Trust the Brits to tone-down the hype of the outsourcing sales pitch, with BSkyB broadcasting organization being awarded $313m in damages for a $75m EDS (now part of HP) CRM implementation with didn't quite pass muster. So is this a major warning shot for vendors over-hyping their capabilities to win deals, or is EDS simply falling foul of failing to satisfy Rupert Murdoch?
While several people are calling this verdict a one-off, I take the view that this sets a dangerous precedent for the outsourcing business, when you consider the sheer volume of complex outsourcing deals that are currently (and soon to be) in play.
Another one of these verdicts (especially if it's State-side) and we really could see a damaging domino-effect of lawsuits that could change the whole way deals are priced, negotiated and delivered. I even met with a consulting firm the other day, which is making a killing "rescuing" contracts, but in reality is mediating between vendor and customer to annul the broken marriage.
My fear is that the outsourcing industry is currently operating in a pressure-cooker situation for the following reasons:
1) Outsourcing vendor sales executives are under enormous pressure to hit sales targets this year;
2) Vendors are finding it harder and harder to differentiate themselves and are promising ambitious business benefits based on business outcomes, process transformation and innovation to get their noses in front during sales pursuits;
3) Some vendors are drinking too much of their own Kool-aid right now to realize they may be over-promising;
4) Customers too often fail to realize how challenging their outsourcing experience is going to be for them, and vendure headlong into engagements that are geared for failure.
My mantra is very much centered on the fact that we need to steer the vendor/customer relationship away from punitive contractual clauses, away from the letter of the contract, and focused on collaborative working partnerships. Customers are ultimately hiring vendors to work with them, and both parties need to find behavioural ways to make their outcome successful. Responsibility for the business outcomes of outsourcing engagements rests with both parties and the industry cannot afford to have more of these fractured relationships aired in the courtroom.
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I am not sure it is as disasterous as people imagine. I believe it will force a level of rigour in terms of both proposals and propositions which will only help professionalise the IT Service industry. I have proposed to three IT Service companies that they scrutinise their proposals based on three categorisations:
1. Small value/low risk – internal departmental review
2. Medium value/low risk – review within organisation but by different department
3. High value or High risk – independent review.
In all cases the review should satisfy itself that the proposal is addressing the clients needs, answering his questions and is understandable.
Secondly, and specific to the BSkyB case, that any claims being made in terms of benefits, cost, skills, timetable, technology etc. can be substaintiated by an auditable process and documentation.
@Bob: The more litigious this industry gets, the more these engagements will get stuck in contractual purgatory. While it’s important to get some core SLA’s set out from the start, there needs to be a stronger push from both vendors and customers from the start to make these engagements successful. End of the day, success in this business is all about customer satisfaction and achieving business outcomes through collaborative partnerships.
The whole vendor down-selection process needs to be improved, so clients don’t rely purely on rate-cards and lawyers to squeeze the life out of their vendors before the engagements even begin,
PF
Phil,
You are a saint for highlighting the pressure SPs are currently under to close deals. The hype in the market to get business closed is reaching fever-pitch and it can’t be good for the longer-term health of the business,
Rob
I think the fundamental problem is that often companies that engage outsourcing do so because of internal issues that keep them from evolving a credible plan. If the outsource firm cannot help them evolve that plan, the project will fail no matter who does it.
The proper use of outsourcing when there is a good plan is bringing technology in house quickly and managing a short term need for technical staff.
The outsource firms walk a very fine line between keeping a client and helping them to really grow. If that growth is not achieved, ultimately the client will not be a good reference.
Geoff
Phil,
You touch upon a very dangerous issue here. Some vendors needs to tone-down the over-selling. They’re simply not equipped to deliver the business outcomes they are currently promising to clinch business. The “bait and switch” is something the outsourcing industry needs to stop doing, once and for all,
Brian
Regardless of the ins and outs of the BSkyB case, the crux of the matter is that this sets a legal precendent that buyers can sue their vendors for sums of money far greater than the TCV of their contract.
Attention needs to be given to the whole sales process and getting real expectations set,
Alan Freeman
Phil,
I think the verdict is interesting, but I guess the only companies questioning outsourced development are the development companies themselves.
