Client-Vendor Relationships: Toward the Relationship Paradigm

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November 2009
In This Issue:

Since the Kodak deal, our understanding of outsourcing, and the structuring of outsourcing deals, has progressed significantly. However, the permanence of outsourcing at the top of many lists of critical IT management topics is a testament to both its complexity and continued potential value to businesses relentlessly seeking efficiency of operations. Outsourcing can be an important asset in the firm's arsenal, but it is no panacea, and it must be proactively managed. This very realization is what motivated our interest in an issue entirely dedicated to the client-vendor relationship in the IT outsourcing context.

As our authors point out, this type of client-vendor relationship is qualitatively different from the typical client-vendor relationship that characterizes the bulk of economic exchanges. In fact, the client-vendor relationship in the IT outsourcing context is a prototypical example of value cocreation arrangements, where two or more organizations actively cooperate over an extended period of time in the development and realization of economic value. The need for a value cocreation paradigm for IT outsourcing seems inevitable as IT is typically so deeply embedded in firm operations that an arm's-length relationship with the IT services provider only proves unable to adapt to the changing needs of the customer organization over time. Yet, despite the intuitive theoretical appeal of the value cocreation paradigm in this context, you will see from our survey results that we are today very far from this ideal state.

With this issue of CBR, as is our standard protocol, we bring you experts from the academic and the practice worlds. These experts have a common interest and background in IT outsourcing. Our academic contributors are David Murungi and Santiago Peña, PhD students at the E.J. Ourso College of Business at Louisiana State University (LSU), USA, who worked on this issue with Rudy Hirschheim, their advisor who also serves as LSU's Ourso Family Distinguished Professor of Information Systems and is a past contributor to CBR. Rudy is one of the world's foremost experts on outsourcing, having studied these arrangements since the dawn of the practice. Our contributor from the practicing side is Cutter frequent contributor Moshe Cohen, President of the Negotiating Table, a firm that provides mediation services to people in conflict as well as negotiation and conflict management training. He has mediated hundreds of disputes in a variety of settings and in a multitude of topic areas, while also teaching and writing extensively on the subject.

In the tradition of CBR, our academic contributers Rudy, David, and Santiago begin their piece with an overview of the domain and the state of the art of the research in this area. They trace a brief history of the outsourcing practice as well as offer an analysis of its main characteristics. They then describe in further depth the characteristics of modern approaches to IT outsourcing, distinguished by a strategic, long-term view of the relationship. With this background established, they evaluate the results of the survey. More specifically, they focus the analysis on, in their own words, developing "an understanding of the main obstacles that organizations face as they attempt to move the client-vendor relationship from a basic cost-savings mechanism to one that produces sustainable value to both organizations." Despite the relatively low number of responses to our survey, I found their piece to be enlightening and interesting. I found particular value in their treatment of the informal management aspects of the relationship.

Moshe immediately dives into the data analysis, focusing on three main emerging themes: training, conflict resolution, and the transformation of the client-vendor relationship from a hands-off contractual relationship to more of a partnership. Moshe mixes his substantial experience in the area of negotiation and conflict resolution with the analysis of the survey results. His piece has many tangible and practical ideas for those of our readers who are ready to engage in the journey toward a value cocreation approach to IT services vendor relations.

As our academic contributors highlight: "The management of client-vendor relationships is a topic that continues to evolve and provide increasingly complicated challenges to managers and scholars alike. Driving this complexity ... is the unrelenting pressure of corporate financial constraints, which, paired with the rapid advances in technology and telecommunications, has led to a proliferation of outsourcing arrangements." Traditional approaches, grounded in a contract-centric view of the relationship and in a traditional view of the client-vendor relationship, are showing their limits. We hope that you will find this issue inspirational and that it will prompt you to reevaluate your own approach to IT outsourcing.