Surprisingly, contracts are frequently vague about exactly what the outsourcer's
responsibility is versusthe customer's. Without a patrollable boundary, neither side knows with
certainty what it should be doing. The result: Each side blames the other when
things inevitably don't get done. The big problem seems to occur when
businesses think that outsourcing obviates the need for any kind of corporate
technology strategy. Blue Cross's Caron discovered that very thing when he
walked into the contract from hell. "People here thought [the outsourcer]
was going to do everything, but it could only do so much and had only so many
resources," he says. "Without an internal IT strategy to drive it,
[the outsourcer] was faced with a no-win situation." Because nobody took
charge of strategy, the result was a sluggish operation operated with minimal
oversight. The outsourced IT operation was unresponsive to business needs to
the point that it eventually threatened the company's ability to compete.
Don't Neglect to Measure Success (or Failure)
Parties to an outsourcing agreement often fail to set the parameters for measuring
performance simply because it's a difficult and time-consuming task. The
results can be disastrous, says Alison Smith, vice president of infrastructure
at the now-defunct dotcom Myspace (previously known as FreeDiskSpace.com) in San
Francisco She speaks from bitter experience. Her company
formed a relationship with Andover, Mass.-based NaviSite to manage the
day-to-day operations of its website. At first, Smith says, the relationship
was practically a love fest. "Everyone was pals and friends and everyone
just wanted the relationship to work," she relates.
But things grew difficult as Myspace took off. The dotcom started with two
servers and 10 megabits of bandwidth but quickly needed eight servers and 100
megabits of bandwidth, and was adding 10 gigabytes to 12 gigabytes of storage
per day. NaviSite found it increasingly difficult to handle the growth, and
Smith grew dissatisfied with NaviSite's performance.
That's when it became painfully clear to Smith and her colleagues that they had
been operating without a contract that spelled out performance measurements. Everyone
had been moving so quickly at the beginning of the deal and there was so much
goodwill on both sides, it was hard to believe a stodgy legal document would be
required. Consequently, when things started to break down, there were no
guidelines to help define performance and satisfaction levels.
"The contract is the most important part of the outsourcing
relationship," says Smith. "If it's not in the contract, you'll find
it hard to do." When she and her cohorts signed with their next
outsourcer, which turned out to be Intira of Pleasanton, Calif., they insisted
on an ironclad contract, complete with service level agreements that link
financial penalties to subpar performance, and with detailed security and
capacity provisions. Smith suggests that customers define acceptable levels of
performance in terms of business relevance. For an e-commerce site, for
example, a good metric would be the online customer conversion rate—the rate at
which online browsers become online buyers.
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Outsourcing
