Learning from the Outsourcer

Excellent Customer/Supplier Relationship in the IT-Business

IT-Outsourcing is on Meanwhile, outsourcing is a tool commonly used by enter-

the run prises, in particular by ones with great demand of IT-services.
The reasons, for which enterprises are outsourcing individual IT-
functions, are just as various as recurring: Concentration on
the core competencies, gaining access to qualified person-
nel, coping with changes in technology as well as achieving
cost reductions are a few of the primary objectives.

The learning curve As more and more outsourcing deals are being signed, the
of Outsourcing outsourcers and outsourcing customers realize the importance
of learning the business of how outsourcing is done. Advanc-
ing on this learning curve is often accompanied by painful
experiences and unmet expectations: Spongelike defined
contract terms, lacking flexibility of the customer/supplier rela-
tionship, underestimation of the management expenditure or
simply insufficient experience of the outsourcer in applying
outsourcing-typical processes represent the majority of all out-
sourcing problems. Eliminating these problems during opera-
tion is far more complex than avoiding them through detailed
project planning in the beginning. Considering the size and
importance of most outsourcing projects it is advisable to in-
vest in planning and in the management of the project. These
costs are usually more than compensated by a substantially
calmer course of the project.

Outsourcing estab- The probably most fundamental modification, that outsourc-

lishes a cus- ing implies, is the establishment of a formal customer/supplier
tomer/supplier rela- relationship. Before outsourcing, employees of the IT depart-
tionship ment and colleagues using the IT services were in the same
company and the IT-support was frequently delivered in an
informal way. However, the outsourcing relationship is based
on clearly determined, mutual obligations and responsibilities
and on unique defined rules.

This means, for example, that certain small projects like a new
analysis are no longer completed on acclamation. They
would have to pass a predefined process of approval, before
project work could be started. Besides, in a formalized cus-
tomer/supplier relationship such additional services are usually
no longer free and must be paid for. On the other hand the IT
department – frequently established as an independent
company – is expected to operate on a profit base so that
there is also an incentive to deliver the minimum required ser-
 vices.

Success factors for The experience shows that such a clear definition of responsi-
a successful internal bilities and deliverables is uncommon and rejected as unnec-
customer/supplier essary formalism by both parties. However, if the necessary
relationship time is granted to let this kind of cooperation prove itself, the
results demonstrate a much better functioning than the tradi-
tional relationships, built on flexibility.

In particular there are five success factors, that determine the

quality of a customer/supplier relationship. Thereby it is insig-
nificant whether the service deliverer is an external enterprise
(an outsourcer) or the internal IT-department. Also enterprise-
internal IT departments can copy these success factors in or-
der to improve the customer/supplier relationship.

Success factor 1: Only a business relationship with clearly defined responsibilities

Manage expecta- can be successful on the long term. "What ever is required" or
tions "As good as we can" do not provide a sufficient base for con-
structive co-operation and continuous improvement. Never-
theless, this is the philosophy of most internal IT-departments,
nowadays. Since the IT-department neither committed itself
nor the impossible-to-satisfy user to a certain level of perform-
ance or expectation, the user will always feel dissatisfied, no
matter how high the level of service may be. "Too slow", "Not
flexible enough" or "Too expensive" are just a few examples of
complains every IT-Manager has to put up with.

The solution of the problem appears to be, at least at first

sight, trivial:
An agreement of service levels in which the supplier and the
customer determine together the services to be provided and
its quality and price.

This provides clarity for both parties. The IT-department will be

required to deliver the agreed services with the agreed level
of quality. Non-performance will be severely penalized. How-
ever, probably for the first time, the IT-department will not
have to follow up on short noticed requests that are not part
of the agreement or that are above the agreed service level.

Of course, the devil is in the detail. SLAs pose no exception.

Good SLAs must regulate a large number of details: Scope
and quality of the service, processes, responsibilities, prices,
the dependency of price on time, volume and the service-
mix, monitoring and reporting procedures, contractual penal-
ties and escalation procedures are only some of the central
points. Standardized SLA may be applicable for the simplest
services only. Enterprise-specific requirements must always be
taken into account separately.
Success factor 2: An excellent functioning of a customer/supplier relationship is
Quality of Processes not just depending on the production of IT-services, such as
desktop or application support, but also on a number of
processes that are rarely found in a typical pure internal IT-
environment: These are Account Management, Project Man-
agement, Problem Management, Change Management, As-
set Management, etc.

