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End of trench warfare in IT outsourcing

Where classic outsourcing restricts suppliers, BVP gives them the freedom to use their arsenal of knowledge and experience for the best result. Even in IT outsourcing, the heels are now out of the sand and the arms race of towering invoices for extra work, fist-thick SLAs and hefty fines to cover risks come to an end. In this article we describe the current problems and we provide tools to effectively apply BVP.

The crux for the success of BVP in IT outsourcing is in the execution. Also in this last phase it is crucial that the supplier maintains his expert role. This approach is quite a turnaround because of the many conditions and KPIs we have assessed suppliers as commodities. The only selection criterion that then remains is the price. And after signing the agreement it will soon change. There are several deals known where the winning party just before the award, the price was significantly lowered. In order to achieve the desired margin, claim management systematically eliminates everything that has not been recorded, deviates from the assumptions or is disappointing with hefty bills. This trench warfare costs entrepreneurs the most: both in financial terms and due to the lack of any innovation.

APPOINT RISKS

The biggest problem of IT outsourcing lies in the risks such as substantial budget overruns, missed delivery dates, non-functioning systems and damage from serious incidents during management. Costly risks traditionally passed on to the supplier with SLAs and hefty fines. Unfortunately, in case of problems the result is usually counterproductive. As a rule, the harder and more compelling customers want to shift risks from the supplier, the more they pay themselves when problems arise. For the supplier, the customer is always the biggest risk and often the cause of a failed outsourcing. It is precisely by addressing risks early and looking up management measures here that you can prevent them. After all, risks do not arise during implementation, but have always been there.

But the other way around, the germ of success lies in the setup and working method of the customer. If you want to outsource the construction or management of an ICT system, a large part of the value is in the non-functional requirements. What a system 'has to do' are functional requirements. What a system 'is' are non-functional requirements, that is: safe, flexible, scalable, user-friendly, cheap and available answers to the is-question. It is precisely in the non-functional requirements that the basis of successful, cost-effective outsourcing lies when these requirements are met by the supplier. There are several companies with ERP and CRM where this does not happen and where more than 80 percent of all upgrades provided by the supplier can not be used. But they pay for that. Suppose an organization has 100 million euros in SAP in the books than the annual costs for support are 18 million. An over-spending of over 14 million! Smart entrepreneurs are looking for the suppliers that protect them for this.

STOP CHECKING

Control and over-specification always leads to more KPIs, conditions and transactions. Rarely, control goes hand in hand with taking responsibility by a supplier, while we look for this in every supplier relationship. A relationship that starts from control will never be successful. Imagine the following question: do I want to work in an organization where I get responsibility or where I am told what to do? Everyone will always want to work in an organization where he or she gets the freedom to do the work. Why not expect that from your suppliers?

End of trench warfare in IT outsourcing - Start saving on your purchase projects now - Contact Buyers United directly!

Where classic outsourcing restricts suppliers, BVP gives them the freedom to use their arsenal of knowledge and experience for the best result. Even in IT outsourcing, the heels are now out of the sand and the arms race of towering invoices for extra work, fist-thick SLAs and hefty fines to cover risks come to an end. In this article we describe the current problems and we provide tools to effectively apply BVP.

The crux for the success of BVP in IT outsourcing is in the execution. Also in this last phase it is crucial that the supplier maintains his expert role. This approach is quite a turnaround because of the many conditions and KPIs we have assessed suppliers as commodities. The only selection criterion that then remains is the price. And after signing the agreement it will soon change. There are several deals known where the winning party just before the award, the price was significantly lowered. In order to achieve the desired margin, claim management systematically eliminates everything that has not been recorded, deviates from the assumptions or is disappointing with hefty bills. This trench warfare costs entrepreneurs the most: both in financial terms and due to the lack of any innovation.

APPOINT RISKS

The biggest problem of IT outsourcing lies in the risks such as substantial budget overruns, missed delivery dates, non-functioning systems and damage from serious incidents during management. Costly risks traditionally passed on to the supplier with SLAs and hefty fines. Unfortunately, in case of problems the result is usually counterproductive. As a rule, the harder and more compelling customers want to shift risks from the supplier, the more they pay themselves when problems arise. For the supplier, the customer is always the biggest risk and often the cause of a failed outsourcing. It is precisely by addressing risks early and looking up management measures here that you can prevent them. After all, risks do not arise during implementation, but have always been there.

