Apart from the choice of vendors and pricing method, it is important to choose your contract period well. In this article we will examine the factors associated with time.
How Long is too Long?
This is a much-debated question. While there are no hard and fast rules, the industry perceptions have changed over the years. During the initial period when the outsourcing trend started, long contracts that lasted for up to ten years were the standard. Clients and vendors both realized later how fast emerging technological and economic developments can change everything. Thus both clients and vendors prefer shorter duration contracts now.
A lot depends on what you are outsourcing to the vendor and why. When you are looking at a transformational deal, you need to go for longer duration contracts. This is because such situations need time for the rewards to materialize, for both client and vendor. On the other hand, work like data centre support or desktop maintenance is best structured as a short-term contract. As stated earlier, longer contracts are generally not favored these days. If you do have to establish long duration contracts, make sure to build in a lot of flexibility into the arrangement.
The Transition Period
The transition period- when the new provider is just getting a grasp on the client’s business, present capabilities and processes, organizational culture and expectations- is generally a time of troubled waters for both the parties. The new vendor team has to integrate employees and assets and get rid of wasteful expenditure and other areas of inefficiency- and do all this while the regular work is on. This period can last for anything from a few months to one or two years, and you can expect productivity levels to dip.
The real problem however is that this is also the time of making impressions. The client company is looking for the promised gains of the deal. The other (non IT) departments wonder why the new vendor hasn’t improved things for them, and the in-house IT department faces an identity crisis of sorts.
There are no simple answers to this problem. The first step is to realize that the transition period is going to be awkward. Anticipating the issues help both sides to have contingency plans in place and set up realistic expectations.
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