This blog sheds light on a question I have been asked over the years. The question is, what is the difference between a small (<$1million) and a large (>$1 billion) IT sourcing deal? The answer is a simple and emphatic: nothing. This will surprise almost all CxO’s, VMO Managers, and senior Managed Services executives.
Below I detail the reasons for why there is no difference between an extra small, small, large, medium or extra large IT sourcing deal. In a way, the different sizes of IT sourcing agreements are similar to buying a shirt. What is the difference between an extra small and extra large shirt? ? Again, in terms of the core dimensions of value sought the answer is clear: nothing. You simply get more material in the larger shirt. You also need to supply more time in stitching the panels together. The same principle applies in IT sourcing deals.
All IT sourcing deals have the below five core elements.
- Contract
- Performance (SLAs)
- Invoicing
- Demand management (such as projects)
- Relationship management
All IT sourcing deals have a contract. The reality is that for a smaller deal the contract simply has fewer pages. The main content, that is, the term, the services provided, the level of performance (SLAs), the pricing framework, warranties, indemnities, liabilities, and termination provisions, exist in all agreements.
All IT sourcing deals have SLAs. Whether or not the term SLA is used in the contract is not the point. Rather an expected or desired level of performance for the Services will be articulated in the contract. (If it is not, then you have bigger problems because you are paying for a Service with no accountability. Moreover, the price you are paying is, to an extent, dependent upon the level of service required.) The reality is that for smaller deals the number of SLAs is less.
All IT sourcing deals have an invoice. For extra large deals the invoice tends to be broken down by region, country, line of business, or service element.
All IT sourcing deals have demand management. This is the most contested of these five elements. Some argue that not all deals have projects. This is true. But all deals will have, over their lifecycle, changes in the quantity of service elements. That is, the customer will have more or less desktops/laptops to support, more or less servers to support, more or less processors to support, more or less staff using the application, etc. Larger deals tend to have more project and program related elements which dominate the demand management function.
All IT sourcing deals have a relationship between at least two parties; the provider and the customer. The reality is that for larger deals the number of staff or full-time equivalents is larger. I have provided some guidance on the right numbers for different deal sizes and types in my other blog, ‘The Science of Sourcing Governance.’
What qualifies me for being able to answer this question? I obtained my IT sourcing experience systematically from the management of 15 million, 60 million, 1 billion, and greater than 1 billion Total Contract Value outsourcing relationships in Europe, America and Australia.
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