"But that is exactly what we are already doing!" is a typical

response of most IT-managers. Really? Taking a quick look on
the documentation of theses processes will show, that the as-
pects mentioned above may be known and may be prac-
ticed as good as possible, but the quality of these processes
do not meet the required level. And required level means best
practices known not just average.

For a good customer/supplier relationship it is mandatory that

the supplier possesses the capability to manage the processes
professionally. This requires a detailed documentation of
processes, education of the employees responsible and the
certainty that these processes will be obeyed to.

Too much formalism? Certainly this mode of operation requires

a substantial concentration on detail and on performing tasks
correctly and reliably without exception. However, exactly this
ability constitutes a professional IT-provider. Whoever is not
capable to guarantee this high process quality will find it diffi-
cult to satisfy the increasingly self-confident customers on the
long run.

Success factor 3: As soon as the underlying SLAs between the customer and the
Performance moni- supplier are agreed upon it is imperative that these SLAs are
toring monitored and the results are regularly discussed.

A prerequisite for the monitoring of the SLAs is that these are

equipped with metrics which are measurable during opera-
tion: As soon as the entry of performance data becomes a
labor-consuming function, it will be neglected due to the
general work overload. Constructing SLAs, it is better to define
a practical minimum solution than one of maximum control-
ling which cannot be held out in practice.

The experience shows that the monitoring/reporting of the

own performance in purely internal IT environments is gladly
neglected. However, this very simple measure is a good first
step, in order to structure a positive, customer/supplier rela-
tionship between the final customer and IT-department.

Conducting regular customer satisfaction inquiries, which are

 part of numerous outsourcing contracts would be an addi-
tional measure to improve the customer supplier relationship.
For these measures to be successful, the customer has to real-
ize that his co-operation will be required to a substantial ex-
tent.

Success factor 4: Today, successful outsourcers are conscious about the fact
Communication that core IT-services such as the actual system operation are a
commodity, which can be offered by various providers with a
similar quality and for a similar price. Constituting a competi-
tive differentiation is only possible with other criteria – intensive
and positive communication are just examples of them.

This realization is directly transferable to internal IT depart-

ments: The customer will not be impressed by the reliable de-
livery of typical IT-services in high quality. The customer simply
expects this kind of performance. Active efforts on customer
proximity, regular common performance reviews, implement-
ing customer improvement suggestions, supplier improvement
initiatives as well as the periodic inclusion of the top man-
agement of the internal IT and of the customer side can make
a substantial contribution for establishing an excellent cus-
tomer/supplier relationship.

Success factor 5: The outsourcers that applied the success factors 1-4 and, be-
Being proactive yond that, have the necessary technical competence, are on
the best way to established themselves as accepted IT-service
providers.

However, in order to accomplish the strategically more impor-

tant step from being a supplier to being a partner (this is also
desirable for an IT-department within an enterprise), the IT-
department has to prove that it is willing and capable of per-
forming proactively and not just reactively.

Outsourcing contracts contain frequently a clause for so-

called value initiatives: Here the supplier is required to gather
and periodically (e.g. every 6 months) present suggestions
that could help the customer reach its business goals in a
more efficient way – e.g. reducing costs and improving the
error rate, etc. There is no reason why internal IT-departments
should not be required to deliver this kind of creative input.

Most IT organizations still have trouble (just like professional

outsourcers) with performing proactively. They are used to be-
ing reactive and only very few customers require the IT-
department to be proactive.
However, it should be considered that an IT-department will
gain several advantages: Very often these kind of value initia-
tives generate additional revenue. And it is relatively common
 to share the resulting profits with the IT-department or the out-
sourcer. However, the most important argument is that the IT-
department is building up a positive image and weakening
the prejudice of being too slow, not flexible enough or too
expensive.

Conclusion The outsourcing industry learned over almost two decades,

how relationships between suppliers and customers are to be
constructed and maintained. Some few success factors are
decisive for the establishment of a good relationship. Also in-
ternal IT providers can adapt these success factors to arrange
an optimal customer/suppliers relationship. At the same time
the customers require increasingly a professional handling of
the internal customer/suppliers relationship - the IT depart-
ment, that neglects this development, runs the risk of being
outsourced itself one day