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Don't Let Your Responsibilities Collide with Those of the Outsourcer

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 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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