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By  Lenka Glynn , Hinal Patel , Tsung Wei Wong , Matthew Glynn Published  July 23, 2007

If you are an IT professional then you clearly know the IT industry. You might be surprised to learn that we too, as lawyers, have had to become IT specialists with a deep understanding of the IT industry in order to advise industry participants effectively. And if you think that you do not need any advice from a lawyer on how to procure your IT systems or run your IT business, then you are definitely our target audience!

Reliable and secure IT systems, solutions and IT-enabled services are the lifelines of modern day society and business. With so many aspects of our lives and business entrusted to IT, the costs of a failed IT project or system can be significant and take many forms, including financial, operational and reputational.

A business may be able to run without any concern about the legal "mumbo jumbo" - but only for as long as things go right. Once a deal goes wrong, it would only be as good as its legal and contractual basis; and the IT industry is no exception.

It is well-known that the world does not like lawyers. They are often perceived as creating problems rather than solutions, speaking in a strange tongue, slowing you down or not understanding your business.

We hope that through this column, we can change your view. We are lawyers that understand you, understand the nature of your business, and speak your language and jargon. And because of that, we believe we are well-qualified to advise you on IT specific transactions and projects, to guide you through the veritable maze of IT-specific legal risks and issues, and do it all in a no-nonsense manner which is straight to the point.

And if at any point of time you, our readers, no longer find this column useful or helpful, just tell us, and we will stop writing it.

We kick-off our monthly column by looking at some of the reasons why technology outsourcings have failed and are continuing to fail.

Why technology outsourcings have failed and continue to fail

Over the last few years, studies have shown that the majority of technology outsourcings have not delivered the cost savings or performance improvements that customers had hoped for. On the basis that, in theory, outsourcing should be a 'win-win' for both the customer and supplier, the results of these studies come as a surprise. Why is this?

Preparation and Understanding
They say preparation is the key and it rings true when it comes to outsourcing. Many failed outsourcings can be attributed to what essentially amounts to a lack of preparation.

As a starting point, customers need to be clear as to what the business case is for the particular outsourcing. That business case may, to the extent sensible and non-confidential, be communicated to the potential supplier(s). The business case should certainly feed into the detailed customer requirements and underpin the entire procurement/sourcing process so that the customer's objective is never lost.

Additionally, as is often the case due to lack of time, customers go to market with no detailed understanding of their requirements including the service levels that they want the supplier to meet. As a consequence, the supplier will struggle to resource and/or price the outsourced services with any certainty. The result will be numerous change requests (no doubt increasing the charges) or poor performance, neither of which lead to a successful relationship.

The bottom line is that the customer and the supplier need to be aligned as to what services are to be improved and when, what amounts to a service improvement and how that service improvement is to be measured, and what is the reward to the supplier for getting things right and what remedy the customer has for things going wrong.

For a technology outsourcing to succeed, both parties need to benefit from the arrangement. In blatant terms, the customer must feel that it is saving money and/or receiving substantial improvements in the outsourced services. The supplier, on the other hand, must make money. Too many failed outsourcings can trace their failure to the supplier's margins being so eroded that the supplier is unable to invest into delivering the improvements expected by the customer. Of course, this may not actually be the customer's fault if the supplier has a higher cost base than other suppliers, struggles with inefficiencies or fails to benefit from economies of scale. A properly run and competitive procurement process should, however, expose these suppliers.

Relationship Management
Our information suggests that the biggest cause of failed outsourcings is poor or no relationship management. Once a service is outsourced, this does not mean that the customer can simply sit back and let the supplier get on with providing the services. Customers need to maintain an active involvement in the outsourcing albeit at a relationship level with the supplier. Hence, the customer must be ready to adapt and assume a different role which should continue for the lifetime of the outsourcing. Large organisations have already learned the hard way and have set up dedicated procurement/sourcing departments whose full-time role is to obtain, and manage the supply of, products and services that support the activities of the business.

Effective relationship management can be seen in the following ways:

• a properly run procurement process; and

• an ongoing governance process through which the parties review the services, relationship, and resolve issues. Indeed, we are seeing the role of technology professionals shifting towards vendor managers.

We stress that there are other reasons why technology outsourcings fail. However, we have chosen to explore, albeit briefly, a few of the causes which we have noted from our experiences of being involved in technology outsourcing transactions.

We do believe that the causes of failure discussed in this article are remediable - they require a change in attitude. Technology outsourcings have a substantial impact on the business of both the customer and supplier. It should not therefore come as any surprise that for the outsourcing to be successful, customers and suppliers will need to invest time throughout the relationship. Let's also not forget that the relationship must deliver benefits for both parties, otherwise what's the point?

Next month's topic: Creating a no-nonsense and robust service level regime ... for any IT service!

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