Every company doing outsourced development has dealt with delivery not being made at all or not to everybody’s satisfaction or within timelines and budgets.
It is clear that a successful delivery is not just dependent on a good contract and a high CMM-level (garbage in is still garbage out). Fixed price fixed date hardly ever solves that issue.
Delivering a successful solution requires a realistic expectation on both sides, process management and a lot of interaction especially when developing something ambitious.
I don’t want to mention a partnership, because that would suggest an equal stake in ownership and responsibility/accountability where both parties usually want to shy away from these aspects of the contract and deliverable. As I am sure can be seen from this particular case.
It also would help if organisations would ask the question up front why they are so different that they can not use a less tailored solution. Also development companies should really question why a customer would want to have something build from scratch or highly customised, as they may be setting themselves up for a failure.
Francis
My views are less extreme. I believe if you look at the ruling it highlights failure at an individual level ( one employee mis represented himself and the firm ) vs a massive breakdown in governance or fraud aka Satyam. The disconnect between sales and delivery is not unique to the outsourcing industry, it is a universal truth.
Yes there are pressures in the marketplace for vendor to differentiate and meet sales targets and that job is not going to get easy for service provider sales teams. But as for the impact of this ruling, I still believe it may be limited but surely a wakeup call for suppliers who are exploring large deals and their engagement models on how they get their sales, delivery team to work together as they commit to clients. It will make the team more cautious and maybe more expensive for customers if the service providers are going to manage an added delivery risk variable ( which if you are a vendor, managing this risk should be one of your core strengths!). This ruling does also question the liability caps in contracts and what they actually mean if anything.
At the end this is again about building trust. As my old boss used to say if you have reached the point in a relationship where you have a printed copy of your contract on your desk and using that as a standard operating manual to manage your relationship, your relationship is already doomed.
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Bait and switch works best with buyers too olfactory challenged to smell rotten bait. That being said the outsourcing market will invariably get more litigious largely to the benefit of the litigators, further driving up the costs of doing business (outsourcing and business overall) in western markets and further driving business to the east (not just outsourcing business but business overall.)
Phil,
Interesting question and a great topic regarding this issue.
In some ways both parties are at fault with regards to this verdict. Poss, EDS overstated their capabilities and BSkyb should have requested references of similar deliverables. Assuming of course that EDS architected the entire CRM system for them. EDS claimed that the customer kept changing the requirement. Certainly, basic project management guidelines would have dictated a formal “change request” process.
All in all, I do not think this will hurt the industry, but, it will provide a wake up call to those outsource vendors that do not work hard to become a trusted partner in the development project that their clients have retained them for. Hyping capabilities and outwardly pressured sales people only shows a potential client the desperation that the vendor may have and should make sure that they do their due diligence before contracts are signed.
So, that said, clients need to do their researcha nd realize that the name brand is not always the best, ensure that you have a clearly defined project plan; start and competion dates, a formal change request process, see if your vendor is willing to put some “skin in the game” to ensure a successful completion.
Just my thoughts
Michael
Why is this case important? Because it is a wake up call to provider senior management to ensure that bid and contract processes are in place and audited regularly, the way banks have to do. It is also a wake up call to customers to test the propositions and claims the providers put to them. As with Raju/Satyam and Madoff and any determined fraudster, it is not always going to be easy to detect their lies. The main EDS witness was shown to be an out-and-out liar, a man who even went to the trouble to conceal some of his misrepresentations by sending them from his home email address: how were EDS bosses going to find out? Also, with respect to Bob Fawthrop’s value/risk classification, this was not a mega deal for EDS: where would it have sat in the classification? My point is that face value and apparent risk are meaningless when a liar can blow a medium-sized deal with caps on liability into a US$300m claim by fraud and deceit. As a lawyer, I tell you that this case doesn’t make new law in the UK: as someone above said, it has very particular facts. What it does do for all of us is to remind us about ethics and best practice in bid/RFP or any sales situations. And by the way, fraud and deceit are not new in IT sales: even in understated England, we have reported cases going back well over 10 years.