Negotiating a good outsourcing deal, part 1

Negotiating a good outsourcing deal, part 1

Editor's note: This is the first in a series of three articles on outsourcing from IT-Director.com. (1)

Love it or loathe it outsourcing is here to stay, so once you accept the fact, it's time to make sure that you get what you want out of an outsourcing deal. Of course, there are many soft skills consultants who will be more than willing to advise you on the world of hardened negotiators and we would thoroughly recommend getting the lawyers involved sooner rather than later, but there are some common sense tactics that you can start to think about yourself before you run for help.

Whilst there is a trend towards IT as a service -- organizations must remember IT is no ordinary commodity they are buying -- pay peanuts and get monkeys. Similarly, the outsourcer must control their eagerness for a deal as they will leave themselves with little or no profit margin and end up having to approach the customer to renegotiate or rescope the deal when the customer is unhappy with the poor service levels and, this is not what anyone wants. As with any commercial agreement, a balanced win-win outcome must be negotiated that reflects the partnership nature of outsourcing.

The length of the outsourcing contract should take into consideration the nature of the service being provided. Is it worthwhile running old systems for 10 years? Be realistic; as was shown by the amount of time that was spent on Y2K work, there are many more old systems out there than we would at first imagine.

That said, don't go for the long shot, consider how quickly technology develops, three or five years is perhaps the optimum contract length as it enables an organization to gain the full benefits of outsourcing, which are only really achieved in the medium to long term, whilst future proofing against technical advances.

Also avoid bundling all services in one contract and under one price schedule, you need to know exactly what services you are paying for and the cost implications of scaling up or down to cater for fluctuations in capacity. The outsourcer in comparison will try to bundle as much as possible so that their costing model is not exposed.

The attitude of both customer and outsourcer is demonstrated in the initial negotiations and often sets the scene for the future relationship. In the next article we will look in more detail at the nuts and bolts of getting the deal you want.

Click to read the second installment of "Negotiating a good outsourcing deal".

Copyright 2002 IT-Director.com provides IT decision makers with free daily e-mails containing news analysis, member-only discussion forums, free research, technology spotlights and free on-line consultancy. To register for a free email subscription, click here.
This was first published in October 2002

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