Telecommunications - planning for a strategic sourcing programme.

At a time when many organisations are aiming to reduce overheads, fit-for-purpose telecommunications managed service or outsource agreements with best-of-breed vendors could improve the competitive advantage of your organisation as a whole. But this can only be achieved if the strategic objectives are identified and understood prior to designing the architecture of the deal.

Irrespective of the decision to procure a managed service or an outsourced solution, too many organisations cut corners and fail to build in sufficient timeframes for a comprehensive strategy review, which leads to downstream problems and cost-escalation as contracts are negotiated and delivered. This is because, all too often, contracts are negotiated without a full understanding of the environment to be managed or outsourced, exposing both the client and the vendor to undesirable and unnecessary risk.

Conducting a carefully structured due diligence programme provides a comprehensive understanding of the contracts, assets, people and costs currently in place, allowing businesses to better mitigate risk and improving the quality of the deal for all stakeholders.

There are two common reasons that deals generally go wrong: either the contract was badly structured from the outset, or the contract was well architected but the parties failed to deliver the expected business benefits. The first scenario typically arises where the parties negotiated a bad contract and as a consequence it was always going to be difficult to deliver any form of business benefit, despite the original good intentions. In the second scenario, the fit-for-purpose contract was negotiated but was undermined by poor governance of the contract.

The introduction of IT industry standards into the governance process, such as version 3.0 of the Information Technology Infrastructure Library (ITIL) and Control Objectives for Information and Related Technology (Cobit), has the potential to create solid frameworks for the automation of contract lifecycle management. However, the deployment of these standards is still in its infancy.

Even with well planned sourcing projects there will inevitably be some frustrations if expectations are, for whatever reason, not met. The inevitable outcome of a contract signed without a solid foundation for reliable negotiations is, at best, a full re-negotiation within 12 to 18 months and, at worst, a collapse of the deal. In either scenario, the costs incurred are likely to cancel out any financial benefits of the outsourcing in the first place. If this happens, there are really only two effective ways of addressing the problem: either terminate the contract (for cause or for convenience) and re-start the process over again (possibly with a new supplier) or, alternatively, commission an independent review by a third party to objectively assess the root causes of the problems in the customer-supplier relationship and to agree a mutually beneficial way forward for both parties.