Alex Blues

Head of IT Sourcing at PA Consulting Group

Very few of us would have thought that an accident involving the Transocean Deepwater Horizon drilling rig on the 20th April 2010 could have affected the outsourcing industry.

In fact, some commentators have gone as far as saying that there was no impact on the outsourcing industry at all. This argument is based on these commentators distinguishing between subcontracting and outsourcing – subcontracting being where an organisation requires an external body to meet a specification, and outsourcing as where a client asks an external body to provide a particular outcome.

I have to say however, that I completely disagree with this conclusion. I do not believe that the market will understand the subtleties, and I think the clients who are reliant on outsourcing for strategic services need to take a step back and consider in more detail what the consequences are if sourcing (subcontracting or not) goes wrong. The catastrophic events in the Gulf of Mexico should be seen as a wakeup call as not enough attention is being paid to the impact of an outsourcing contract failure. As has been all too clearly seen, the ultimate responsibility in terms of political consequences, financial damage and public reputation, still lies with the client, whether the causal fault lies with a contracted party or not.

If an outsourcing contract fails, especially in dramatic circumstances, it can have a major impact on the brand of the client – both in terms of market and customer perceptions – on the share price, and even on revenue and profit.

We should not be arguing over semantics. Instead, I believe we should take a look at all strategic outsourcing contracts, and ask the “What if” question. What if it goes wrong? What impact would it have? And what mitigations can now be put in place to avoid that?

In a similar fashion to how the EDS / BSkyB situation has caused calls for greater scrutiny over the way in which services are sold, the BP situation should compel organisations to run a ‘disaster scenario pen’ over their outsourcing contracts and ensure that any negative impacts on their share price, brand, revenue and employment are anticipated to as fine a level of detail as possible.

We are all aware of disaster recovery plans that protect a business in the case of infrastructure damage caused by any number of circumstances – the same levels of foresight, planning and preparation are equally applicable to outsourcing contracts. While much may be gained from a fruitful relationship, so much more can be lost from a poor one.