Introduction
The daily pressures confronted by today’s CIO are greater than they were just a few years ago. New thinking and tools must be continuously applied by business and technology leaders to achieve the next incremental improvement in alignment, productivity, and business success. As such, nearly all CIO’s have looked at the question of IT sourcing. However, most CIO’s I talk with have not used good techniques for creating the outsourcing deal. It is the deal that aligns external providers with business, IT, and sourcing strategies. Misalignments are bound to create unhappy engagements, resulting in contract re-negotiation at best and early termination at worst.

Sourcing Decisions: Many strategies are available to the CIO

Most CIO’s strive to think strategically: “How might I acquire the technology, skill sets, rapid response capability, and global presence needed to serve this business? “ The fundamental answers are well known and discussed in the literature: in-house sourcing, out-sourcing, transitional outsourcing; with one supplier or with multiple suppliers; or all of the above. Many CIO’s develop and execute a sourcing strategy, albeit a bit haphazardly. Regardless, good decisions based on your company’s needs and an honest assessment of risk can keep you out of hot water

Write Note to Self: It’s All in the Deal

OK, so you’ve read the books, attended a conference or two, and developed a sourcing strategy that makes you proud. However, you may still be a sourcing problem waiting to happen. It is the deal that sets the stage for a long-term relationship - one that all parties strive to enjoy.

First, forget the way it was done a few years ago.

The new model looks more like this: Note from the CIO:

“Dear Candidate External Service Providers: Our Company has developed a contract for services that we would like to share with you. This deal is based on our knowledge of our industry, our business, and our IT and sourcing strategies. Along with our contract, we include statements of work that clearly explain the scope of work to be accomplished, and our requirements for your services/technology. We explain our objectives, the problems we wish to have you address and our expectations on pricing. We show how we will measure each other, how incentives and penalties are based on your performance, and how we will work together (i.e. governance) for a long time. We appreciate your creativity, expertise, economies of scale, and will leave most of the ‘how’ up to you. By the way, no need to send lots of sales people – we wouldn’t have sent this note if we weren’t already interested. Be advised: your response must be made within the strict format of our RFP rules and definitions, so we may quickly make our decision. We are inviting you to bid on this well-defined business transaction – and pledge to you that you have equal opportunity to win. If you choose not to participate, that’s OK. If you break the rules, we will simply say ‘thanks and goodbye.’

What CIO’s Need to Know:

• CIO - Know Thyself - And Your Unit Costs. In addition to knowing your costs by tower, category (labor, HW, SW, etc), analyze your environment to determine your unit costs and economies of scale. How much does it really cost your organization to buy, develop, and operate, say, a database, operating system, or server?
  
• Admit to why you are outsourcing, and be able to articulate that objective. Clearly link your Sourcing Strategy, IT Strategy and Business Strategy. Looking for a low price and nothing else? - be careful, the hidden costs and management overhead may hurt you. Many times, access to skill sets is what matters - so say it like it is.
  
• Proactively identify specific risks and how they might be mitigated. Risk belongs to either you or the supplier, so be real clear on who gets what and when.
  
• Establish metrics beyond IT component availability and reach into user satisfaction measures. Translate these metrics into service level targets.
  
• Stay flexible on service level agreements (SLA); some things lose importance as business changes, and you'll want to change SLA emphasis along the way.
  
• Build in contractually required, measurable improvements in price, technology, and service.
  
• Build in the right to benchmark your supplier; but stay real and pass the salt.
  
• Establish contractual rules that specify price changes based on unit volume changes.
  
• Share the gory details of your environment to eliminate ambiguity. Remember: ambiguity increases risk increases price.
  
• Develop a comprehensive Base Agreement and include in the RFP. Require suppliers to 'accept', 'reject', or 'accept with change' each portion of the contract as part of their response.
  
• Leverage the suppliers for their creativity, expertise, and ability to absorb risk and costs, and know when to stay out of their way. (Hint: many of the 'how's' are no longer up to you.)
  
• Negotiate for 'win-win' or stay home. You want your suppliers to be successful, and that means they make money.
  
• Leverage the suppliers for their creativity, expertise, and ability to absorb risk and costs, and know when to stay out of their way. (Hint: many of the 'how's' are no longer up to you.)
  
• Prepare for the long-term before Day 1. Establish a 'best practice' Governance / Relationship model and practice the spirit and letter of the model. Take the lead of this multi-functional team comprised of your company's and the supplier's employees.
  
• Change your organization. Find or develop the requisite soft skills for managing long-term supplier relationships, and support that team all the way.
  
• Have fun and Good Luck!