Nearshore Americas

What to Do When Clients Cause Contracts to Fall Apart

If the last two years in business has taught us anything, it’s that best laid plans can often go awry. 

The IT services’ high-degree of technicality and the integral position of IT infrastructure within the running of a modern business, means that minor problems can have large-scale impact if not resolved. Emotions boil over, communication breaks down, and downtime jumps up. Key performance indicators may be largely missed, and vendor-client relationships come unstuck. 

At this point, consultants are often called in. West Monroe, a management consultancy firm based out of Chicago, is one such company on call to help resolve and restructure IT outsourcing arrangements that have, for whatever reason, slipped off the tracks. 

One of those consultants is Rahul Singh, Senior Partner IT Strategy and Transformation at West Monroe and former CTO for UnitedHealth Group. Recently, Singh gave Nearshore Americas the inside scoop of the process behind contract realignment and the steps the company often takes when righting the ship. 

In his opinion, the blame for issues isn’t exactly even. As the party that molds the IT services outsourcing agreement to their ends, the client has more often misjudged the outsourcing process: “If there’s an issue in the relationship, more than 50% of the time the blame lies with the client,” said Singh.

Gather Insights From Both Sides

As is often the case in the outsourcing world, a major reason for an IT services client’s initial decision to opt for managed services is financial. When the outsourcing relationship is done right, savings can be substantial. But constructing an understood and functioning vendor-client relationship requires clear communication from both sides.

Rahul Singh, Senior Partner IT Strategy and Transformation at West Monroe

“Most of the time we are brought in to look at an existing outsourcing arrangement, it’s due to the client complaining that they are not getting the full value out of the relationship,” Singh explained. “They thought they were going to savings and other benefits, and they’re not receiving them.”

Singh enters into the disagreement with an unbiased view and gathers information on what both parties believe are their responsibilities and expectations before proceeding. 

“We go in and we look at both sides and find out the services that were contracted for. There may have been some general statements around transformation but without any contractual commitment, so errors in communication are present,” he said.

“We get a very positive response because vendors often feel like they’re not being heard,” he added.

Survey the Operations Side

Companies that move toward outsourcing often focus heavily on vendor management. This, of course, is important. Ensuring that vendors hit those goals and are benchmarking appropriately is a vital aspect of achieving return on investment. But sometimes this vendor management focus comes at the cost of operational considerations, which have moved with the introduction of outsourced services, Singh explained.

“Aside from the contract itself and the benchmarking price, I take a close look at the operations side. When a company moves from being an insourced operation to managed services, a different set of skills is needed to manage the provider. What often ends up happening is that companies take their technical superstars who can firefight and have all the knowledge, but who are often hands-on-keyboard people and aren’t always prepared for managing service providers toward outcomes,” said Singh. 

“If there’s an issue in the relationship, more than 50% of the time the blame lies with the client” — Rahul Singh

A consequence of this can be that the provider isn’t trusted by the outsource manager or, in some instances, an additional party is hired to help with that management. Costs rise and still few issues are resolved.

A reason behind this is a lax attitude to the outsourcing relationship from the client side. If the client doesn’t structure outsourcing properly to internal workflows then obstacles naturally arise.

“These are the reasons we look at internal organization. While companies get hung up on vendor management, the operational management side is equally if not more important to deliver results. Vendor management is about being held to service-level agreements, whereas operational management is what happens day-to-day. We’re looking for the gaps between intentions and contractual obligations,” Singh explained.

Distill Down Into Simple Parts and Redesign SLAs

There can be a disconnect between vendor management and operations because vendor managers are looking at the outsourcer meeting its service-level agreements (SLAs), while the operations manager doesn’t want to look at the provider’s reports because that’s not in their permit, Singh explains.

“There are SLAs, and then there are exclusions. For example, if a provider is managing the network devices, the client is still buying the network from, for example, AT&T or Verizon. So when there are outages because AT&T and Verizon are having outages, this is architected by the client, not by the provider. But the client believes the vendor isn’t doing its job. A provider report might say the network was fine, whereas the client had two days of downtime,” he said.

“It’s the watermelon effect.”

Singh’s remedy is frequently to reduce the number of SLAs and track the most important metrics of those contracts, distilling down the SLAs of the original contract to the bones that really matter. 

“Is the company app available? Is the service available to the end user at the site?” Singh offered.

“When a company moves from being an insourced operation to managed services, a different set of skills is needed to manage the provider. What often ends up happening is that companies take their technical superstars who can firefight and have all the knowledge, but who are often hands-on-keyboard people and aren’t always prepared for managing service providers toward outcomes” — Rahul Singh

Once Singh has an understanding of what the client wanted and the SLAs and exclusions designated in the contract, he is able to redress and redesign. 

“Often, due to the number of exclusions, the original contract doesn’t quite meet the needs of the client architecturally,” Singh said.

Benchmarking is integral to the SLA discussion, and because of that, general benchmarking doesn’t work. Service contracts are individual unless SaaS services, and contracts are often rejigged last minute to meet the cost needs of the client side, such as refreshes being taken out of the service.

“We really break it down in benchmarking terms, and go beyond cost. There are important elements beside this. What architecture is associated with a service? How archaic is the system? Are there refreshes included?” he said. 

Provide Recommendations

Among the final steps consultants take will be providing recommendations to the client. These are intended to help reset that balance between parties within the IT services contract, and offer a solution to the various impediments that the relationship has up until this point faced. The recommendations may not always be what the client was hoping to hear.

“Some can be internal,” said Singh. “There may be a very large retained team that actually gets in the way of the provider. In other cases, there isn’t a large enough team assisting the provider and there isn’t enough governance control operationally.”

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In other instances, the client’s own infrastructure may have been at fault, Singh says.

“We might recommend the client rejigs its vendor management organization or build in some new processes. If we can create savings for them then that’s great. Other times companies may not have the hardware in place to carry out all contract aspects and so we restructure the contract to be asset-included,” he explained.

“There can be savings from the process but with investments upfront, in order to enable the service provider to be more efficient,” he added.

Peter Appleby

Peter is former Managing Editor of Nearshore Americas. Hailing from Liverpool, UK, he is now based in Mexico City. He has several years’ experience covering the business and energy markets in Mexico and the greater Latin American region. If you’d like to share any tips or story ideas, please reach out to him here.

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