By Danny Ertel and Mark Gordon
Turning over part of your operation to an outsourcing firm is much more complicated than most IT leaders want to admit. As Danny Ertel and Mark Gordon explain in their book, The Point of the Deal: How to Negotiate When Yes is Not Enough (Harvard Business Press, 2007), shaking hands or signing a contract isn’t the “end” of the deal-making process.
Ertel and Gordon, cofounders of negotiation and relationship management firm Vantage Partners, offer these essential tips for corporate executives looking to engage in an outsourcing deal.
Outsourcing as a business model is mature enough by now that most companies involved understand that when they are negotiating a deal, implementation matters. Nonetheless, many of them still approach the negotiation as if their objective is simply to write a good contract. Our advice, regardless of which side of the table you are on, is to take a big step back and ask yourself: “What is the point of this deal? What can I do to ensure that my purposes are well met?”
If you’re a buyer of outsourcing, remember these tips to help ensure successful implementation:
Keep your eye on the purpose of the deal. Keep in mind that you’re not just negotiating a contract, you are handing over an important function to an outside company. Just because you think that someone can provide those services more effectively or at a lower cost doesn’t mean that your employees and your customers are no longer relying on you to make sure those services are delivered well. Remember also that part of the deal may involve transferring a number of your employees to that outside company. The way that transition happens and what your former employees have to say about working at their new employer while providing services to your organization will have an impact on the morale of both your former and your remaining employees and on the quality of the services you receive.
What this suggests is that you cannot choose a provider solely on the basis of which one put the lowest numbers on your RFP spreadsheet, and then rely on the contract to protect you. If suppliers failed to bring their key delivery stakeholders into the conversation to make sure that they really could do what was promised, it’s not just going to be their problem. If they made foolhardy commitments that they can’t live up to, you will feel the pain at least as much as they will.
Make the deal discussion a precedent for implementation. Make the process of coming up with a deal that works a shared responsibility: Do you both understand what your stakeholders care about, and what it’s really going to take to implement? Do the provider’s implementers know what they are committed to delivering? That kind of dialogue requires that you engage those stakeholders and fully understand how a particular provider’s solution will meet your needs. You are not looking for the deal that is easiest to compare; you are looking for the deal that will best meet your purposes in outsourcing. You are also trying to learn what it is like to work with a provider, and to create a model for how you will work together for the next five to 10 years.
It is absolutely understandable that you cannot engage in this kind of time-intensive process with a dozen different providers. But when you have narrowed the list of real candidates to a manageable number, treat each of them as if they were going to be your provider, and make sure that you have clarified all of your purposes for the deal. Introduce the stakeholders who are going to be critical not only to decision but also to its eventual success or failure. Build their perspectives into the negotiation and gain their buy-in from the outset. Negotiate the initial deal like you want to negotiate later over scope changes, performance challenges, and regulatory and technological changes. Wittingly or not, those are the precedents you are creating. Make sure you have a clear plan for what is going to happen after the contract is signed, including how you are going to manage this very complex relationship. If you wait to figure out how you are going to make decisions, resolve problems, deal with surprises, and manage change until you are in the midst of transition, you will inevitably fall further and further behind as decisions take longer, follow-through is spotty, and conflicts fester.
Reprinted by permission of Harvard Business Review Press. Excerpted from The Point of the Deal. Copyright 2007 Vantage Partners, LLC. All rights reserved.