How to Divorce Your Tech Vendor
Sure, hooking up with a new IT service provider is all cigars and handshakes at first. Promises are made and stars glimmer in your eyes as you sign the contract. The future looks bright.
Then things start to go south. Carefully negotiated deadlines are ignored. Expensive custom apps you paid dearly to be developed suddenly don't work, and your cloud vendor comes down with a case of the vapors. The thrill is gone and it ain't coming back.
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Before you make a clean break and start fresh with someone new, consider this cautionary tale of a small biotech firm in the Rocky Mountains that decided to dump its IT consultant. When the consultant got wind he was about to be canned, he installed a script that automatically blind-copied him on all emails to and from the company's top executives. He quickly discovered that the firm's lead scientist was having an affair. On the day the consultant was to be fired, he zipped up 500 racy emails and, using another executive's account, forwarded them to the scientist's wife.
"It was worse than a soap opera and very tragic for the client," says Patty Laushman, CEO of the Uptime Group, an IT shop asked to perform computer forensics to prove that the firm's IT vendor was behind the scheme. "Had we known how unhappy they were with their current vendor, we would have coached them on how to safely make the switch."
Of course, not all jilted vendors turn into Glenn Close in "Fatal Attraction." Most vendors who feel wronged just sue you. But with easy access to your confidential information and core business systems, the risks from a bad breakup with IT service providers are especially high. As more services move into the cloud, relationships become increasingly short term and impersonal -- which can lead to problems when critical systems and data are no longer under your roof and the vendor isn't returning your calls.
The industry is rife with horror stories of companies that terminated relationships only to find themselves locked out of their own networks or their ERP systems suddenly stopped working. Some even discover that they don't actually own the code they use to run their business and have to go crawling back to the developer to get it.
Fortunately, you don't have to suffer through an ugly divorce -- provided you go about it the right way. Here's some sage advice from people who've been there.
If you decide to separate from a vendor, avoid doing it in the heat of anger, says Jeff Huckaby, CEO of RackAid, a provider of server management services. If your service provider has just made a major mistake, wait to see how it responds before you get medieval on them. Whether the provider sincerely tries to fix the problem or merely placates you may play a major part in deciding whether to pull the plug. Even then, the decision should be well planned and deliberate.
"Trying to switch vendors in the middle of a dispute can make a sometimes difficult process impossible," Huckaby says. "I've had cases where prior hosting infrastructure providers refused to give any assistance or answer even the most basic question due to ill will."
If possible, Huckaby advises giving the vendor plenty of notice, as well as detailed feedback on why you chose to go in another direction. And beware of scorned vendors looking to salve their hurt feelings by holding your data hostage or making unreasonable demands, says Norman Harber, CEO of Leverage Corporation, an IT strategy firm for SMBs.
"Reminding the vendor being replaced that the company can still be a good reference or referral source for them -- or quite the opposite if provoked -- can go a long way to keeping the peace," says Harber. "So can finding ways to withhold exit payments or other amounts owed until the transition is complete, or even offering up a small bonus upon successful (and tantrum-free) completion of the transition."
In the world of flesh-and-blood relationships, it's generally a bad idea to take up with a new flame without fully disentangling yourself from your old one. Not so in the IT world -- you'll want some overlap to make the transition smoother, says Huckaby.
"Be careful not to schedule transitions in a way that leaves your IT operations unsupported or unfulfilled as you change vendors," he says. "This process needs to be managed carefully to assure your services are continuous and that the two providers do not interfere with each other."
On the other hand, not all services should be redundant during the transition, he adds. "In our IT management services, we do not want to be monitoring and responding to an outage if another group is also doing the same. Too many hands on your operations could lead to more problems."
"In general, we advise not to fire a vendor until a suitable alternative is ready to go," notes Eric Leland, a partner at tech strategy and Web development firm FivePaths. "While this can be costly on the vendor services side, it can save a ton of cost in system downtime, work-arounds, switching systems, and change management."
In fact, your transition will go much smoother if your old and new vendors can speak directly to each other, says Leverage Corporation's Harber.
"Your new flame and your soon-to-be-ex should definitely meet," says Harber, "primarily so the new vendor can get a complete snapshot of the environment and services being replaced. The vendor being replaced will have a much more complete picture than the new vendor will be able to develop initially, and the company will benefit from that information being shared."
And then cut the cord.
"Trying to maintain a residual relationship (the business equivalent of 'just friends') can lead to complications down the road," Harber adds. "When it is time for the relationship to end, it will be easiest if the relationship ends completely."
Just because a vendor is providing service in the cloud doesn't make it any easier to break it off and take up with someone new. In some ways, terminating a cloud provider is more complicated, notes FivePaths' Leland.
