Making a crisis into an opportunity

It can be tough to terminate an outsourcing contract, and many deals limp along producing little value. Yet with positive engagement deals can frequently be turned around. Read more >

This article was first published in Outsource Magazine. This article was also featured in Tech Bytes, our technology law newsletter.

Tech Bytes contents

• UK government abandons plans to block infringing websites
• EU consultation on breach notification rules for telcos: have your say
• Hargreaves proposals for IP reform endorsed by UK government
• Case update: “best” and “all reasonable” endeavours obligations
• Local TV: UK government consults on proposed framework and roll out
• Featured article: Making a crisis into an opportunity

 

It can be tough to terminate an outsourcing contract, and many deals limp along producing little value. Yet with positive engagement deals can frequently be turned around.

Often a deal will lurch towards crisis from the offset. The business plan may be weak, or simply not be reflected in the deal.  The parties’ Premier League engagement teams depart for other deals and those left to run the project do not have the same sense of ownership. Engagement falters. Soon the parties are point-scoring and focusing on detail. The tell-tale signs are a growing list of red items left unresolved and the same broad issues appearing in minutes of meetings. The signs of discontent can be visible even before the ink is dry on the contract. Left for long enough, the contract spirals downwards.

Yet many deals have a dip in performance in the initial phase. When reality sets in, the parties work through the issues. Behaviour is focused and aimed at positive outcomes and the deal pulls through. Crisis can be averted through strong relationship management.

The vital difference is between the approach taken when issues begin to occur. Most crises are not the result of a single catastrophic failure. Granted, fraud, bankruptcy and total failure to deliver do occur and can result in a precipitous change, usually exit from the contract and sometimes painful litigation. But outsourcing can learn from other fields of endeavour, from engineering to aviation, where failure often turns out to be based on cumulative errors escaping uncorrected rather then one single event. These errors might stretch beyond critical events to factors including processes, training and culture.

Frequently, the descent into crisis for an outsourcing is not just accompanied by red lights and failed resolution of issues. It is characterised by two disenchanted teams turning their organisations on course for a crisis with little awareness of their own faults. Supplier/customer teams tend to be caught up in their symbiotic personal relationships, and hope some problems will go away or make allowances for each other’s organisations and the limits to each team’s empowerment to change them. Problems stack up. People on the ground and at a senior level may have a significant personal stake in the deal, even as they run out of the vocabulary and tools to make it succeed. Teams in a fix need to reach for help, but they rarely do until crisis hits.

Fragile relationships can make bolstering the team with external expertise or escalating to senior management seem like a blunt instrument. The potential to spiral into dispute can raise the spectre of termination, litigation, reputational risk and complex unwinding of arrangements. However, a robust team should not let issues lie. It is part of the relationship to engage professionally on the tough points. And that means not continuing down a route for months without resolution when pockets of expertise in the organisation, senior input, legal or consultancy advice can help.

Whether intervention comes early or late, it will be time to face up to the fact that a deal in crisis requires intervention. We recommend appointing an empowered negotiating team and considering the levels of engagement needed to change things. Move into crisis negotiations with a clear idea of the issues to fix, and an honest analysis of points where your side may be at fault. Read the contract and understand your rights. Make sure you have the right expertise to hand. A crisis might demand the unusual. We have navigated through HR, PR, sale of the operation to another supplier, financial re-engineering and legal issues to emerge from a crisis.

It is also essential to have a Plan B. Who knows where your negotiations may go? Customers and suppliers may have to consider a radical restructuring, or even exit, and these should not be thought so fraught as to not be considered.

Implementation of a crisis plan is likely to evolve rapidly. The first approach may be a list of issues or a meeting. The reaction from the other party may be defensive and even unsettling for the team. Work at every level to ensure the parties remains engaged in delivering a service and to manage the twists and turns in the dialogue.
Any dialogue will lead rapidly into negotiation. It is important at this stage for the team to have strong legal guidance on the parameters for negotiation where litigation is a distinct possibility.

The value of a negotiation is to lead towards a settlement on past issues and agreement on parameters for future performance. This can lead to formal changes to the contract, or compensation being paid. It should also involve considering strengthened governance if better engagement might avert a crisis happening again.

Of course, contracts can turn litigious and result in a rapid exit. The meltdown scenario demands an article in itself. But so much can be done to avoid slipping into crisis in the first place. Engage robustly, honestly and openly early on in the relationship. Treating the symptoms early is the best way to avoid intensive care later. At the earliest signs of a crisis, it is possible to improve not just services but engagement, relationship and team dynamics. Leave it too long, and the prognosis will become bleaker.