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Should You Sue Your Offshore Outsourcing Provider?

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by Cynthia Batty

That’s the provocative and interesting question posed by a recent CIO magazine article.  If you listened to your business stakeholders, you’d sue them every time the smallest thing went wrong! In fact, while most companies never sue their outsourcer (whether onshore or offshore), many clients are unhappy, and that unhappiness is often caused as much by the lack of clear governance process as it by the provider’s service failures.

Contract language to address major breaches is important, but most problems result from the nagging little things – projects taking too long, people turning over too quickly, watermelon service levels (green on the outside, red on the inside), issues that don’t get resolved for months – that wear down the relationship and cause deep frustration and emotional distress.

After more than twelve years in the business as both a client and an advisor, I’ve come to believe that the single most important governance process a relationship can have is a defined Issue Resolution process that allows any stakeholder from either party to document issues and problems without engaging in emotion or conflict. Characterized by a crisp “resolve or escalate” mechanism that creates documents and artifacts along the way, Issue Resolution prevents problems from sitting around and festering for a year before a CIO hears about them – we have seen that happen more than we’d like to admit.

An issue resolution process is generally not spelled out in a contract, but is part of a Governance Manual that is identified at a high level in the Governance exhibit in the contract, and generally developed by the parties after the contract is signed. The Governance Manual defines the operational business processes that allow the two parties to work peacefully and effectively together. The Issue Resolution process motivates the service delivery and governance teams to solve problems before they get to the top, through structured escalation and visibility.

An Issue Resolution process is an insurance policy that protects the client from risk and exposure. We are aware of a case where a client had a significant dispute that was not documented in an Issue Resolution process; as a result, while they had a legitimate reason to sue, their own internal lawyer told them they couldn’t proceed.

A few years back I conducted a poll of my TPI colleagues showing that when a dispute resolution process  was started, the issues were typically raised directly to executives, who tended to do the executive thing and “make it go away” – often on terms that were highly dissatisfying to the team and in a manner that didn’t solve the problem. What we’ve learned since then is that by controlling the issue process at the service delivery and governance level, the people closest to the problem are best-suited to solve it properly, and also to create the documentation to drive the executive discussion to a correct solution if required.

Improved Issue Resolution is part of the emerging management science of managing third party service providers – the rules are entirely different in this new world. The goal is to get the services and value, on the happiest possible terms, with the least disruption and angst. A strong Issue Resolution governance process is key to this outcome.

What do you think? Can good governance be more effective than legal action?

About the author

Cynthia brings 25 years of experience helping clients develop their sourcing governance and service management design. Having worked with more than 50 organizations to improve business management and service management processes in both single-provider and multi-provider environments, Cynthia has become a recognized expert in sourcing governance, vendor and contract management. She currently serves as the architect for ISG’s service methodology and global integrator of its products and services. Cynthia works to leverage ISG’s accumulated intellectual property resources to help enterprises create effective transformation and governance capability, and maintains a continuing role in the Strategy and Organizational Change Enablement practice.