So I\'m a bit behind in my reading. A couple of years ago Thomas Kern, Leslie Willcocks and Eric van Heck wrote an interesting IT outsourcing case study with lessons on what they\'ve termed the \"Winner\'s Curse.\" The idea is that sometimes you don\'t want to win -- whether it is a vase at an auction or a huge five-year contract to provide application support services for a \"blue-chip company.\"
The case study outlines a situation in which a high-profile oil services firm asked a smallish outsourcing company to bid against an existing supplier whose contract was due to end. The current supplier was considered a \"Rolls-Royce service,\" and the client decided it was paying more than it needed to. In order to get the deal, the new service provider bid less than it should have -- perhaps because it was naive about the savings it could squeeze out of the current IT operations, or because the supplier wanted the deal (and the reference) at any price, or because the people putting the bid together weren\'t the same ones who had to make the plan operational and so they didn\'t look as hard as they needed to at the details.
At any rate, after 18 months of losing money and missing service levels, the new service provider decided it either had to back out of the contract or renegotiate terms. Fortunately, the client decided renegotiation made sense too -- because of the expense of starting the process over with yet another new firm. New relationship managers were brought in on both sides, the contract was reevaluated and reworked, and they all lived happily ever after.
Why should you care if the vendor hurts? Because, as the paper points out, in the vendor\'s efforts to reduce costs, you may get less experienced staff (and fewer staff members altogether); you may experience dimished service levels; you won\'t be able to build on the relationship in forging new business initiatives without paying a true premium (to make up for lost revenues elsewhere in the deal); and continued losses could call into question the viability of the long-term nature of the contract (which is going to cost you in some form).
One part that\'s interesting to read are the terms of the initial deal -- how much was paid out for core services as a flat rate and how much was planned for service additions and changes. (Alas, the case study doesn\'t provide numbers on the renegotiated agreement.)
Of practical use: the numerous strategies you can take to avoid experiencing what these academics call \"a relational trauma\" and what I\'d call \"making a bad thing last longer than it should.\"
Here\'s one tidbit from the text: \"Fixed price contracts will create inflexiblities...Consider flexible prciing options including cost plus, market pricing, fixed fee adjusted by volume fluctuation, benefit sharing. Track supplier costs via \'open book\' accounting. Allow for biannual assessment of pricing adjustments.\"
You can buy the electronically-delivered 24-page case study here for $6. Or you can track down the January 2002 issue of California Management Review at a library and read it in there.
Today, I’ll cover the META Group event and what I think will transpire there. I had the chance to attend the Gartner outsourcing event this year in Las Vegas, and it’s probably similar in many ways.
The conference is co-located with an event on IT infrastructure and operations. Makes sense. Those two topics have a lot in common with the work -- and motivation -- behind outsourcing.
Like the Gartner event I attended, the agenda for this one includes a multitude of researchers, analysts and consultants who work for META. More on that shortly.
It offers two breakout tracks, though only three sessions in each, as a kind of concentrated training. Track A focuses on “decision and selection.” The description says the track covers vendor selection and financial analysis. If you also get handouts with checklists and spreadsheets, this would be useful, indeed. Track B covers “value and optimization,” with a concentration on ensuring that what you’re paying for is what you’re getting in outsourcing agreements.
I’d presume that some of the event sponsors are speaking. These include SAIC, Unisys and Cognizant Technologies; but the catalog doesn’t reference any particular sessions. Nor are any client presentations mentioned. That\'s a shame, since those are always interesting if the speaker has any presentation skills whatsoever.
That means you’re bound to receive a heavy dose of META-speak, the high-level advice that the big analyst firms are wont to give when they have a roomful of highly-titled listeners. (They probably save the nitty-gritty for the private meetings they host with individual clients.)
On the other hand, you’re bound to meet people -- other delegates -- struggling with the same kinds of problems you have in making IT outsourcing work, some with advice on what they\'ve tried. That could make attendance at the META Group event highly useful.
I’d recommend this one if you need research numbers to put into your business proposals for future outsourcing projects. (Take plenty of notes during the sessions; because once the numbers are handed out verbally, you may have a tough time tracking them down again!) It’ll also be an excellent way to meet others focused on IT outsourcing vs. other forms of outsourcing, such as HR or finance. This latter point is an important one, and what distinguishes the META event from the next one I\'ll cover, the SIG conference.
Besides, who can turn down a few days in San Francisco? October’s frequently a lovely time to see the city. Plus, the hotel where this event is situation is nicely located -- right next to the Embarcadero.
And that, dear readers, is one of the reasons I\'m looking forward to attending the META gathering. Press credentials in hand, I\'ll be reporting from the aisles.