by Joseph Vales, Kerry Ann Vales

Harry Glasspiegel’s focus on developing business strategies shaped many of the industry’s most successful outsourcing transactions.

When the outsourcing industry recognizes its heroes who have shaped the market, Harry Glasspiegel’s contributions will stand out. Harry co-founded, with Bob Zahler, Shaw Pittman’s outsourcing customer advisory practice. The idea began in 1988 with the negotiation of an industry-leading IT outsourcing agreement between First City Bank of Texas and EDS. Since that time, Harry has played a lead role in successfully structuring hundreds of major technology sourcing transactions and strategic alliances. In the process, he and his colleagues originated many of the industry’s best practices and drafted many of the standard clauses in use today. But what has always distinguished Harry is his bull’s-eye focus on the business and relationship issues that drive win-win outsourcing.

Today, Harry continues to shape the industry as a business advisor to CXOs and founding advisor to the Sourcing Interests Group. He has also been active in the funding and oversight of a first-of-its-kind insurance BPO services firm, CRAIG/is. In this first part of a two-part interview, Harry discusses the issues and evolving strategies that drive winning outsourcing relationships.

JV: In the early days, when there were no templates and best practices to follow, what did you focus on as you and your colleagues shaped and built the standards that guide the industry today?

HG: We sat down at the table with our client and the outsourcing provider and talked about every business driver and scenario that seemed relevant. As we did that, we developed approaches and clauses with which both sides were comfortable. We spent a lot of time on pricing, of course, and we talked about how to pull together and validate baseline data from inside the customer, the scope of the services agreement, how to best define base services, what “fixed price” would attach to that scope over a long term, and approaches to performance standards that went beyond traditional SLAs. We discussed what would happen to the deal structure as volumes and businesses changed. There was a lot of discussion around future, unknown scenarios. People and transition issues were “first impression” as well, because of the complexities of the ongoing long-term business relationship. Which employees would transfer across to the provider and with what benefits? Who would stay behind and manage? How would operations remain stable through the many changes?

JV: At that time, the outsourcing industry was immature, so you weren’t dealing with a high customer knowledge base.

HG: Most were first-time deals for our clients. IBM, CSC, and others were increasing market share against EDS. There weren’t any customer advisors out there on the consulting or legal sides with experience in these types of emerging arrangements. Law firms weren’t structured in a way to bring to the table the kind of hybrid perspectives and competencies that were necessary to properly advise customers on these deals. We learned a lot of our “craft” from experienced providers like EDS and Systematics, and mirrored the way they developed their teams and competencies. It was the providers who had the best-developed disciplines, and who understood the importance of integrating hybrid perspectives in working through these deals.

Over time, we assembled a broad mix of people and skills in diverse vertical markets to match those of the providers. We understood these deals were not just about technology, but were more like complex M&A deals grafted onto long-term services arrangements, with lots of moving pieces as technology and business changed rapidly. We also joined forces on deals with people outside the firm like Warren Gallant and Denny McGuire, when they were first starting TPI.

JV: Can you help us define what the hybrid skills are?

HG: Whether it’s law, IT, consulting, or other fields like medicine—the “experts” often are over-specialized and too-narrow in their approaches to solving problems. Outsourcing transactions require a comprehensive, integrated understanding of business, IT, legal, HR, technology, financial, relationship, and regulatory issues. It’s critical to build mature, integrated competencies in all these areas, and then to step back and make certain that everyone is seeing the whole picture and is attuned, as well, to the psychological, cultural, and political factors that can make or kill a deal.

JV: What were some of the big legal challenges and issues that you and your colleagues overcame that were particularly satisfying?

HG: IT and business people like to talk about the “legal” issues versus the “business” issues—that’s a dangerous distinction in my view. The contract should be a sensible, clear, plain-English description of the architecture of the relationship. The core issues haven’t changed: How to structure a relationship that will bring value to both sides; How, exactly, to design and engineer that deal; How to price it; How to build risk-allocation and risk-protection mechanisms into the deal that allow it to be flexible and protect both sides. Those are all challenging business issues that have legal and other elements blended together.

We need to break out of what are inevitable, customer-vendor ways of thinking and stereotypes. Parties have to learn to think across boundaries, which is difficult. Think of it as one, mutually-dependent team of people with complementary perspectives and business drivers who are sitting around a table trying to develop a valuable, creative, structurally- sound, long-term relationship—rather than one side trying to negotiate and come up with advantages. Unfortunately, the latter is often still more the norm.

JV: What were some of the other early contractual issues parties had to work through as they were doing outsourcing deals for the first time?

HG: These are long-term, committed arrangements, not unlike a marriage in many ways. Ironically, before being willing to commit to a deal, customers often focus initially on how they can get out of deals if they so desire—like a pre-nup discussion. We developed various financial algorithms that the parties could use to make it known ahead of time what it would cost a customer to terminate the agreement for any reason or no reason—for “convenience.” More recently, the focus has been on issues of governance and business case management. Balancing risk, predictability, and flexibility in rapidly changing business climates is a great challenge for both sides.

JV: How have you tried to develop a process that is equally beneficial to both parties?

HG: The challenge is to learn to think and act always with the goal of building mutual advantage in what are highly interdependent relationships, so that one plus one equals 10, or 20, or 50. There is a lot on the line in these outsourcing transactions—money, jobs, careers, reputations. Outsourcing is highly competitive, and it often becomes far too adversarial. There is also too much bureaucracy that has built up around these deals— too many templates, too many checklists, too many clauses and experts—that are not conducive to building efficient, successful, dynamic, closely-aligned relationships. I listen closely to the tone and conversation taking place between parties before and after deals are struck.

I’ve become leery of the conventional RFP process used on deals today, for many reasons. There are ways—other than a drawn-out, “arms-length” competition—for a customer to consider a few good options and to share requirements more efficiently and collaboratively, which can produce better transactions and relationships. The time to begin to build trust, mutual respect, openness, and creativity is with the very first conversations a customer has with potential partners. Macho, procurement- and leverage-driven commodity mindsets are not well suited to complex outsourcing relationships.

JV: You have devoted a substantial portion of your time over the years sharing valuable insights freely and helping others build an industry forum. What caused you to want to give so much back to the industry?

HG: Buyers and providers in this market need forums in which to exchange views on outsourcing, away from the pressures of particular deals, in constructive, nonadversarial settings. It helps all of us. We need to talk more openly and freely and develop better understandings of the issues everyone faces, and to stay abreast of new ideas and approaches. In 1991, Barry Wiegler invited DuWayne Peterson and me to provide support and counsel in the formation of the Sourcing Interests Group (SIG), and I jumped at the opportunity. I’ve had a great relationship with SIG, including leading and participating in lively discussions among buyers, providers, researchers, academics, law and consulting and venture firms on how we can all work together to improve and benefit from what is an incredibly dynamic, opportunistic market.

In Part Two of this interview (being published in the next issue of HRO Today), Harry Glasspiegel will discuss his areas of interest since leaving his legal practice to pursue new business endeavors, and his perspective on where the outsourcing business and marketplace are going.

Harry Glasspiegel is Chairman of Glasspiegel Ventures, LLC. For more information he can be reached by phone at 773-281-6010 or by email at hglasspiegel@comcast.net.

This article was co-authored by Kerry Ann Vales. For more information, she can be reached at Kavales@aol.com.