Out with the function, in with the service

But, surprisingly, outsourcers frequently fall short. “Outsourcing organizations are all talking about customer service these days,” says Rita Terdiman, senior analyst at market research firm GartnerGroup Inc., in Stamford, Conn. “But then the question is, why aren’t customers happier?”

What customers say about outsourcers: Too many outsourcers underestimate what it takes to build the relationship. PKS Information Services’ response: Customer account managers are compensated entirely according to customer satisfaction. This removes any incentive to market extra services to their customers and creates an advocate for the customer company within PKS.

The answer, according to Frank Casale, president of the Outsourcing Institute, a professional organization based in New York City: Too many outsourcers underestimate what it takes to build the relationship. “The typical IT service provider doesn’t realize all that’s involved in moving from being an outtasker to a full-fledged outsourcer,” Casale says. An outtasking arrangement is short-term and tactical; outsourcing is typically longer term and strategic, requiring high-level collaboration between customer and vendor.

Two common pitfalls of outsourcing are inflexible contracts and high turnover among outsourcers’ account managers, notes Cynthia Murphy, analyst at International Data Corp. in Framingham, Mass. Both are contributing to users’ mediocre ratings of outsourcing services.

“A lot of relationships get into trouble because of contracts that are too rigid. Often they’re just too inflexible in price or in metrics, for instance,” Murphy says. “A merger or acquisition might require a renegotiation of a contract to add on services. Outsourcers have to be sensitive to that.”

And when a contract is big–say, 10 years and $10 million–“it’s hard to keep relationships going smoothly if your project and account managers are turning over every year or so,” Murphy says. Finally, outsourcers must work harder to follow through on the promised level of service, experts say. “It sounds obvious, but it doesn’t always happen,” Murphy says.

Indeed, the outsourcing industry is weathering a crisis of confidence, as evidenced by some highly publicized deals that have gone sour in recent months. In April, for example, American Express Co., based in New York City, canceled a 10-year outsourcing contract with EDS Corp.; other large companies that have recently dropped or changed outsourcers include Xerox Corp. and CNA Financial Corp. Customers frequently cite missed goals and poor performance as the reasons they broke off their outsourcing arrangements.

In response, some outsourcers are redoubling efforts to improve service. Gartner’s Terdiman says that one company noteworthy for its commitment to service is PKS Information Services Inc., of Omaha, Neb., a subsidiary of telecommunications service provider Level 3 Communications Inc. Harold Mathues, manager of central systems planning and operations for petroleum giant Sunoco Inc., in Philadelphia, helped select an outsourcer to run the company’s mainframe datacenter in 1995. An extensive RFP process led Sunoco to choose PKS over its rivals, including the operator of the company’s previous outsourcer, GE Capital Information Technology Solutions, a division of Fairfield, Conn.-based General Electric Co.

Thus far, the five-year, $20 million relationship has worked. “One thing that’s been extremely valuable is our on-site account manager, who works with us on a daily basis, paying attention to our changing requirements, such as Y2K testing,” says Mathues. Account managers at PKS report to the head of their service management department, who in turn reports to the president: “That kind of setup provides us a definite advocate within their organization, someone with an eye on our business,” Mathues says. In fact, PKS customer account managers are compensated entirely according to customer satisfaction, says Jerry Brunk, vice president of service management at PKS. “They’ve got no incentive to market to their clients.”

Science Applications International Corp. (SAIC) of San Diego is another outsourcer that has tried to back up its verbal commitment to service with specific processes. One such result is SAIC’s customer satisfaction questionnaire, which is administered in meetings of senior SAIC executives with their clients’ CIOs. “It only takes about three minutes to fill out, but it makes [our customers’] expectations that much more explicit,” says Dave Brooks, manager of the SAIC’s health and enterprise solutions division. The results show the vendor what customers think of SAIC’s administrative support, budget performance, and technical ability, Brooks says.

Such processes make the outsourcer/client relationship feel more like a partnership, says Dean A. Ricciardulli, senior director of quality systems at Mitchell International, a maker of insurance industry software in San Diego. Mitchell’s contract with SAIC for Y2K testing, which lasted less than a year, ended in March, “on time and within budget,” says Ricciardulli.

Part of any successful outsourcing arrangement is an agreement detailing what needs to be accomplished, Ricciardulli says. But it’s equally important to find a vendor that will go beyond the contract terms in times of crisis. For that reason, Ricciardulli strongly recommends getting references from other customers before signing any contract.

“You can’t enforce goodwill,” says Ricciardulli. “If you have to pull out the contract to enforce it, you’ve already lost.” //

Stephanie Wilkinson is a freelance writer based in Lexington, Va. She can be reached at stephw@cfw.com.