Robert Jaques, in an article posted on WhatPC yesterday, talked about the difficulties involved in exiting outsourcing arrangements.

Mr. Jaques rightfully points out that offshoring and outsourcing relationships have clearly migrated from "non-core" business functions to "core" functions, making both poor service and disruptions far less tolerable. The services receive far more scrutiny and have gotten more expensive, leading clients to look for exits, either due to business strategy or as a bargaining "chip" to lower prices.

That being said, there can be significant contractual, economic and political roadblocks that can make exit a far more difficult process. It is critical for companies that are thinking about exit to (a) build a plan that allows for orderly transition, (b) look at the contract carefully, and (c) prepare for disruptions.

Of these, (c) is the most interesting, as I'm sure that many will say "we have service levels for termination!" However, it is important to remember that service levels are often capped at levels that are at or below supplier margins, and the normal threat that can be levied - termination - will likely fall on deaf ears.

Mr. Jaques quotes Forrester as suggesting clients "... use money owed as leverage" to get cheap termination for convenience exits. Unfortunately, this approach further encourages a long-standing trend of short-paying vendors - a practice that I have seen first-hand. Frankly, I find this practice to be both ethically and economically unsound. Furthermore, I can also see outsourcers saying that services will be halted until payment is made - giving the leverage to the outsourcer, particularly for core services.

Without question, the best exit strategy is one that is well considered at the outset. However, easy-exit provisions are often traded at the last minute as deal closers, creating potential future problems should a company wish to move.

So, in the spirit of the Paul Simon song...

"Don't pay the bill, Will"
"Threaten to sue, Lew"
"Benchmark the fee, Lee"
"it will set yourself free...

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