The old understanding of outsourcing was that you handed off work to an outside provider; the new understanding is that you're fully integrating the provider into your management processes, says Jagdish Dalal, president of JDalal Associates LLC, an IT outsourcing consultancy in Avon, Conn. "More companies recognize that they're integrating the service provider into their corporate fabric, which means it can no longer be a hands-off relationship," he says.
This is particularly true when you're expecting the provider to offer ideas for process improvements and innovations, Emery says. He suggests educating providers on corporate strategies through workshops, presentations, joint teams and face-to-face meetings. One company, he says, held a half-day presentation, where it described its short- and long-term priorities and asked providers how they could help meet those goals.
IT managers need to create an environment that encourages both the vendor and customer to suggest improvements, Emery says. "If you have a legalistic environment, you're arguing terms and conditions versus being in more of a partnership."
Relationships should be established at all levels of the organization. "The executives here have to trust the executives at the provider organization, and the guys on my team have to respect the people they're interacting with," McInnes says. "I'm in the middle, communicating up, down and horizontally."
6. Be a Good Customer
It may seem counterintuitive, but when negotiating agreements with the service provider, try to create terms that are favorable not only to your own company, but also to the provider, Schrottner suggests. "You don't want it to be painful for them to work with you," she says. "The easier you are to work with, the more beneficial the relationship."
For instance, she says, rather than bargaining for the absolute minimum price, she says, ensure that the provider can profit from your business within a reasonable range, and even seek opportunities to partner with it in areas where it wants to grow. "Try to find a spot where you are an interesting customer for the vendor," she says.
Kane agrees. Once a provider begins to see shrinking profit margins, the relationship can start to go south. If you sense problems, it might be time to work with the provider on establishing a win-win situation, perhaps looking for areas where it can expand its business in your company, he says.
Krym uses metrics to ensure he's not overworking the provider's staff. "I've made the mistake of driving the vendor too hard," he explains, "and they ended up saying, 'We're losing money on you.' " He makes sure developers get training and don't stay on his projects more than a couple of years; otherwise, they get bored.
Moreover, Krym measures how many hours developers are working, keeping it to an average of 45 a week. In one case, developers were working 60 hours a week, but he was being billed for just 40. "It was driving the employees insane to keep me as a customer," he says. "It wasn't sustainable, and people started quitting."
7. Develop Meaningful Metrics
Metrics are fundamental to managing providers, and they should be developed at the service, operating and governance levels to measure everything from network speeds to customer satisfaction, Kane says.
But McInnes says it takes a few tries and ongoing reviews to ensure that the metrics you're using are meaningful and applicable to everyone. This is particularly true as projects move from the deployment phase to ongoing support. "We've learned you usually get them wrong to start with," he says. "Or the tech staff might be happy with them, but they don't translate up to the management level."
Another mistake is creating complex scoring mechanisms that have little connection to reality. In some cases, McInnes says, he has adopted the metrics offered by the provider, with some modifications. "It's common to want to use your own metrics, but the vendor has them for a reason."
8. Try Two-way Scorecards
Commonly used in procurement, scorecards are now recommended to track providers' performance by rating them on key performance indicators. Rather than using the traditional one-way ratings, however, Schrottner suggests choosing a subset of metrics and having the vendor self-report on its performance. At the review meeting, you can discuss areas where there's a large difference in perception, she says. "It guides the discussion and enables you to have a focused and productive conversation," she adds.
You can also ask the vendor to rate you as a client to determine ways you could be easier to work with in areas such as bill payment or internal processes.
9. Delegate, Don't Abdicate
Just as you wouldn't assign work to a junior employee without frequently checking in, you can't expect a service provider to operate without your involvement and control, says Krym. "You're supposed to delegate work to the vendor, not abdicate all responsibility," he says.
In fact, service providers have to be managed tightly, since problems can arise for so many reasons, including language, cultural and time differences, not to mention the fact that you often have to communicate via middlemen. "Everything that could be misunderstood will be misunderstood," Krym says.
Combine this with providers' natural inclination to make as much money off of outsourcing deals as they can, he adds, "and the only way to prevent them from doing that is controlling their behavior and verifying what you've been told."
You can't develop provider relationship management skills overnight. The Fortune 50 company where Kane works has been outsourcing IT services in a big way since 2003, "and we still find areas where we're not as good as we need to be," he says. "If you're thinking of getting into or increasing your sourcing, you've got to have a strong set of tools and processes and the right people involved, or you just can't be successful."
Brandel is a Computerworld US contributing writer. Contact her at email@example.com.