AllieYoung, a well-known analyst and vice president of research at Gartner, said: The economic recession has caused suppliers to sign uneconomical contracts, which are not enough to support and bring profits for their enterprises to survive, and finally pushed the CIO's company to a risky situation.
CIOs who are determined to cut costs have also brought risks to their companies while agreeing to more relaxed service level agreements. For example, lower-quality staff are assigned to handle their contracts. Yang said that this is not a way that an enterprise can endure for a long time.
In the first part of this series of articles, ThomasYoung of TPI Company (the top international service outsourcing consulting company) analyzes in detail several ways that the relationship with outsourcing suppliers may not meet expectations, from the lack of written contracts to shirking responsibilities after signing contracts. In the second part, Young and ChristinaFerrusiRoss, vice president and research director of Forrester Research, focus on the risks of outsourcing contracts: ignoring the danger signals will cause harm to CIO, contract and even the company; However, from a more optimistic point of view, an insightful treatment of risks can turn risks into profits for the company.
Unbalance phenomenon in outsourcing supplier contract
Young of Gartner said that the imbalance between cost and contract control inevitably indicates that outsourcing contracts will go wrong. An obvious imbalance is that when the CEO praised the supplier as the best supplier in history because the contract reduced the IT cost by 65,438+00%, the employees of the company complained that IT support could no longer meet their needs.
Also, another imbalance is more subtle, which often reflects the shortcomings of the CIO, not the supplier's problems. Yang suggested: Before you find the dust in another person's eyes, look for something in your own eyes. In other words, if there is a cultural misunderstanding between an organization and its outsourcing suppliers, it means that the CIO has no correct process or methodology to manage cultural differences. In this case, we should consider reducing the number of outsourced workers.
Another danger signal is that outsourcing suppliers have all kinds of innovative ideas, Yang said. CIO can cooperate and communicate with external suppliers on reform. However, she said, abandoning the planning vision for the future or not allowing any views on the architecture means that the operation of the CIO is not in harmony with the business. She explained that there are some things you don't want to get out of control (for example, innovation and building standards).
Another imbalance is that there are too many outsourcing suppliers. Young said that Gartner has long been a supporter of multi-vendor outsourcing. Multi-supplier outsourcing refers to choosing the most suitable supplier according to the needs of the work at hand, rather than choosing a one-stop supplier. We want to choose two or three different vendors to provide applications, instead of providing a list of 50 application vendors (this has happened).
Risks of operating suppliers
FerrusiRoss is the leader of the supplier outsourcing team of Forrester, headquartered in Cambridge, Massachusetts, USA. She said that one of auditors' biggest complaints about IT departments is their lack of management of third-party suppliers. Customers often tell her that they don't have the resources to track every business change of the supplier company, let alone explain the intention of every change. She said that the economic recession extended their project cycle, so the rigorous evaluation was done too early, and they couldn't keep up with the complicated details of suppliers.
Even if you know what will happen, there may be many subtle differences when the danger signal appears. Let's take employee turnover as an example. FerrusiRoss said: If the turnover standard of suppliers in the same industry is the same, but your turnover is higher than this standard, it is a dangerous signal that your contract will go wrong. . If your account manager leaves without your permission, this is another red flag to pay attention to. On the other hand, if the turnover of all customers is high, the problem will turn to suppliers, and the signs of this problem are obvious enough. It's time to consider negotiating contracts with other suppliers.
Mapping outsourcing contracts to enterprise risks
However, the loss of outsourcing suppliers can also be used to make profits. FerrusiRoss gave an example. A supplier approached by CIO lost money with the collapse of Wall Street economy. The CIO is in no hurry to find a new supplier. Instead, he picked up the phone and told the outsourcer to provide him with a list of talents, including those who had worked in the financial services department of Wall Street, and she was going to accept it.
Ferrusi Ross said that she said bluntly that there are many talents on the bench there. Switch my people out and back in? . The CIO can do this because she is a big customer of the outsourcer and she knows that the outsourcer will go bankrupt. It is worthwhile to take risks for this benefit.
FerrusiRoss said that CIOs tend to look at outsourcing contracts from the perspective of IT operations. One of the biggest danger signals is that some risks will destroy the company's brand if suppliers don't always violate any part of the contract, she said. Consumers will negotiate with Mattel (one of the world's largest toy manufacturers, the manufacturer of Barbie dolls) on lead paint, instead of using an outsourcing supplier who uses the paint. She added: The biggest risk is not that the transaction fails, but that you are not aware of the existence of danger signals.
Ferrusi suggested that CIOs should start with their company's venture capital portfolio. This may need to be discussed with the chief risk officer, the chief financial officer or anyone who has a holistic view of the risks of the whole enterprise. For every risk in the enterprise, we should ask the outsourcing supplier what beneficial help it can bring and what it will destroy. One of the companies where she works has an outsourcing supplier, and the supplier made a survey on the working background of employees in the past seven years. However, the company has regulations to check 10 year. She said: My client asked the supplier to audit the employees within 10 years; It was confirmed that in the ninth year, an employee was arrested on suspicion of money laundering.