Vendors always get the brunt of the criticism when technology projects go wrong, and why not? After all, consultancies, IT service providers, and outsourcers charge millions, if not billions, so that they can to make sure their clients get the best of the best…
So when it all goes wrong, with costs through the roof and millions down the drain, it must be their fault, mustn’t it? Well, not really. IT takes two to tango, and it seems that most clients just haven’t been practicing their steps. Ultimately, it is client organizations that are responsible for a failure in any IT services relationship, a point that has become clearer as the outsourcing and IT consultancy markets continue to boom.
There is no denying that many clients are more sophisticated at choosing and managing their IT services partners. Yet, despite this, the failure rate of outsourcing contracts is still estimated to be about 75%, according to leading market observers, and ComputerWire is reliably informed that some of the most prominent $1 billion contracts signed in the last year are already showing signs of total collapse.
The main problem is that many client organizations simply do not invest in expertise to construct and manage an effective relationship. IT services companies can only work with the information that they have been given, and if the client is not capable of identifying exactly what its requirements are, then it is building up problems for later.
A recent example of this has emerged in Canada, where there are calls for an enquiry into a C$180 million ($135million) contract awarded in 1997 to Accenture by Ontario’s Ministry of Community and Social Services. Politicians want an enquiry after it emerged that Accenture is charging about $1 million to upgrade the system so that it can handle a 3% increase in social security payments, after a string of problems reported by users of the system over the years.
Although it seems Accenture could be overcharging for what seems like such a minor adjustment, one must ask why the Ontario government did not plan for this eventuality and include the ability to change such specifications in the original tender. In the US this problem has been highlighted by the Florida Auditor General, which this week laid blame with the Florida State Technology Office for failing to document and to properly evaluate and negotiate a $324.7 million seven-year outsourcing deal with Accenture and BearingPoint for a range of IT services.
A similar case occurred last year in the UK when executives from EDS were called into the House of Commons to explain the failure of EDS’s tax credit system when it was introduced in April 2003. Although EDS was lumped with the majority of the blame for this, the enquiry also revealed that the IT services provider had simply not had enough time to test the system due to changes in the client’s requirements during the project.
Despite the high risk of failure due to lack of expertise, few clients factor in the cost of managing a relationship, which most outsourcing consultancies recommend should be budgeted at 5% of the total contract value. This involves creating a dedicated team of people who focus on defining, monitoring, and running the relationship, and are responsible for its success or failure.
Further proof of client’s role in failures can be seen in the strategies of software companies such as French company Cast and US-based Oblicore. These companies provide software to manage the performance of service providers: Cast in the area of software development, and Oblicore in the measurement of service level agreements.
Both companies claim that IT services companies are just as prominent in their client base as corporate clients, a clear indication is that service providers are eager to use technology to prove they are meeting the requirements of their contracts. But of course whether they meet requirements is irrelevant, particularly if the client has mismanaged the planning and implementation of requirements and targets.
Too often SLAs are created from a technical perspective rather than a business perspective, SLAs very quickly become out of date, and often lose relevance by the time they have been implemented. It very quickly becomes measurement for measurement’s sake, said Andrew Kris, the chairman of the Shared Services and Business Process Outsourcing Association, and a critic of over reliance on SLAs.
The implication is that client organizations are the only ones responsible for making sure their service providers stay honest. No one should be surprised that many service providers work purely to meet requirements rather than go beyond them. So it is ultimately up to clients to make sure those requirements are as effective as possible, that they relate to business success, and that there are penalties to back this up.