How to show the outsourcers out

TORONTO — Enterprises should spend as much time thinking about the end of their long-term outsourcing agreements as they do hoping for reduced costs, executives told the CIO Summit Monday.

In a panel discussion that explored

how corporations can successfully hire outside expertise to run non-core business processes, CIOs from Telus and Hydro One said many firms fail to plan for the unforeseen complicating factors that come with staff changes and economic fluctuations. This, they said, means getting out of an outsourcing deal can be just as onerous as finding the right partner in the first place.

“”I think of outsourcing as the seven-year itch,”” said Peter Pereira, vice-president of information services and CIO of business transformation at Telus Corp. “”In the good times we’ll be committed. In the bad times, it’s time for a breakup.””

Breaking up can be hard to do. Some contracts call for extensive notice periods, the buy-back of high-tech equipment by the outsourcing client and the return of employees who moved over to the outsourcing firm. This doesn’t help a company that has turned to outsourcing for the reasons Pereira mentioned, like providing core services more quickly and sharing the risk.

Bernice Karn, a lawyer with the Information, Communication and Entertainment Group at Cassels Brock & Blackwell LLP, said some outsourcers balk at providing “”termination assistance”” to clients who bail out unless it is spelled out in the contract. This can open up great dangers to companies, particularly if they experience peak business periods around the time the outsourcing agreement is terminated.

“”It’s kind of depressing to think about it as you’re setting up the contract,”” Karn admitted. “”But at some point you know you are going to end the relationship.””

Outsourcing agreements don’t always end abruptly because the outsourcer isn’t doing a good job. Sometimes, the company’s goals and the original strategy that led to outsourcing change when management changes, said Hydro One CIO Hitesh Seth. A new regime may decide the company needs to “”insource”” or take back processes. “”You have to think through termination activities,”” he said, “”but sometimes the planning is hard and counter-intuitive unless you’ve been through it before and know the consequences.””

The potential pitfalls seem to have scared off many senior IT professionals, judging from an informal poll of the CIO Summit audience. When the seesion started, panel moderator and XPV Capital Corp. managing partner Keith Powell asked the crowd if they have or are outsourcing a business process. About half of the approximately 200 people in the room put their hands up. When he asked how many were now considering an outsourcing agreement, less than two dozen raised their hands.

Karn said many of the firms she works with now ask for a “”most-favoured”” clause to protect them in the long term. If a client needs expertise or a set of best practices its outsourcing partner can’t provide, the outsourcing partner has a period of time to prove it can develop the required skills or processes. If not, the agreement is dissolved or the company can bring a new partner into the mix.

Many outsourcing agreements involve staff transfers, and Seth said this sometimes triggers a dramatic change in which IT workers treat their former employers. “”They think they’re supposed to be making as much money as possible for the firm they’ve joined,”” he said. “”They start talking dollars and cents every time you make a request.”” Improved planning at the negotiation phase is necessary to define the scope of a contract, he said.

Pereira said Telus has changed the way it measures the success of its outsourcing agreements by focusing on adoption milestones. In a customer relationship management project, for example, its success would be measured on how many users embraced the application, not when the outsourcer implemented it. “”You need a risk and reward mechanism,”” he said. “”Let’s shift our focus back to the customer.””

Pereira said he had outsourced non-core services in Telus’s enterprise business, while Seth said Hydro One is outsourcing its call centre, accounts payable and receivable, its supply chain and payroll processing.

The CIO Summit wraps up Tuesday.

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