Development of a formal request for proposal can flush out all sorts of operating details that were perhaps absent from the consciousness of the IT managers. Nasty surprises can arise – e.g. systems that are targeted for transition that are not covered by adequate current technology vendor support contracts. Any remediation that is required as part of the service provider’s responsibility should be factored into the negotiation process, rather than appearing afterwards as a change to scope.
The all-important service definition must occur – without which a service provider will be happy to simply sell you what they do, or what they’d like to do. An appropriate incentive / penalty scheme will need to be developed to ensure some mechanisms exist to promote desired improvements in performance.
A competitive process will require at least two serious candidates. Occasion- ally one preferred real candidate and an internal ‘stalking horse’ will do, but in general a better commercial result is driven out when rivals are aware that each is in a race. It is thus important to attract providers you would be prepared to contract with and retain their interest, recognizing that while a sales process continues they are losing money and that each day in the game represents a bet that they will ultimately win.
Evaluation
Multiple bids are received and processed. On what grounds is a decision reached? The various dimensions of the bids must be compared and carefully assessed. The informal aspects of service provider engagement – cultural fit, quality of communication skills, attentiveness to your requirements – should be considered along with the hard and fast – price, stability, financial strength and capability, compliance with bid requirements and completeness of service offering. Making a decision based on price alone is something you’ll no doubt regret.
Many organizations employ an evaluation methodology for ensuring this process stays on track and remains balanced and free from subjectivity.61 Particu-
larly when outsourcing will result in internal staff losses it is important to avoid clouding this evaluation process with individual interests and hidden agendas.
Reference sites can prove invaluable, revealing the strengths and weaknesses of the service provider delivery from the customer perspective. By checking out the credentials you avoid entering into a contract with a service provider who is big on promises and short on delivery.
The evaluation team has done its job when it can recommend a preferred service provider. Key points for the negotiation team to leverage should be identified and the presence of ‘show stoppers’ clearly communicated.
At this point you may be able to develop your own set of deal-specific risk factors, those requirements that if not met will cause your business the most pain (Aalders, 2001).
Negotiation
The negotiation teams on both sides are looking to remove the show-stoppers and move to contract execution. However, in most other respects the motivations and intent are different. Each participant hopes to secure as much advantage as possible through the negotiation. Negotiations commonly descend into a win– lose confrontation.62 As brinkmanship takes hold, the whole negotiation process
can extend and defer the achievement of benefits that may be attached to the shift to the chosen service provider.
Both business / commercial negotiation and legal clarification and refinement are necessary. What is finally agreed must be properly reflected in a legal docu- ment capable of enforcement. This must protect the rights of both parties. However, the contract is not suitable as a management tool; therefore other documents – that typically form schedules to the contract – are developed, e.g. service catalogues, service level agreements, procedures, inventory listings, etc.
61 Refer for example to the methodology suggested by Lacity and Hirschheim (1993). 62 From the legal perspective, Burden (2004) identifies common areas of debate in IT
Divergence between business / commercial and legal artefacts is common and must be tightly managed.
Transition
It is important to manage to a transition plan, ensuring milestones are meaningful to both parties and conclude with services being delivered to the desired levels and other aspects of the service provision arrangement performing satisfactorily. Realistic transition plans recognize that service provider staff must build up an under- standing of the operating environment before they can begin to operate effectively. It is most important actively to minimize service disruption during transition. Staff with deep skills and knowledge might not move across as anticipated, but leave with their severance package. Other people impacted by the change may be operating on a below par basis for some time as they come up to speed in their new and changed roles.
Management
Ongoing attention is required to keep IT service providers on track (Kern and Willcocks, 2000). Regular performance reporting will enable you to keep an eye out for trends and major blips in service delivery. Other risks can be most effectively reviewed at periodic steering checkpoint meetings. To ensure sourcing governance forums are effective, corrective actions must be assigned to individuals and a high degree of rigour applied to ensure their timely completion.
Some choose to include a contractual obligation on the provider for a regular declaration of the provider’s risk management systems relating to the services. This declaration will disclose key risks that could prevent fulfilment of the provider’s obligations and describe the systems and processes that are estab- lished to monitor and manage risks. Material control issues that have been identified during the period may also be reported as part of this declaration, outlining the action that has been taken to resolve them.
Start as you mean to go on. If penalties – commonly referred to as service credits – are in order due to poor performance then it is essential to apply them. Withholding them can send confused signals to the service provider and poten- tially create a difficult precedent – ‘But we thought you didn’t care about that service level not being met.’ Slippage in service performance that is not quickly and effectively remedied may set in.