How to manage outsourcers after the contract's ink is dry

Here's how to build a good relationship after the contract's signed

When the global trade association SEMI experienced a big revenue decline last year and had to cut staff, CIO Gil McInnes turned to outsourcing. He hired CenterBeam to consolidate and manage the semiconductor industry association's servers and infrastructure on a variable cost basis.

McInnes lauds San Jose-based CenterBeam's collaborative approach, and he feels the vendor has a great cultural fit with SEMI, which is also based in San Jose. The deal cut SEMI's IT budget by 8.3%.

Now comes the hard part: managing the aftermath.

McInnes says that although the shift to outsourcing is saving the organization money, SEMI paid a nonfinancial price: The remaining IT staff had to change the way it operates on a day-to-day basis. Accustomed to doing everything themselves, staffers now function at arm's length from both the physical devices and the people managing them.

"We've lost half our staff, [the remaining workers'] jobs have changed radically, and the challenges are just as big," McInnes says. Those challenges include developing metrics that accurately measure the provider's performance, even as projects evolve; refining processes in tandem with CenterBeam; and maintaining open lines of communication at all levels.

"If you're used to managing people, and now you're managing an external supplier, it's a tremendously different skill set," says Lawrence Kane, who performs IT sourcing strategy and competitive assessment work for a Fortune 50 company.

Observers say that despite decades of outsourcing in one form or another, IT organizations still have difficulty managing relationships with vendors after the ink dries on the contract.

In a 2009 survey of 57 IT executives by the CIO Executive Board, 54% of the respondents reported challenges with managing vendors. Improving this situation is crucial, because failure to manage vendor relationships effectively can destroy up to 90% of the value expected from the contract, the CEB says.

Indeed, without a good relationship, the provider can't be relied upon to help out in times of need and to suggest innovations and process improvements, says Ken Emery, a former CIO and a senior consultant at Ouellette & Associates, which conducts workshops on vendor relationship management.

Managing service providers requires a different mind-set from managing an in-house team. For instance, you might be accustomed to coaching and developing in-house employees, whose objectives are typically in line with those of the business. "But you're not doing that with an outside vendor, who has their own agenda and objectives," Emery says.

As a result, IT managers working with contractors suddenly need to be involved in a whole new realm of activities, such as bridging cultural differences and monitoring contractual performance metrics. They also have to bolster their negotiating and influence skills. "You might be trying to push the provider the same way you pushed your staff," Emery says, "but they're not directly under your control, and you can't dictate to them."

Outsourcing "is one of the most powerful weapons an IT executive has, but you can really shoot yourself in the foot with it," says Nick Krym, author of the e-book The Pragmatic Outsourcer and chief technology officer at PDR Network LLC, a provider of print and online pharmaceutical information in Montvale, N.J. "The impact could be worth millions to your company and even the loss of your career."

With that in mind, here are nine tips for managing outsourcers.

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