Downfall Impact: Do you keep your current provider?

Another good question posed by Michael Grebennikov in LinkedIn, when the market is down, the budgets tight and future is more uncertain than usual, what do you do with your outsourced projects? Of course this question can not be dealt with in insulation. Major market events require immediate and aggressive action, all aspects of the technology organization need to be dealt with quickly and in the most judicious manner. The organizations that do not react / change fast enough pay huge penalty. When Cash is getting low and/or P&L is looking grim organization must rationalize its R&D and Project portfolio. On my book that means spreadsheets, metrics, analysis and often concrete and resolute actions. The goal is to quickly reassess what you can still afford to keep and what must go, in all aspects of the organization: projects, initiatives, providers, and sorry to say staff.

The “to keep or not keep” question must be applied to an outsourced portion of your project portfolio. If the projects are not “keepers” there is no other question, if they are the question is whether to continue with the outsourcing… One of the way to answer that question is go back to the decision criteria you used when dealing with the “to outsource or not to” question. Reassessing the answer with the new environment in mind on a project by project basis could be one of the most reliable methodologies. It could be quite laborious though. You may consider a simplified set of criteria based on a few key dimensions:

  • Total Cost of Outsourcing (TCO) / Price performance
  • Relative Productivity
  • Quality of deliverables
  • Overhead / cost to manage relationship
  • Quality of relationship
  • Cost of termination / suspending the partnership
  • Cost of restart (with current or alternative provider)

Rating against these criteria will quickly point out suspects for termination. For remaining projects / partners you can do an in-depth what-if analysis compare status quo to an alternative approach and finally make the decision.

In some cases you will still find yourself on a fence. You are still in a grey zone if your pros / cons balance is 40/60 or narrower. In that case I would consider getting the vendor involved – assuming that your relationship with them allows. The vendor has a lot of leverage in reducing the TCO and thus pushing the odds in their favor. In ideal case – and I have been fortunate enough see those – you can work out something with the partner on a basis.

The bottom line is clear: desperate times call for desperate measures. Not recognizing it on any side of the vendor-consumer relationship is lethal for the relationship and possibly for both parties. Dealing with the issue in timely manner, looking for mutually beneficial solutions and considering “win-win” style negotiations is likely to keep both sides relatively happy.

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