7 outsourcing nightmares -- and how to avoid them

Poor communication, shortsighted contracts -- don't get derailed by an IT outsourcing agreement gone awry

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Outsourcing nightmare No. 6: Metrics without enough granularity to be meaningful

Todd Taylor tells tale of an outsourcing arrangement gone awry due to differing needs among business divisions.

Taylor, an attorney at Moore & Van Allen, who focuses on outsourcing and other technology issues and is familiar with the case, says the arrangement involved a large, multinational corporation and a large, highly regarded technology services company.

The multinational had multiple business units that provide services for consumers and businesses, Taylor says. It outsourced portions of its network operations and infrastructure to the technology services company to support multiple divisions, each of which had different needs.

The client spent time with the service provider coming up with service-level arrangements. But the service-level metrics were typically configured on a clientwide basis.

"In other words, in determining whether a service-level metric was met -- or not met -- performance was judged for the client on an enterprisewide basis rather than on a division or line-of-business basis or a specific service element basis," Taylor says.

In many cases, certain business units or functions weren't receiving acceptable services, and this potentially hindered the ability of those units to meet their customers' needs on a timely basis.

"The client had little contractual ability to demand correction of the problems, as the service provider was generally meeting the service-level metrics when such metrics were measured on an enterprise-wide basis," Taylor says. "Even when service levels were not being contractually met, the penalties often were not meaningful enough to incentivize the service provider to change behavior."

One lesson learned, in ensuring effective service levels for all, was to engage the appropriate business and technical people in all business divisions relevant to the outsourcing agreement, and to do so from the outset, Taylor says.

Companies should also define specific service levels at a micro level. "Representatives of the client receiving the services from the service provider [should] work closely with the service provider's representatives to define specific service levels that are relevant for each business division," and that address each service the client and its individual business units would receive, Taylor says.

In addition, penalties and incentives should be meaningful. "The penalties should incentivize the service provider to meet its obligations," Taylor says. Another way to address this issue is to provide bonuses or financial incentives for performance in excess of service-level metrics, he says.

Outsourcing nightmare No. 7: Downtime and disorganization

When public relations firm DPR Group hired an IT services provider in 2008, it experienced system latency, slow customer service, and problem tickets submitted daily.

"This constant break-fix model resulted in increased downtime and [decreases] in productivity that hurt our business," says Dan Demaree, president and CEO. "When we submitted a trouble ticket, it would sometimes take days to hear from the technicians, resulting in lost productivity, downtime, and unnecessary time spent on IT maintenance."

The service provider claimed to have a systematic approach, but the lack of a naming convention for DPR's computers and the fact that many of the people working on its systems were not familiar with them belied that assertion.

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