Have you lived a crisis in an IT outsourcing contract? What actions should be taken to solve it? Even more, what could have been done earlier to avoid it?

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Alfredo Saad
IT Sourcing Consultant
https://br.linkedin.com/in/alfredosaad

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• Six clues to checkfor a crisis
• Actions tosolve the crisis
• How the crisis could have been avoided

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Six clues to check for the crisis
 At least 6 clues typically mould a crisis in an IT
outsourcing contract. All of them evidence some
kind of discomfort inside the buyer organization
which has the perception that...
1. ...the quality of the services provided is
unsatisfactory,
2. ...the resources consumption reports are
incomplete and, still worse, error prone,
3. ...some requested services are not executed
allegedly because they would be out-of-scope,
(... Continued)

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4. ...the amount and skill of resources allocated
to the contract operations are insufficient
5. ...the resources allocated by the provider are
not aware of the buyer’s business priorities
6. ...the provider action is always sluggish and
reactive and never come up with an innovative
solution
Six clues to check for the crisis

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Such clues, when not timely addressed, tend
to deteriorate the relationship between
parties, making it difficult, little by little,
the achievement of the potential
outsourcing benefits.
Six clues to check for the crisis

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 Such deterioration can be identified through some clear signals,
made explicit by both parties, such as:
 A feeling that each party is trying to take undue
advantage from the other party
 Emotional discussions at the wrong hierarchical level
inducing insurmountable personal conflicts
 Intolerant attitude during discussions about divergent
visions around contract terms
 Difficulties to openly discuss and agree a solution for
the problems found
 Inability to argue through the utilization of solid facts
and data
Six clues to check for the crisis

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Actions to solve the crisis
In an extreme situation, such crisis scenario can
reach levels which may irrevocably prevent its
reversion, leading to a contract cancellation,
which typically results in a tiring and
traumatic process for both parties.
Crisis remediation mandatorily compels both
parties to admit the seriousness of the
scenario and to recognize that the conflicting
points must be discussed and solved in a frank
and fair way.

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Actions to solve the crisis
 Some actions typically adopted are:
 The replacement of the previous interlocutors,
exhausted after so many personal fights, by
freshly new experienced negotiators, sponsored
by the adequate executive level of both parties.
 The clear and objective definition of the new
negotiators’ mission
 Along the process, the negotiators must be
supported, when needed, by some experts
(legal, financial, etc) to discuss, frankly and
openly, some specific questions concerning
their area of expertise.

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Actions to solve the crisis
 The mission of the negotiators can be
summarized as:
1. to find fair solutions for the identified
conflicting points, also eliminating any past
financial misaligned viewpoints,
2. to document the agreed criteria, aggregating
them into the formal contract terms in such a
way that future divergent matters can be
solved rapidly and with no ambiguities
(Continued ...)

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Actions to solve the crisis
3. to improve the quality measurement
mechanisms and also the report on consumed
service volumes, formalizing the agreed terms
into the contract, in such a way that accurate
data turn out to be the basis for future
discussions and
4. when applicable, to define action plans to
remedy all failures identified, with their
respective owners and deadlines, whose
progression will be periodically tracked by
both parties, including the executive sponsors

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 Actually, the actions proposed above
constitute a reactive action to an undesirable
scenario that already exists.
 However, some previous actions should have
been taken to drastically minimize the
probability of a crisis occurrence.
 To achieve it, full attention must be devoted
during the negotiation of some critical items
of the contractual terms and conditions, such
as those seen on the next 5 slides
How the crisis could have been avoided

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1. Quality indicators effectively associated
to the most critical business activities of
the buyer organization and also a
continuous improvement mechanism
agreed in the contract
 Contribution to the crisis, if ignored: the
perception of bad services may exist even
when the agreed Service Level
Agreements are fully complied with.
How the crisis could have been avoided

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2. Clear and objective resource
consumption metrics which reflect the
real requested amount through the use
of automated tools and real-time reports,
accessed by the buyer organization
through a web portal
 Contribution to the crisis, if ignored:
perception of undue or exaggerated
invoiced values without any reliable
foundation
How the crisis could have been avoided

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3. Unambiguous definition of services
which are within the scope (and in
many cases also those which are out of
scope), with the participation of key-
users of the buyer organization
 Contribution to the crisis, if ignored: a
vague scope definition generate an
obvious conflict zone and it also makes it
difficult to manage user’s expectation
How the crisis could have been avoided

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4. Experience and skill level of the
resources allocated to the contract,
including, when applicable, proof of
market-recognized certification and also
the limits of use for subcontractors
 Contribution to the crisis, if ignored:
effectiveness and quality of service will be
impaired if the competence level of the
provider team is inadequate.
How the crisis could have been avoided

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5. Mechanisms to encourage innovative
solutions, to be continuously prospected
and proposed by the provider and
evaluated by the buyer organization,
with beneficial consequences for both
parties
 Contribution to the crisis, if ignored:
perception of services ineffectiveness due
to the growing misalignment between
fixed and immutable services and buyer’s
business requirements, which demand an
increasing agility and flexibility
How the crisis could have been avoided