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Press Release: Tom Salonek, Intertech CEO, defines if your IT service provider is in trouble as part of the Star Tribune Business Forum

July 15, 2002
Tom Salonek, Intertech CEO, defines if your IT service provider is in trouble as part of the Star Tribune Business Forum.

Business Forum: Going, going, gone: Steps to take to if your IT service provider is going out of business

Tom Salonek
Published Jul 15, 2002


When high-profile companies such as Enron, Arthur Andersen, Global Crossing WorldCom falter, everyone notices.

It's hard to ignore the Titanic going under. What might be less obvious are the smaller companies, particularly those that provide technology-related services, that are struggling to stay afloat while waiting for the economic tide to turn.

From publicly traded, high-profile firms to individual consultants sinking in the New Economy in which they once swam, many information technology (IT)service providers are going bankrupt, being acquired or changing their business focus.

When a company has invested big bucks in an IT partner to help it do business over the Web, this can be an alarming proposition.

What should a company do if it suspects its IT provider, or any crucial vendor, is about to go belly up? The short answer: Watch for warning signs and be proactive to avoid costly fallout and weather the transition.

The three A's

Is your provider in trouble? Look for the three A's: attrition, apathy and attitude.

Listen and observe at all levels -- from management to sales to programming. Significant attrition, voluntary or involuntary, is a telltale sign of stress. Look for rotating faces on the project team.

Turnover results in calls not being returned and action not being taken because of too many hand-offs. Significant turnover results in deadlines not being met.

Finally, look for attitude. Is your sales rep more interested in talking about the recession than your project? If so, consider it warning No. 3.

When using an outside provider, regardless of its economic health, include contract language that ensures ownership and licensing protection for your firm.

If you are paying for a custom project, you own it. Get that in writing. Other project elements that you own and should stipulate in the contract include system documentation, design documents and proprietary methods or new inventions resulting from the project.

Pay as you go

Also, use milestones. In the same way a bank pays a custom homebuilder only as each step of the building process is completed, you should pay only for products,services or software actually delivered (known as "deliverables").

For each milestone, list five to seven tests to verify it has been reached. If you already have a contract, amend it to include the items discussed above.

Frequent milestones are linked to good software regardless of the business. When payments are tied to discrete milestones, the vendor is forced to finish one step before moving on to the next. If your service provider goes under, leaving finished pieces behind -- rather than an incomplete whole -- will make the transition to another vendor much simpler.

The ideal frequency for your milestones can vary. In general, each milestone should be six weeks to three months apart. When in doubt, err on the side of more. Even small projects should have several milestones. Whatever the case, define these milestones in the contract.

Should a switch to another vendor become unavoidable, start by getting a copy of the project code from your outgoing vendor on CD-ROM. Also get the project plan, functional specifications, design documents and models, and all documentation.

Anticipate the inevitable

Once you realize it's a matter of "when" and not "if" your provider will be gone, be proactive. Select a replacement using referrals. When interviewing potential providers, ask questions that could have eliminated your previous provider.

Ask the prospective provider about projects that didn't go as planned.

If you're dealing with a soon-to-be-defunct applications services provider -- such as a firm that hosts standard e-mail, accounting and database files at its facility -- get a copy of your data.

If you're dealing with an endangered Web hosting company, get a copy of your Web site and set it up with your new provider.

Keep both sites running concurrently until you've verified that page hits are being directed to your new provider.

When you make the switch, be directly involved. In working with your new provider, be upfront about what occurred with the previous provider.

Don't wait until the first milestone to find out that key pieces of information,components or tools don't exist. Eliminate excuses.

Keep the new vendor delivery-focused and watch out for the dreaded "not invented here" syndrome. That can occur when the new group wants to go back and change work completed by the previous provider -- not because the work was defective but because it wasn't built the way the new group would have preferred. If the new provider is insisting on rework, ask why and be sure to separate aesthetic squabbling from real performance issues.

In the end, changing your IT vendor, or any vendor, midstream isn't fun. But it doesn't have to be awful if you're prepared.

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