"There were some relationship issues," says Kevin Brown, managing director of the Everest Group in Australasia.
Johns Manville tackled its domestic IT contract first.Brown
, in his
role as marriage counselor, conducted a series of interviews at the CEO level with each party.The supplier, PKS Information Systems in Omaha, Nebraska, was doing a good job, he
discovered.The only major issues revolved around the roles of each party.Who was supposed to do what?Brown
says a successful outsourcing arrangement allows the supplier to completely take over the process from the customer."If the customer has some hooks into that process, it's harder for the supplier to take over completely," says Brown
.Moreover, the supplier must control the entire process if it is to be responsible for the required results at a cost effective rate.
However, customers need to review their processes carefully to ensure that an outsourcer can perform them.This was a problem with the Johns Manville contract.Brown
says the company has a unique accounting system.In the old outsourcing agreement, it wanted PKS to have some applications responsibilities for this accounting system.But no outsourcer, including PKS had the ability to manage these applications."This had caused problems in the past because the customer told the outsourcer how to do things," reports Brown
Unique Applications Stay At Home
The solution was simple.Johns Manville retained its business specific IT applications.PKS then only has to perform tasks it was skilled at.
The two parties hammered out a new contract in just 90 days, a record time for outsourcing contract renegotiations, according to Brown
The second contract concerned a new company Johns Manville had purchased in Germany.This company had spun off its one of its divisions and had then signed a long term, no break IT contract with the German spin-off."This contract was entirely in the German company's
favor and was encouraging it to not provide quality service at a fair price," says Brown
.These one-sided contracts also undermine the concept of 'value added', Brown notes.
There were quite a few years left on the contract.Moreover, when Johns Manville acquired its new division, it agreed to work with the German company
during this period as one of the conditions of the purchase.However, Johns Manville executives were unhappy with the situation and wanted to renegotiate.
"My job was to keep the focus on the discussions and minimize the emotions that come into play," says Brown
."In this case, both parties went through a lot of personal angst to make this negotiation work."
The new contract, which took six months to hammer out, allows Johns Manville managers to measure and monitor the supplier's performance.The new document spells out in much greater detail how the German employees will be held responsible for their work.Accountability was a hot button for Johns Manville, Brown reports.One immediate result: "Johns Manville was more comfortable that the outsourcer could perform this full scope project," says Brown
conducted these renegotiations simultaneously.When the ink was dry, Johns Manville had two outsourcing contracts that worked.In the match Brown refereed, all parties won.
Lessons from the Outsourcing Primer: