Outsourcers need to come clean

If it were not for the last five years of bad value equalled by bad service, it would be almost possible to feel sorry for large outsourcers. I say almost possible, because at the end of the day (or in this case five- to 10-year contracts) it is gradually emerging that those who, following the business ideology of the time, sent almost every piece of IT kit and staff packing to the nearest friendly multinational willing to lighten them of seven to eight digits worth of budget.

There was whole of government outsourcing. Banks and insurance companies followed suit, eager to rid themselves of the contingent liability of growing IT employee entitlements. Although many organisations won’t admit to it, there was as much incentive within the so-called ‘workforce flexibility’ that these shuffles were meant to achieve as there was cost reduction.

These deals are coming to an end and such contracts are well and truly on the nose; large outsourcers increasingly find themselves in an awkward position. Take last week’s story about IAG and IBM (CW Dec 1, p1).

Contractual crunch time came at IAG when it swallowed CGU, an in-house IBM shop. Clearly something had to give, so when push came to shove, IAG opted to kill off a ‘facilities management’ contract that gave little room in terms of acquisitions but kept the IBM technology. To its credit, IAG brought in a veteran wrangler of IBM GSA from Westpac, David Issa, to smooth what could have been a very difficult transition period.

Yet IAG’s decision to reclaim its IT services from Big Blue really says more about IBM’s pedigree in developing core business technologies than it does its contract negotiation skills. For some time, IBM has been subtly sending out signals that it realises the boom times of wholesale outsourcing are over.

Insiders say that they recognise that some customers feel burned, not least because of the inflexible way “boiler plate” outsourcing contracts were structured to penalise deviations from the vendor’s contractual vision. There is now a conscious mission, or so IBM says, to make new sourcing contracts and technology more flexible to the needs of business as previous incarnations fall off the twig.Even with these efforts, testimonials could be a long time coming. IBM is still without a “new sourcing” trophy deal as customers like IAG wield the whip hand at the negotiating table. But at least Big Blue can fall back on its developmental pedigree and products when outsourcing times get tough.

Trophy deal or not, it makes one wonder what the likes of EDS and CSC will be able to put on the table when their contracts come up for renewal — but with OEMs like Dell and HP looking for a piece of the services action, it will have to be pretty damn convincing.

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