By Lauren Gibbons Paul
Network World, 8/3/98

Network managers looking to cut short an outsourcing agreement face more heartbreak and financial strife than Bruce Willis and Demi Moore.

The fact is, neither side wins when there's a breakup between parties engaged in a long-term, multiyear deal. A client has to go through the pain of paying steep cancellation penalties and finding a new provider or taking the network back in-house. A vendor suffers the black eye of having a client unhappy enough to terminate the deal early.

Not surprisingly, most clients elect to merely live out the term and search for a new provider a few months before the contract ends.

A smooth, premature break from your outsourcer is generally not possible. "[The outsourcer] owns all the intellectual capital for your network. Do you know what it costs to learn everything about your network, hire people and retrain them? It's almost impossible to divorce your outsourcer," says Deb Mielke, a director at telecommunications management consulting firm TeleChoice in Dallas. The problem is even worse when the outsourcer is also acting as your ISP, she says: "Now what do you know [about your network]? Not a lot."

Still, a few companies are gaining visibility for instigating high-profile network outsourcing divorces.

Last September, chip maker LSI Logic cut short a five-year IT outsourcing arrangement with IBM Global Services. "When you outsource, you lose the linkage between information technology and the business. It made us very dysfunctional," says Lam Truong, chief information officer at LSI in Milpitas, Calif. The service-level agreements (SLA) LSI Logic had with IBM Global Services were irrelevant, and didn't measure the effect of network performance on the business - in business terms, Truong says.

So Truong bit the bullet, paid stupendous fines, and spent $18 million in-sourcing the company's network and IT infrastructure. The process took two years, but he believes he did the right thing. And he can see his way clear to the benefits he'll get from in-sourcing. "The ultimate goal down the road is to have the economic health of the company reflect the health of the network," he says.

LSI Logic paid the price and got out of its deal. But clients often find at the eleventh hour that the contracts they signed heavily favor the outsourcing provider in the event of a divorce, says Alan Gonchar, president of Compass America, a consulting company in Reston, Va.

"The vendor tends not to lose," Gonchar says. Because the contract itself is so complex, the client often prefers to ignore the language within it until it's too late.

To get out of a contract before the formal end date, Mielke says the customer must put together a solid business case for nonperformance of network services. Usually, this will implicate failing to perform up to levels specified in SLAs. Most contracts contain a provision that specifies the customer must give the outsourcer a "reasonable" amount of time in which to cure its nonperformance.

But Mielke suggests starting talks on the QT with other outsourcers before this period is up so as not to waste more time. "Play the game with them as long as possible, because as soon as they know you're going to get out, they'll start ignoring you," says Mielke, who admits that when she worked for an outsourcer, she neglected clients she knew were going to give her firm the boot. "It's just human nature," she says.

In network outsourcing, as in marriage, sometimes a divorce is inevitable.