Inffective Outsourcing- Pull the Plug


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What happens when things head south? What happens when the relationship goes bad, the service provider disappears, or a series of breaches force you to terminate the contract? What happens if both parties to the relationship amiably decide to end the relationship? In any case, you are left with the responsibility of pulling the plug on your current service provider. But in order to do that, you need to have a foolproof exit strategy developed between you and the OSP during the contract negotiation phase - before finalizing the contract

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Inffective Outsourcing- Pull the Plug

  1. 1. IndustryReport Pull The Plug – The Best Outsourcing Exit Strategy
  2. 2. © InterGlobe Technologies Ltd. 2011: The best outsourcing strategy is the strategy planned before the contract is signed. During the courting period, the business considering outsourcing should make every effort to determine who will do what, when, and where (cost, activities, etc.) in the event an exit strategy is eventually needed. Determined in advance while feelings between the business and the outsource service provider (OSP) are agreeable, your exit strategy can become a powerful tool. Many companies make the mistake of not properly planning their exit strategy, and fail to recognize this error until they find themselves in the position of wanting or needing to pull the plug on their outsourcing arrangement. Outsourcing is essentially an arrangement in which a customer carves out certain services managed by its internal resources and engages an OSP to provide those services. If it is done effectively and efficiently, outsourcing can achieve the all important “win-win” for both the customer and the service providers. Outsourcing arrangements involve contracts represented by two parties. It is not uncommon for the two parties belonging to the contract to become annoyed with one another and then decide to end the relationship. So what happens when things head south? What happens when the relationship goes bad, the service provider disappears, or a series of breaches force you to terminate the contract? What happens if both parties to the relationship amiably decide to end the relationship? In any case, you are left with the responsibility of pulling the plug on your current service provider. But in order to do that, you need to have a foolproof exit strategy developed between you and the OSP during the contract negotiation phase - before finalizing the contract. “Just as your firm has a disaster recovery plan that you review yearly, so should you have an exit plan for any outsourcing deal you make.” That’s the advice from Brad Peterson, a partner with Chicago- based Mayer, Brown, Rowe & Maw LLP, the 10th largest law firm in the world and a global leader in outsourcing law. According to Dean Oppenhuis, Partner Bell Gully, there are several main matters with exit provisions that will ensure an orderly and timely migration of responsibility to either a new service provider or back to the customer (in-house), with minimal disruption to business. The main matters include: • Exit Manager • Detailed Exit Plan • Ownership/Licensing of Intellectual Property • Asset Transfer If your business finds itself at the end of a relationship with a service provider, it is unrealistic to expect a service provider to be highly motivated to provide high quality exit services. However, with the right exit strategy, a strategy that includes detailed responsibilities, timelines, and penalties, the service provider will be much more agreeable in seeing the exit strategy implemented quickly and efficiently. Obviously, the service provider should be paid reasonable fees for providing exit services, but these fees should be predetermined as part of the original contract negotiations. The best terms for an exit strategy will come before the contract is signed. You will also find that a good exit strategy can be a real key for future contract re-negotiations or renewals. Exit Manager An experienced and qualified person should be appointed as exit manager. He/she should also belong to the senior management position of your company. The exit manager is responsible for ensuring that the service provider complies with the exit terms and is the key liaison with the service provider during the termination and exit period. Make no mistake, the right exit manager is the most important decision your business can make regarding your planned exit. This position should be filled by a no-nonsense, take charge and make-things-happen kind of person. This person should also have a good working relationship with the vendor currently handling the outsourcing agreement.
