OutsourcingContracts--NotTooHarsh-NotToo - DECEMBER 15,...

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DECEMBER 15, 2008 OUTSOURCING IT Outsourcing: The Goldilocks Strategy By JÉROME BARTHÉLEMY Not too lax. Not too rigid. A contract that falls somewhere in the middle is the one that works best when a company is turning over its information-technology activities to an outside firm. Contracts are critical to IT-outsourcing success because they help organize the relationship between client and vendor, providing companies with protections against unwarranted fees and subpar service. The Journal Report See the complete Business Insight report. But contrary to popular belief, a contract that tries to anticipate and address every contingency that might arise during the course of a business relationship can be just as damaging as one that leaves too much to chance. It can create an atmosphere of distrust that saps a vendor's motivation to provide good service and go the extra mile when a client needs it most, such as when the business environment changes unexpectedly. A look at the history of IT outsourcing at a French company between 1994 and 2007 shows the benefits of striking the right balance between "too little" and "too much" contract. The firm remains anonymous at its request. A 'Standard' Contract In 1994, this French company decided to outsource its entire IT department. It picked a vendor and signed that firm's standard contract, the usual practice at the time. But costs spiraled as the vendor demanded payment for even the most minor service not covered in the agreement. In addition, IT equipment became obsolete as the contract made no provision for upgrades.
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OutsourcingContracts--NotTooHarsh-NotToo - DECEMBER 15,...

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