deals."
To help ensure that a service arrangement will work, companies should form a steering committee that includes IT and business executives to oversee the deal, says Dennis McGuire, president of Technology Partners Inc., a Houston consulting firm that helps clients negotiate outsourcing contracts. Companies should also have clear-cut expectations; a project team; a process for developing requirements, identifying vendors, negotiating the contract, and managing it; a governance model; a transition plan; and outside consultants and lawyers.
The faster most companies want a project to go, McGuire warns, the longer it takes to achieve success. Transition plans (how people and computer assets are handed off from the client organization to the outsourcer) and governance models (who manages what, who reports to whom, etc.) are much easier to work out before a deal than after, he says. "It takes twice as long after and creates tremendous ill will with the vendor, because they assumed these things were done," McGuire says.
Andersen's Newkirk says there's a far greater chance a relationship will succeed if IT managers have a clear set of business goals driving a project and get top management support for all the inevitable changes. "We tell people in IT that we need to go to executive management and get a buy-in," he says. "We partner with IT, but in the end, this is sponsored and driven by executive management."
Formal Metrics
Gonchar, who has helped many companies negotiate outsourcing deals, says more IT executives are entering into relationships with a better idea of what they want, and they're putting in place metrics to closely track the performance of service providers and their claims that they're adding business value. "These metrics allow companies to determine not only that they're renting more cars or processing loans faster than before, for example, but that it's because of IT improvements that they're renting more cars or processing loans faster," Gonchar says.
One example of a company that knew exactly what it wanted in an outsourcing deal and is set to measure results is Bank One, which merged with First Chicago NBD in late September, the same week it signed outsourcing contracts with AT&T Solutions and IBM Global Services. Before negotiating those contracts, executives took stock of the bank's costs, network usage levels, and service quality, and assessed its strengths and weaknesses in providing service to employees. This would allow the bank to measure the progress of its service providers.
"We went in with very clear objectives--improve our technology infrastructure to support the merger and growth, increase our ability to attract and retain skilled employees, and improve cost efficiencies--and if we could not achieve these we wouldn't go forward," says Marvin Adams, chief information and technology officer at Bank One.
As part of the agreements, Bank One got the outsourcers to include provisions that would let the bank benchmark things such as network availability and data integrity, to ensure it would get better service than it would have gotten if it hadn't gone with outsourcers. "This took a substantial amount of negotiating," says Mike Keller, senior VP of business and partner management at Bank One. "It wasn't so much that the providers were reluctant to do it, but that it's fairly complex to compare pricing on one outsourcing arrangement to others, or to benchmark certain things like the efficiency of our IT infrastructure."
Adams says the deals include periodic "checkpoints" to ensure that the outsourcers are staying in line with market prices and will rework pricing if there are changes.
continued...page 5
return to page 1, 2, 3
Back to This Week's Issue
Send Us Your Feedback
Top of the Page
Featured Microsite