But the other way around, the germ of success lies in the setup and working method of the customer. If you want to outsource the construction or management of an ICT system, a large part of the value is in the non-functional requirements. What a system 'has to do' are functional requirements. What a system 'is' are non-functional requirements, that is: safe, flexible, scalable, user-friendly, cheap and available answers to the is-question. It is precisely in the non-functional requirements that the basis of successful, cost-effective outsourcing lies when these requirements are met by the supplier. There are several companies with ERP and CRM where this does not happen and where more than 80 percent of all upgrades provided by the supplier can not be used. But they pay for that. Suppose an organization has 100 million euros in SAP in the books than the annual costs for support are 18 million. An over-spending of over 14 million! Smart entrepreneurs are looking for the suppliers that protect them for this.

STOP CHECKING

Control and over-specification always leads to more KPIs, conditions and transactions. Rarely, control goes hand in hand with taking responsibility by a supplier, while we look for this in every supplier relationship. A relationship that starts from control will never be successful. Imagine the following question: do I want to work in an organization where I get responsibility or where I am told what to do? Everyone will always want to work in an organization where he or she gets the freedom to do the work. Why not expect that from your suppliers?

  1. Accepteer dat u het niet beter hoeft te weten dan de leverancier. Dat bespaart al heel veel tijd, geld en middelen omdat u veel minder voorwaarden zult opstellen. U beseft dat mensen moeilijk zullen veranderen en iedere poging daartoe een vorm van control is en dat juist niet werkt. Gelooft u het niet? Wanneer dacht u dat uw partner nog het meest te veranderen was, aan het begin van de relatie of na een huwelijk van 20 jaar?
  2. Minimaliseer het aantal beslissingen. U minimaliseert alle beslissingen die gebaseerd zijn op ontbrekende informatie of slechts gebaseerd zijn op een mening. Is alle informatie er wel, dan zult u over het algemeen ook geen beslissing hoeven te nemen. U weet namelijk direct wat u te doen staat. Binnen Best Value wordt hiervoor de term ‘dominante informatie’ gebruikt. Dominant betekent het gebruik van metrics en meten van performance, de informatie is logisch van aard, iedereen begrijp het en is dus niet technisch.
  3. Transparantie en een duidelijke structuur zorgen voor verandering. Weet u hoeveel projecten in uw organisatie binnen budget en op tijd worden gerealiseerd? Weet u welke risico’s er zijn die een mogelijke vertraging veroorzaken of kosten verhogen? Het grootste risico van uw leverancier dat bent u als klant. Daarom rekenen veel leveranciers standaard 10 tot 20% contingency in hun prijzen. Vertel uw leverancier dat u vertrouwt op zijn expertise, maar dat u ook verwacht dat er geen contingency meer in de prijzen wordt doorberekend. U verwacht alleen dat alle risico’s buiten de controle van de leverancier vroegtijdig door hem worden benoemd, inclusief beheermaatregelen en dat deze wekelijks worden gerapporteerd. Doet het risico zich, ondanks inzet en maatregelen van de leverancier toch voor, dan zijn de kosten als gevolg hiervan voor uw rekening. U creëert hiermee transparantie en ziet exact waardoor de risico’s zijn ontstaan en waarom de beheermaatregel niet heeft gewerkt. Maar ook wat het u kost. Transparantie zorgt voor verandering, contingency niet.

CONCLUSIE

Nu klinkt bovenstaande eenvoudig, maar in de praktijk is het makkelijker gezegd dan gedaan. We beweren ook zeker niet dat Best Value de heilige graal is. Het is echter meer dan een inkoopkunstje. Het opent de weg voor een geheel andere wijze van uitbesteding en daarom is de naam Best Value Procurement achterhaalt. We beschouwen het veel meer als een nieuwe, integrale aanpak om de hele IT supply chain efficiënter te maken om zo te komen tot een transparante relatie waar partijen niet tegenover elkaar staan, maar met elkaar streven naar een hoge efficiency. Want iedereen begrijpt dat meer efficiency altijd zal leiden tot lagere IT kosten voor de klant en meer winst voor de leveranciers.

Most cloud suppliers want you to sign contracts for several years. After all, an extension with several years means several years of extended bookings that generate income. We advise companies to negotiate renewals in steps of one year, because this ensures the right options and mentality of your cloud provider, which you now have to earn each year as a customer.

Herkent u bovenstaande situatie? Kijk eens wat uzelf zou kunnen veranderen en verplaats u eens in de schoenen van de leverancier. Waarom doet u de dingen die u doet?

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