Outsourcing IT Services Negotiation

Customers outsourcing IT services want more and more from their vendors and strive for flexible, fruitful collaborations, yet they fall back on the same negotiating tactics they’ve been using in their outsourcing deals for decades. However, truly collaborative relationships with IT service providers begin at the negotiating table.

Risk-Minimizing Deals Are Outdated

The idea of “vested” outsourcing, in which both parties are mutually committed to each other’s success, was introduced years ago by Kate Vitasek, whose latest book, “Getting to We: Negotiating Agreements for Highly Collaborative Relationships” lays out research-based proof of this concept. According to Vitasek, the biggest obstacle to a more collaborative way of outsourcing IT services is a lack of trust. In order to overcome their trust issues, IT outsourcing customers and vendors need to adopt a whole new mindset of negotiating.

The expert sees three typical problems with the way agreements about outsourcing, IT services or otherwise, are made. First of all, parties go straight to haggling over specific contract points before laying the foundation of the relationship – in other words, determining why they want to collaborate, what’s in it for both of them. Second, customers and vendors shortsightedly prioritize settling the cost of activities over solving actual business problems like optimizing transactions through automation or increasing market share. But most importantly, she says, most outsourcing deals “remain stuck on old-school, highly legalistic, I-win-you-lose contract terms that seek the lowest price while shifting risk and avoiding liability.” It’s time to shift that paradigm.

Creating or Destroying Value?

It all boils down to how IT outsourcing parties view value. In the default case, value is understood to be the result of a competitive bidding process where one dollar is given for one unit of service. Some companies aim to get the same unit of service for less, relying on their power and position to extract more value. The ideal approach, however, would be to optimize that one dollar by jointly boosting efficiency and cutting costs to create additional value.

Unfortunately, due to today’s constrained economic and financial resources, corporate culture is rife with short-sighted opportunism. This mentality makes for negotiation techniques that end up destroying value instead of creating it, says Vitasek.

Trust Is Fundamental To Outsourcing

Her suggestions for creating collaborative deals that take outsourcing IT services to the next level: switch to a mindset of mutual self-interest based on trust and transparency. Accept to undertake the work and commitment that’s necessary to establish a collaborative outsourcing agreement. If necessary, don’t hesitate to consult a specialist – crafting a mutually constructive deal is a specialized field, and not only IT services can be outsourced…

Liemur is a specialist in outsourcing IT services. See how we work or contact us for details.