"With cloud-based applications, the strategy for firing vendors has changed," he says. "The risk of losing everything -- the service plus all data -- is increased, as many of these service providers manage both. Companies should investigate what critical services the vendor offers and how much of the data is critical for daily operations and customer satisfaction. Would the loss be visible or invisible to customers? What internal operations would be affected, and how critical would this be?"
Leverage Corporation's Harber says you need to treat virtual breakups even more carefully than real-world ones to avoid losing access to critical functionality or important data.
"Companies often develop a blind spot when it comes to the transition of vendors of online, virtual, or cloud services and assume that the transition occurs merely by flipping a switch," says Harber. "The massive configurability, unique data architectures, and specialized security and access requirements of a virtual data center (for example) actually can make the transition process even more complicated than moving hosting from one physical data center to another."
Another big mistake is becoming too dependent on a single provider. Small firms in particular often fail to obtain full-time custody of the apps, content, or systems their now ex-vendor has created. They end up with apps that can't be upgraded, systems no one else can use, or critical data residing on someone else's servers and no way to access it.
"In many cases, companies can get vendors to help them do critical work in preparation for firing them, through existing support agreements," says FivePath's Leland. "For example, vendors can help validate that backups are functional and complete. It's important to review the terms of service and privacy policies to understand what rights you have to your data -- this will help companies prepare for the switch before firing them."
Besides code and content, organizations must own the knowledge of how their IT systems work, Laushman says. The last thing you want is a situation in which your now ex-consultant has total knowledge of a business-critical system, with no paper trail for anyone else to follow.
"One guy had been our client's sole custom developer for 10 years, with zero documentation," Laushman says. "We met with the company and said we need to figure out how to get some documentation without arousing his suspicions. Otherwise it was going to cost them a lot of money while we figured out how everything worked. Most network and system admins hate doing doc work, but you have to insist they provide it along the way. Every piece of documentation will save you money down the line."
Although dumping a troublesome vendor may be necessary and even satisfying, it's better to anticipate breakups and bake provisions into your service contract that protect you before the situation gets ugly. In business arrangements, as in marriage, nothing beats a solid prenup.
In short, you'll want to establish penalties for nonperformance (or incentives for good performance), the conditions under which either party can simply walk away, and anything you'll need the vendor to do to ensure a smooth transition, should the situation arise. That in turn means you must agree on objective ways to measure the provider's performance -- or lack thereof.
Just don't expect to get your vendor to agree without giving up something in return, says Rick Brenner, principal at Chaco Canyon Consulting.
"Some vendors are more accustomed to seeing these terms than are others, and some vendors are accustomed to taking advantage of the absence of these terms," he says. "But keep in mind that since protecting yourself in this way does constrain the vendor, the protection you seek is not free. As long as the vendor's request is remotely near reasonable, it's worth the extra cost. If the request is clearly unreasonable, it could be a signal that the vendor has in mind something other than a fair deal."
Before you file the divorce papers, it's a good idea to pull back from the brink and ask whether your own actions have contributed to the problem, and if it's not too late to make things right.
"Usually both parties to a conflict contribute something," says Brenner. "Before taking any action, check that you've done everything you can to straighten things out on your side of the fence."
For example, there may be conflicts between your employees and the vendor staff. You may have done a poor job communicating what you want or have had unrealistic expectations about what the vendor can really deliver. Small vendors or solo practitioners may possess valuable expertise but might just be overloaded from time to time and fail respond in a timely manner.
Brenner says many organizations fail to pay enough attention to "vendor relationship management" (VRM), which can affect all of their relationships with outside firms.
"If you're doing proper VRM, conflict between your staff and vendor staff should not be news," he says. "It will never turn toxic enough to threaten the relationship, because you'll have the situational awareness necessary to intervene constructively long before the conflict reaches that point. For clients, it takes real effort to maintain the kind of relationship you have with your IT vendors -- especially those who do custom development. Yet few recognize the full scope of this requirement in their budgets, and even fewer take it into account when making the vendor selection decision, or the outsourcing decision."
A better alternative to a sudden split (and the resulting lawsuits) is building a dispute resolution mechanism such as mediation or arbitration into the service agreement, says Ethan Katsh, director of the National Center for Technology and Dispute Resolution at the University of Massachusetts Amherst.
With mediation, a neutral third party works with the parties to find a mutually satisfactory outcome. In arbitration, a third party decides who's right, and the disputants are legally bound to honor the decision.
"Mediation has a significant advantage because if any outcome is reached it's because both parties wanted it," Katsh says. "At the end of a successful mediation, both parties walk away happy."
The advantage of arbitration is that you know you'll end up with a resolution, although you may not like the results. Managed well, the dissolution could enable you and your vendor to work together again in the future.
But don't count on it.
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