FRAMINGHAM, MASS. -- Some of the biggest IT service providers have programs in place to extract themselves from relationships with the bottom 10 percent of profitability. "Providers today are much less likely to live with bad deals or money-losing accounts," says Stan Lepeak, KPMG's director of research for advisory services
But breaking up is hard to do. The termination clauses of a contract may make it prohibitively expensive for unilateral provider pullout. So the vendor may back away from the account in more subtle ways, either to protect its margins or nudge the customer toward termination--or both.
"When deals become unprofitable--for any number of reasons--the vendor must try to raise the profitability," says Adam Strichman, founder of sourcing consultancy Sanda Partners. "When they start to take very aggressive actions toward profitability, this is the first--and best--signal that the deal is unprofitable. When their actions become too aggressive, that can also be interpreted as trying to get out."
"If the client's only goal is to squeeze the rates as much as they can and they start playing up to get penalty awards for sub-par performance, they quickly become not only unprofitable, but also a risk for spreading a poor image of that provider's performance into the market," says Phil Fersht, founder of outsourcing analyst firm HfS Research, who estimates that one in five outsourcing customers falls into that category. "Their providers quickly start to figure out how to either 'lose' them at renewal to a competitor or simply churn them via an arbitrator if this bet really bad. [But] there are many more examples where providers are having a terrible time trying to service clients which simply make them no money and they can't get rid of them"
So how do you know if you're one of the "problem" clients? Here are 10 telltale signs your IT outsourcing provider wants to dump you.
1. We Need to Talk. "The one thing that is relatively certain when a customer falls to the bottom 10 percent of a vendor's portfolio is that the vendors will not be shy about letting them know," says Steve Martin, partner with outsourcing consultancy Pace Harmon. "In these problem scenarios, a provider's first course of action is generally to voice their concerns to their customers and attempt to propose remedies through the standard governance process, rather than immediately developing subtle termination plots. They may also attempt to renegotiate the deal or work through critical issues in executive-level meetings."
2. Death by Change Order. Watch out for a provider that's getting hyper-technical about what is included in the scope of the contract, says Edward Hansen, partner with law firm Baker & McKenzie. Even clauses intended to address scope-related issues, like a "sweeps clause", intended to enable the buyer include within the contract scope additional services that are incidental or inherent to those laid out in the statement of work, "just seem to stop working when the vendor gets into economic trouble," Hansen says. )
"'Death by change order' is a telltale sign that they've fallen out of love with their customer," says Pace Harmon's Martin, partner with outsourcing consultancy Pace Harmon. A weary vendor might also refuse to respond to new technology requests or other scope expansions, until another portion of the existing deal is "fixed" or "addressed," says Strichman of Sanda Partners,