How to turn around a troubled outsourcing deal

10 May 2013

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12 May 2013 | Paul Snell

The keys to turning around a troubled outsourcing deal are improving governance, securing executive commitment on both sides and changing the mindset of your own organisation.

Eric Germa, CPO at ANN Inc, the parent company of the US retailers Ann Taylor and LOFT, told delegates at the Institute for Supply Management annual conference the business' decision to outsource IT ran into difficulty and needed to be addressed.

“Things didn't go well for the first two years, and it was as much our fault as the service providers fault,” he said. “First, we transitioned something that was messy. There was a lot of internal debate about whether this was the right thing to do, and we struggled to get the lower level management on the IT-side to embrace the model and make it work. And there were things the vendor wasn't good at that we lived through the transition process.”

“About a year ago my boss the CFO very bluntly told us, 'you guys were the original architect of the deal, you go and fix it'.”

Germa said the problem was tackled aggressively with a 90-day action plan, with a list of 100 things to be improved that was examined each week to check progress. “Our message to the vendor was 'prove to us you can make it work'. And if it doesn't work after some period of time we're going to start reopening the agreement and come back and start in-sourcing some of the work or go to another provider.”

One of the first issues to address was the governance of the deal. There had been strong governance in place, but it didn't get executed properly. “Our teams were blaming the service providers, and taking no responsibility. And in some cases doing the work the outsourced provider was meant to do, it was really confusing,” he said. The governance process was re-launched, with retained IT staff making sure the provider delivered what was necessary.

Another important part of making improvements was securing executive commitment from the vendor they wanted to make the partnership work. “We were very vocal with our service provider to get to the CEO, and high-level people. Our service provider is based in India so we spent some time there, as well as getting the executives to come see us and get commitment that we wanted to make the partnership work.”

And a third factor was changing the way the outsourcing arrangement was viewed internally. “On our side it was changing the mindset of our own team to figure out the service provider is an extension of our own teams, and our teams needed to own the solution and be accountable for that.”

As a result of the changes the relationship is now much improved. “From something that was a really bad situation we were able to stabilise our infrastructure and drive and deliver a lot of projects, such as multi-channel capability, one of the first retailers in the US to launch that,” Germa said.

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