A large part of my role at CSC is focused on guiding and supporting teams in the development of strategies that meet client goals and objectives across all geographies, all industry sectors and all technologies. This is a role I find both challenging and fascinating.
In a recent session, we were discussing a transportation sector outsourcing engagement with a 25-year term. A question was raised about the levels of cost improvement one could expect, and hence the level of price improvements we could commit to, over such a lengthy term. Whilst the question might appear to be straightforward, the considerations that need to be taken into account when attempting to answer are most certainly not.
My initial thoughts circled around how much the market (transportation) might change in the next 25 years; how much the client would need to change in response; and how vendor services would also need to change to support and facilitate them.
Just look at how much change we have seen in the transportation sector over the last 25 years, especially at some of the disruptive changes we are now seeing, including driverless cars and Uber.
Even if we could guess how this market and our clients’ associated business needs and service requirements might change, we would also need to guess how the IT services market, including the technologies used in delivery, might change, too. To put this into context, 25 years ago saw the launch of the World Wide Web, Linus Torvalds introduced Linux, and a 50Mhz 80486-based PC (~3000x less powerful than current generation PCs) launched.
Anyone who has been in the IT industry as long as I have will probably say it’s crazy to try! We could probably project some of the continuous improvement-related changes we continue to see (from increasing commoditisation, automation, right-shoring, etc.), but certainly not all of the significantly more disruptive changes we can expect.
This led me to think about how to respond to this client in a way that gave them reasonable certainty in the near(ish) future, coupled with an engagement that would embed sufficient flexibility and agility to enable ongoing transformative change over its full life. In other words, an approach that would take us both on a continuous journey.
Long-Term Engagements—a Thing of the Past?
I also started thinking about how rare the long-term engagements are becoming and the impact shorter durations have on both the client (consumer) and service provider (supplier). This is of significant interest to me, as some of the trends I am seeing reduce the value of these engagements – for the supplier and, especially, the consumer.
I fully understand why many clients are now asking for shorter-term engagements. They often think:
- This will reduce lock in and allow earlier exit where an engagement isn’t working well or when a potentially more attractive option becomes available.
- The rate of market, technology, etc. changes we are seeing makes longer-term engagements ineffective as needs will change so quickly.
Don’t Cut Yourself and Your Transformation Short
However, shorter duration engagements also have a negative effect that needs to be recognised, especially since there are other mechanisms to protect against the above concerns. Some of the key negative implications to the client / consumer include:
- Reduced level of overall transformation included in the engagement/proposal, resulting in less of a step change for the client’s business. The period to deliver transformation within, and especially to obtain a return, is reduced, meaning a lot of potentially beneficial transformation will lack a sufficient business case to include.
- Included transformation will be driven to focus on shorter-term tactical needs ahead of longer-term strategic goals.
- Included transformation will be driven to be delivered quickly at the start of the engagement, with little major transformation being committed to for the remainder of the engagement.
- Increased annual charges due to the shorter time to recover any cost of sale overage; costs to complete transition and transformation will also need to be recovered over a shorter term.
- Increased disruption to the client’s business leading up to outsource /re-compete. The level of time and effort required by a client’s organisation to support an initial outsource, or the re-compete of an existing outsource, is very significant. By focusing on this activity more frequently than strictly necessary, the client will divert key resources away from core strategic business change support. It is also common for various business change activities to be put on hold leading up to any potential outsource or re-compete.
There are, of course, negative implications to the outsourcer/supplier also, which I won’t go into here.
How to Find That “Just Right” Engagement Length
So, since “too long” can be an issue and “too short” also brings challenges, what clients and their partners need is a “just right” engagement time.
If you are looking to outsource (first time, renewal or otherwise) here are a few considerations and recommendations for finding the right engagement length:
- Don’t impose a short duration engagement just to maximise flexibility and minimise lock in, as this will dilute the value you can get.
- Don’t impose the overhead and disruption on the business (or supplier) from overly frequent re-competes where the engagement is working well and meeting all required objectives of the business.
- Don’t be constrained to wait till the end of engagement to address or exit a relationship with a supplier that isn’t working.
- Consider a lengthy (open-ended where viable) engagement to maximise value and minimise impact /disruption, with easy exit clauses to provide protection and maximise flexibility / minimise lock in where not working.
- For lengthier engagements, look for, or even mandate, continuous innovation and continuous transformation over the full length of the engagement. This can be difficult to objectively evaluate, so look for suppliers with the right culture and a good track record here.
- For an engagement that will remain most relevant over lengthier timeframes, abstract it from technology as far as viable, and focus more on service and business outcomes.
- And finally, look for a supplier with the right culture and attitude to be a true partner and proactively deliver ongoing continuous innovation and transformational change over the full journey.
There is no universal answer to optimal engagement length for an outsourcing engagement, but I would suggest that 5 years be the absolute minimum considered, with an ideal being a longer timeframe with an easy exit clause.
And by doing due diligence in selecting a partner that understands the business needs, the always-changing industry and the long-term transformational goals, while agreeing to an exit plan if needed, clients should find success in just about any engagement length.
Tim Dooley — Distinguished Architect
Tim Dooley leads solution governance and domain architecture for Global Infrastructure Services. An expert in data center services, transformation and migration, he provides architecture guidance and solution strategy for all major new business engagements. Tim received the 2014 CSC Horizon Award, and he received the 2001 CSC Award for Technical Excellence as chief architect for the CSC Global Web Hosting/Managed Web Services offering.
See Tim’s bio.