chapter  5
30 Pages

Partners: Customer–Vendor Relationship

WithJohann Rost

It’s all about relationships in outsourcing business. The first decisions for the emerging relationship are already made before its actual onset at the time when the customer selects a vendor and the two parties negotiate the outsourcing contract. This preparation task constitutes a significant part of the investment in establishing the offshore scenario, but a carefully structured process of vendor selection can greatly diminish the costs of establishing the relationship. The customer’s first step is defining the vendor selection criteria and clarifying the motivations for the outsourcing decision: financial, technical, or commercial. After both sides have elicited reliable information, the exact stipulations of the contract can be negotiated. Once the outsourcing scenario is established, the customer must manage the vendor and oversee the work of the offshore team. When the cooperation gains speed, it is quite likely that sooner or later disputes about technical or contractual issues will appear. Litigation is almost always the worst solution. Therefore, many outsourcing contracts include a dispute resolution procedure, which usually starts with forwarding the conflict in a predefined way to higher management. If the issue remains unsolved, the partner can apply mediation or arbitration in an attempt to find a mutually acceptable settlement before taking the ultimate step of going to court.

64 One widely applied method of government and vendor management is benchmark audits; an independent third party provider of benchmarking services helps to analyze the relationship and evaluates the vendor’s performance by comparing it to that of peer companies. The benchmark study should determine whether the service level still matches the state of the art and whether the prices are appropriate and the contractual provisions are fair. The benchmark report may conclude that the vendor has to solve any identified problems within a reasonable time period or that the fees need adaptation. Benchmark clauses are adopted in many outsourcing contracts. For the customer, they are a way to keep the vendor honest. A successful benchmark audit can increase customer satisfaction and thus improve the customer–vendor relationship.

In scenarios where the customer works with a single provider, this vendor can gain undue influence because of its monopoly position. Some customers try to avoid these problems by working with more than one vendor in parallel. Such so-called “multisourcing” scenarios can have a number of advantages because they introduce a competitive element. However, coordinating multiple vendors who are competitors on the market creates other challenges and requires advanced skills in project management and information technology (IT) politics: the work atmosphere might become tense, and the project can reach a crisis because the various service providers do not cooperate smoothly but try to undermine each other’s reputation in front of the customer.