  3. 3. © InterGlobe Technologies Ltd. 2011: In the event that your business does not have a clearly defined exit strategy, this person will become even more important. A careful strategy and perfect execution of this strategy will be the primary function of the exit manager. This individual will need to have the right connections with the right decision makers in your organization if you plan to have your exit strategy implement without incident. Exit Plan A well thought out exit plan helps parties identify what is needed for a successful exit. Ideally, work on this should begin as part of the negotiations so that the framework and agreed responsibilities are identified. Identifying the responsibilities of both parties, including financial obligations, should be in place by contract signing. The exit plan is often completed after the transition phase so that all key actions and outcomes are captured while still fresh in the parties' minds. This involves writing down, in an agreed form, a plan which records what has just happened in transition, but in reverse for an exit years down the track. Otherwise, staff changes over the long term of an outsourcing contract will impede the development of an exit strategy. Developing the detailed exit strategy from the practical knowledge gained from "learning through doing" during the transition phase is the only way to accurately develop an exit strategy. The business must recognize as part of their exit strategy, the retention of certain key internal resources necessary in the event an exit strategy is needed. In many cases, businesses have lost their key internal resources during the outsourcing transition, making it nearly impossible for the business to exit from their outsourcing arrangement. The retention of key resources is the best safety net a business can employ when it comes to outsourcing their business processes or activities. Another important thing to remember is the constant review and modification of the exit plan to ensure that it reflects the realities of the services currently being provided. As technology changes occur frequently, your exit strategy should reflect these changes. Businesses should be certain that their exit strategy contains some basic requirements for it to be truly effective. Your businesses exit plan should have necessary previsions for: • Maintaining the current level of services and applicable resources (including employees) until the actual exit date • Rights of access to the service provider personnel • Hand-over plans, including for specific assets used to provide the services • Any consultancy and training support services to be provided by the service provider • Rights of access to any premises which are owned or leased by the service provider and used in the provision of the services. • Key internal resources retained by the business • Pre-determine who will be responsible for the cost associated • Intellectual property developed during the outsourcing arrangement Intellectual Property “What about the Intellectual Property???” The exit arrangements should address the issue of ownership and licensing arrangements for the intellectual property in existence at the time of entering into the contract and intellectual property developed or improved during the term. The exit arrangements also need to address the licensing of intellectual property and assets which are required for the provision of the services following termination or expiry of the term. This includes determining whether the service provider will charge the customer a fee for use of its intellectual property after the term.
  4. 4. © InterGlobe Technologies Ltd. 2011: Assets Transfer The exit arrangements needed to deal with the issue of whether the physical assets and/or contracts (including software, licenses, subcontracts, and sometimes property leases) will be transferred on exit to the customer or to a new service provider. Transferring these agreements and/or contracts may or may not be possible and, if possible, they could come at a costly price. These costs are often overlooked during the contract negotiations - especially when an effective exit strategy is not present. The current trend in outsourcing is for the business to retain its assets. The retention of assets allows the business to maintain a greater degree of control over the outsourcing arrangement and will certainly provides some security in the event an exit strategy is implemented. The transfer costs may be difficult to specify in advance, but a framework included the intentions of both parties should be clear. The business must be certain they are not paying for any assets as part of the charges during the term of the agreement and then paying for those assets again on exit. Finally….. It’s critical to plan how your business will exit an outsourcing agreement should the need arise. Proper preplanning during the negotiation phase of the outsource agreement is the only way a company can create an exit strategy that will serve their best interests in the event an exit strategy is needed or implemented. Businesses should always plan for the worst and hope for the best, only by doing so you can prepare your business to execute and manage an effective exit strategy.
  5. 5. InterGlobe Technologies (IGT) is a leading BPO & IT Services provider committed to delivering innovation and business excellence across the entire spectrum of the travel, transportation and hospitality domain. Ranked amongst the World’s Top 3 Travel Technology Solutions providers, the company offers integrated Application Development and Maintenance, Call Center Services, Back Office Services, Consulting Services and Solution Frameworks to the travel industry worldwide. InterGlobe Technologies Pvt. Ltd. InfoTech Centre, 2nd Floor 14/2, Old Delhi-Gurgaon Road Dundahera, Gurgaon – 122016 Haryana, India T +91 (0)124 458 7000 F +91 (0)124 458 7198 © InterGlobe Technologies Ltd. 2011: