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Most people would accept that there some golden rules in outsourcing. These rules include:
These rules which have developed over time, have become accepted as best practices in outsourcing and form the basis for advice given by most lawyers and sourcing advisors. So why do so many offshore deals ignore these rules?
To answer this question let’s look back at the evolution of most offshore deals. In the 90′s many private sector organizations were looking for quick ways to save money, increase profits, and add more to their bottom line. Finance Directors told their IT Directors they needed to cut costs while continuing to deliver the same service, but what could they do?
Around this same time India was gaining the reputation of being a cheap location with a highly skilled workforce. Many companies began experimenting with offshoring IT, starting with simple risk-free work like applications development, just in case the experiment did not pan out. Work started on the basis of a handshake, or sometimes just few phone calls, and an exchange of letters or emails with an agreed day rate per FTE.
Oftentimes the deal was done under the corporate radar. No one in the IT department was willing to proactively get procurement or legal involved because that meant involving procedures that would delay the ability to deliver cost savings.
As time went by, more pressure was being placed on the IT department to reduce costs and headcount. While at the same time it was becoming increasingly difficult to attract and retain talent. IT departments gradually began to put more and more work offshore.
Soon the majority of applications development work was done offshore, then 2nd and 3rd line legacy applications support, and eventually 2nd and 3rd line support of those new applications that the offshore partner built. A few years after offshoring a few heads many organizations found themselves with anywhere from 20-60 percent of their IT services were being delivered by an offshore provider.
And all this supported by the simplest of contracts, emails or letters. But how could this have happened? Was it part of some global conspiracy by offshore suppliers to lure organizations into relationships without contracts? Or is there another answer?
The truth is very simple.
Most organizations started on their offshoring journey with one objective – to quickly save money. Most started in a small area like applications development. Few expected the offshore experiment to be so successful and the demand for cheap IT services to snowball. Remember any delays due to procedures, procurement or introducing legal would get in the way of those cost savings. However, the simple heads based deal at the outset grew and grew and grew until…
If you use offshore suppliers to deliver some of your IT services it could pay to look at the contracts you have in place with them. Once you understand what you have in place now you can begin to manage it rather than continue to expend offshore and find yourself in an even worse situation in a few years time. Encouragingly, most offshore suppliers will also recognize the failings of continuing to use an unsuitable contract to support offshore work that has grown over time.
Finally, remember there is always a time to renegotiate a deal. Don’t delay, do it NOW!