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Are commercial issues killing transformation?

Published: 31 Mar 2015 Average Rating: unrated Print
 
This article appeared in Contracting Excellence magazine on 31 Mar 2015 view edition
 

Author: Grahame Bartleet, Commercial Director and Consultant

How do we stop commercial issues from killing the successful execution of an IT transformation program? Here is some practical advice on what goes wrong and how good contract management can help fix it.

Instead of dealing with how to develop IT strategy or to manage corporate change programs, this article focuses on the relationships that can affect transformation and unveils practical advice on mitigating seven common causes of failure in transformation execution.

What contract managers need to know

According to Hemant Kogekar,1 more than 60% of transformation programs fail.  Much can be done through developing better IT strategies and managing corporate change programs, but that's not the challenge facing most contract managers on a day-to-day basis. Contract managers don't change the IT strategy, and they aren't running corporate change programs.  What they can do is recognize where things are likely to go wrong in transformation execution, take action to prevent risks maturing into issues and mitigate any adverse impacts.

Technological evolution and the economic climate are providing dual pressures to shorten the duration of IT outsourcing contracts.  In her article Kate Vitasek2 demonstrates that the duration of IT outsourcing deals is declining to three to five years. This doesn't leave much time for the outsourcer to recover an investment if a typical transformation program is projected to complete in 12-18 months after it starts.  For the supplier to hit its financial targets, transformation programs must deliver on time and to budget.

What motivates the CIO?

Teams from large outsourcing companies move from customer to customer, making the bid, closing the deal, setting up the account and delivering the transformation.  It's different on the customer side: for many on the team (including the CIO), this challenge may be their first of a major outsource project.  It may also be their last!

Startup and transformation is a tense time for the retained IT team.  They are judged on maintaining a high quality IT service to the business while overseeing changes to the service designed to reduce the costs of delivery. 

While this is happening, business requirements are shifting as technology evolves.  The business may not support additional funding for any further enhancements, and it's not unusual to encounter resistance to the necessary change and standardization not only from the business, but also from elements of the retained team itself.  And a federated environment can further exacerbate this problem where strong CIOs in business units are accustomed to running their own ships.

So is it easier for the account executive?

If the CIO is having a tough time, it's not much easier on the supplier side for the account executive.  The account executive needs to keep the services running without degradation.  As the negotiation team hands over the contract, the account executive must understand the contract scope and obligations while setting up the account, service delivery and transformation teams. Even within the largest outsourcers, financial pressures have eliminated surplus resources.  In other words, they may lack people with the right skills for immediate deployment.  Escalations on getting the right resources on time are frequent, and often heated.

Account executives must meet ambitious revenue and margin targets.  This means increasing the value of the contract through change and project work, and managing costs even when they have little control over internal charge allocations. Account executives are also often personally evaluated on the relationship with their customer through “balanced” assessments.  This can force account executives to avoid issues that customers would not welcome, even if addressing these issues is vital to the contract. How do we resolve this?

Understand the customer environment

The customer's economic and internal political environment massively impacts the success of transformation. At best, CIO and account executives work together to win over the customer internal stakeholders to drive change.  But, too often, as the pressure builds around transformation, delays fracture the relationship.

By helping the supplier to understand customer internal influences and drivers, the CIO can improve engagement with key stakeholders. This can improve chances of transformation success. In return, the account executive and the contract manager can enhance the CIO's control of the overall IT landscape by improving the engagement with business users at a local level and imposing common standards, particularly in federated environments.

Understand the scope

Initial drafts of scope documents are usually prepared at an early stage of the bid process.  Drafts are updated through the bid process and subsequent negotiation, and many significant changes can occur. A couple of years may have passed by the time the contract has been agreed.  It's not unusual for team members to form misconceptions about the extent of the scope.  A review of the final documentation by new members of the customer and supplier teams with the support of contract managers can help to clarify what is actually documented in the agreement and assess whether this meets up to date customer requirements.  If it doesn't, some urgent change work is required.

Loose drafting and deliberate or inadvertent omissions in the negotiation process can also create confusion.  Supplier bid teams generally seek clarity in scope documents because they know they are more likely to bear additional costs after the contract is signed.  Procurement teams use sweep clauses to protect the customer from omissions but this doesn't always lead to good collaboration on transformation and is likely to increase the bidder's risk budget and/or contingency.  A pragmatic approach by both the vendor and contract management teams to cost and risk allocation will be more productive. 

What obligations should each party fulfil? 

While the contract sets out the obligations on each party, difficulties can arise in execution and a pragmatic approach will be required.

People move to different companies when a new contract starts and some may no longer be available at all, especially if they stay with the exiting service provider.  This means the customer and the supplier may find themselves short of the resources and expertise needed to meet their dependencies.

Suppliers can call on their internal resources to bridge any skills gap but there are different problems if the customer is impacted. This often surfaces as a slip to a dependency by the customer, a request for support to the supplier and then delivery of a dependency that may not provide enough information for the supplier to proceed.

It's not unreasonable for the customer to ask the supplier to help, but there is a cost and sometimes additional risk for the supplier to fulfil customer dependencies.  It's also not unreasonable for the supplier to ask for some additional funding to cover the extra work and risk and this needs to be agreed and documented with the support of the vendor and contract managers. Getting accurate information at the right time benefits both parties and will reduce costs and risks for all involved.

Resource availability

Even though major outsourcers have large numbers of skilled resources, they aren't waiting around for the next assignment.  It's difficult for account executives and transformation leads to get the resources they need, and resourcing is a constant escalation item on new contracts. The contract manager can help with internal escalations by providing a clear statement of the supplier's contractual obligations in respect of the timely provision of resources – and the consequences of failing to meet them.

