Its always been important to step up to the plate and work for the best deal you can get with your outsourcing partner. As the industry evolves and matures, outsourcing providers are getting sharper, as are customers. That makes getting an edge in the art of the contract more elusive and, at the same time, more important.
Since it has dealt with a fully outsourced IT business model for more than 20 years, there is probably no company more astute than General Motors at framing IT outsourcing contracts. GM is embarking on what it calls the “third wave of outsourcing” in which it has selected a handful of prime IT outsourcing contractors, including EDS, Capgemini, Hewlett-Packard and IBM, divvying up some significant contracts among them. To make its fully outsourced business model work, GM had to come up with standardized contracts.
If the process works, the troubled automaker could drive its IT costs down, boosting productivity and shoring up its bottom line, but whether or not the third wave lifts the worlds biggest car company, it is already making a contribution to the art of crafting outsourcing deals, according to William Bierce, a partner at Bierce & Kenerson, a New York law firm specializing in outsourcing law.
“This is not a train wreck in need of fixing. Its a highly engineered process,” Bierce said. “Its a lesson in the customers definition of the processes.”
With so many contracts, GM has had to create standard documents to keep legal and clerical work to a minimum. But these standard contracts are crafted with GM at the center. By insisting on being in the drivers seat, GM is leading the way in a new wave of customer-centric contracts, according to Bierce. At issue is whether the vendor or the customer owns the intellectual property related to the improvements the vendor develops.
Lets say an outsourcer is handling manufacturing logistics for a customer and develops a new methodology for optimizing the cost of freight according to the number of units shipped. An aggressive customer might want to retain that IP, enabling it to seek a more efficient outsourcer using the same methods at a later date.
Service providers, of course, want to retain this property, which might be of value to them in other accounts. Without any IP goodies for them, they might be tempted to simply cut their costs and do the minimum for a customer.
“The question is, Does GM, as master of the process, own the derivative work?” said Bierce.
In a recent interview in his Armonk, N.Y., office, Bob Moffatt, senior vice president for integrated operations at IBM Global Services, stressed the importance to companies such as IBM of the IP they develop and the ability to reuse it. Its Moffatts job to bring IBMs resources and IP to bear on the outsourcing deals that IGS enters into, and hes well aware that IP can be expressed in dollars and cents. If customers want to compensate IBM for that IP, thats fine; otherwise, IBM would like to keep it and use it elsewhere, he said.
It will be interesting to see who wins this tug of war.
Also a bellwether for the next generation of customer-centric contracts is Dutch bank ABN AMRO, according to Bierce. ABN AMRO announced a major outsourcing initiative in September, including a host of providers such as IGS, Tata Consultancy Services, Infosys, Patni Computer Systems and Accenture. Not announced, however, was the exact amount of work that each would be doing. The idea was to create a list of vetted vendors and later assign work to them as the need arises. “Its a microcosmic marketplace of the vendors, who are dedicated to the customer. It puts the customer in more control than before,” Bierce said. Again, it will be interesting to see if other customers can exert similar leverage over their providers.
Stan Gibsons e-mail address is [email protected].