May 23, 2005
Sears Provides Example of Need for Outsourcing Contract Exit Strategy
Sears has announced the termination of its 10-year, $1.6 billion dollar IT outsourcing contract with Computer Sciences Corp. less than one year after the agreement was signed. It has cited that the premature exit is due to the failure on the part of Computer Sciences Corp to "perform certain of its obligations." Many analysts speculate, however, that the move was largely in response to Sears merger with Kmart. With a transition at the head of the IT department for the merged company, and cost-cutting now at a premium, reworking the IT contract was an obvious target. Potentially more important than this single issue, however, is the lesson which should be learned by all executives entering long-term outsourcing contracts: Leave yourself an exit strategy. InformationWeek Reports:
"If you wait until a problem arises, it's usually too late," says Cutter Consortium analyst Jeff Kaplan, who last week released a report on "backsourcing." Terms for disengaging should be detailed in the original contract. "You need to know who's going to be responsible for what if you don't want to end up spending a lot of time and money in court," he says.
Read More: The Importance Of An Outsourcing Prenup
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