The customer can improve behaviors by using the right incentives: create a payment milestone around filling key roles in the supplier transformation team and agree with the account executive how to manage resourcing escalations with supplier management.

We can't leave this topic without asking: does the customer have the right number of resources to complete the transformation?  If the retained IT team is too large, it will create work by looking over everyone's shoulder, if too small, then the customer may not be able to meet its dependencies.

Do we send enough change and delay notices?

Robust change and delay management are not only best practice but also contribute materially to reducing issues in transformation programs.3 They are also obligations on both parties in nearly all contracts and contract managers need to explain to account teams that failing to use change processes is a breach of the contract. 

So why do articles advise CIOs that “a customer should only sign a change order when adding a new service or making a material change?”4  This breaches most contractual change processes and would lead either to a solution that won't address the issues, or to a contract that doesn't match the solution that has been delivered. 

The reason for this advice is the widely held belief that change is the mechanism for suppliers to increase revenue. Some changes are chargeable, but there are also changes (whether formalized or not) for which there are no charges. Account executives want to keep their customer happy, so if the supplier doesn't need to charge for a change, then it will often not be formalized.  This is a common cause of major problems in transformation – the contract doesn't reflect the solution and there is no audit trail of why, who agreed to it, or where risks and costs should fall.

If it's difficult for change notices, it's much worse for delay notices.  There is a strong perception that delay notices are a mechanism for the supplier to allocate blame for project slippage to the customer.  As ever, there is a grain of truth in this.

Issuing delay notices and requiring the supplier to escalate delays in dependencies is not only best practice, but also a common contractual obligation.  It's also one of the key responsibilities of the contract manager, even if it's not welcomed by the account team!  In certain jurisdictions there is even a general responsibility for the supplier to make sure that the customer is aware of program management requirements and performance.

A solution to this is to establish change and delay as purely administrative, fact-based processes.  All changes and delays should be documented, and only those that are contentious or which have cost implications should be escalated to leadership levels. Both parties should be encouraged to issue change and delay notices which report on their own performance and for which the causes are not disputed.  This will help build trust and embed best practices.

Why doesn't “customer sign-off” work for either party?

The acceptance process is designed to establish when a deliverable has been completed to an agreed standard.  Acceptance should be granted when the deliverable meets objective and agreed criteria, but customers often ask for additional flexibility to reject a deliverable even if the objective criteria are met.

Perhaps the customer may get closer to what they want today, but subjective acceptance criteria increase costs and risks to the supplier and this will be reflected in both price and timescale. Instead of the uncertainty of subjective criteria, a more productive approach is to grant acceptance against objective, but flexible criteria.  In the author's experience, technical teams often need help from contract managers with this approach: otherwise the criteria can end up in a binary situation as either totally objective, or totally subjective.  When acceptance is granted, the milestone is met and any rework on the main deliverable becomes subject to change.  A small (pre-agreed) retention is made from the payment until minor issues have been resolved within a reasonable timescale.

Governance: who is running the transformation?

Customers need to understand how transformation is proceeding and gain confidence in the supplier when they can see that the program is making satisfactory progress. The simplest way to monitor progress is for the customer to use the supplier's toolset and reports. Using a separate toolset (for example from a consultant) increases workload and costs for little benefit.

It's important that the supplier maintains control of the transformation – that's what the customer is paying for.  When transformation is slipping, there's a strong temptation for the customer to seek to exert control over the program and this can increase risk. Contract managers can explain the supplier's obligations under the contract and help both sides to agree how to manage the transformation program.

If you're on the operating table, and your operation isn't going well, would you really want to take over from the surgeon? When there is a major slip, the customer can ask for an intervention. Most outsourcers maintain an experienced team of fixers who are empowered to remediate difficult situations. With a wide remit and an intense approach, these teams usually have a significant positive impact on transformation and service delivery.

If you take nothing else away from this…

Here are a few brief suggestions that will help keep your next transformation program on the straight and narrow.

  • Invest in relationships and maintain an open governance process.
  • Understand the underlying drivers on the other party.
  • Transformation is a collaborative process: both sides must be prepared to accept valid criticism and work on improvements.
  • Address any ambiguity in scope as early as possible.
  • Take a pragmatic approach if either party can't deliver on its obligations.
  • Processes such as Change and Delay are best practice for program management and help both parties: they are not just a tool for the supplier to charge more. In most contracts they are also an obligation on both parties.
  • A robust acceptance process with objective criteria will speed up transformation, reduce costs and benefit both parties.
  • The customer needs to monitor the supplier's performance, but it's an indicator of problems if the customer is controlling the transformation.

END NOTES

  1. Hemant Kogekar, “Transformation success – Top 10 barriers and how to overcome them,” CIO 18 June, 2012.
  2. Kate Vitasek, “Contracts: Going for the Long-term,” Vestedway July 18, 2013.
  3. Ward and Uhl, “Success and Failure in Transformation,” 360 – The Business Transformation Journal.
  4. Stephanie Overby, “10 Steps to Ensure Your IT Outsourcing Deal Fails,” CIO, September 27, 2013.

ABOUT THE AUTHOR

Grahame Bartleet is an experienced Commercial Director who has worked for over twenty years in technology, consulting and IT outsourcing. He was Head of Commercial Management, UK&I and MEMA for HP Enterprise Services before joining HP's Global Transaction Strategies team and subsequently its global troubleshooting team for red accounts. He is now Managing Consultant in Artecontracta Ltd, a specialist supplier of interim commercial resources.

 
 
 

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