Software Development Outsourcing Hub

7 Exit Strategies to Amicably End Your IT Outsourcing Partnership

January 29, 2024

All good things must come to an end. Even if you’ve had a positive experience with your IT partner, at some point you may be ready to move on. Just consider that 50% of outsourcing relationships end within five years.

To say nothing if you’ve had a disastrous experience with your IT partner. In this case, you’re likely eager to cut ties and say goodbye as quickly as possible. 

Either way, it’s essential to prepare an exit strategy to seamlessly wrap up your partnership. Splitting amicably with your software partner ensures a smooth transition. It also prevents potential legal disputes from flaring up.

Here our experts have detailed key exit strategies to meet your business needs. Our hope is that rigorous exit planning will reduce risks and set the tone for a friendly split.

Step #1: Know the Signs When to Call It Quits

First of all, you should understand when it’s time to end your IT outsourcing partnership. In the event of egregious behavior, your decision may be straightforward. For example, some red flags of a substandard partnership include:

  • A low-quality end product
  • Missed deadlines and project delays
  • Inflated costs and/or lost revenue
  • Communication breakdowns (i.e. slow turnarounds, vague responses, etc.)
  • A lack of shared values (i.e. transparency)
  • Overall distrust and lack of enthusiasm

If you’ve noticed one or more of these signs, it’s likely time to walk away. However, this decision isn’t always so clear-cut. Perhaps you have a solid working relationship, but want new expertise or perspective. 

For example, let's say you're interested in building something innovative or large-scale. You may know from experience that your current IT partner isn’t well-suited to handle the work. In this case, it may be the moment to conclude your relationship. 

Overall, be sure to focus on what your business will need in the future – not just right now. Check out our “How to Choose a Software Development Company” guide to find out the most valid considerations to bear in mind when choosing a software outsourcing vendor. 

Step #2: Assess the Risks and Benefits

Once you’ve made up your mind that it’s time to part ways, start analyzing your situation. 

Before you reach out to your IT partner, check your contract to know your legal obligations. From here, contact your internal stakeholders and assess the risks and benefits. Specifically, look at costs/losses and the impact on current projects and goals.  

Depending on your in-house evaluation, you have a few options at your disposal: 

Negotiate Terms

If the feeling is mutual, you may be able to negotiate contract terms. Whenever possible, this is often the best way forward. Together you can define an exit timeline with your IT partner that’s a win-win for you both.

Scale Down

Instead of an overnight termination, opt to scale down within your contract's constraints. This is usually done when you want to “wait out” your contractual obligations. This way, you can minimize losses in the meantime. 

Pause the Relationship

Sometimes you have the opportunity to hit the pause button on your relationship. If you’re considering your current partner for a future project, this is a good choice. With it, you can stop work, but put your partner on reserve in case your needs change. 

Cut Off the Contract

Finally, you may choose to sever ties completely and terminate the contract. Even if you have to pay breach-of-contract fees, it may be worth getting out of a poor relationship. Doing so can also allow you to transition quickly and minimize business disruption. Keep in mind that you should work with your legal team to properly handle termination. Taking the proper steps will help prevent any sticky legal disputes.

Step #3: Prepare for the Transition

Ideally, your current contract will already have a defined exit plan. However, 80% of business owners don’t have written transition plans today. If you don’t have one, or if your plan isn’t comprehensive enough, act quickly to prepare for the transition. Here are key areas of exit planning to tackle with your team.

Craft a Thorough Exit Plan

Get your teams up to speed on how the transition will go. Assign roles and tasks as needed. Make certain that your IT partner is clear on their responsibilities as well. This may include the final timeline, deliverables, payments and so on. Don't forget about the transfer of assets and documentation, too. As a final check, schedule a wrap-up meeting to guarantee nothing’s been left out. 

Communicate Effectively With Stakeholders

Over-communicate during the transition so that your teams don’t feel like they’re in the dark. This includes not just your internal staff, but also stakeholders, vendors and customers. Achieving strong communication during this time will build trust and protect your business. 

Recover All Your Assets

In a perfect world, you’ll always control access to your code, data, tools, documentation and more. This way, you can easily revoke access without any information loss. Yet, we all know that sometimes work gets stuck in silos. As part of the transition, do your due diligence to recover all company assets from your IT partner. This is especially important for sensitive areas, such as IP, data and licenses. 

Safeguard Business Continuity

During the transition, you may face some disruptions to your products or services. Boost business continuity as much as possible by planning in advance. Create a timeline for knowledge transfer that gradually absorbs your IT partner services. Don’t forget about vital tasks such as maintenance, third-party vendors and more, too.  

Keep Up Team Motivation

Finally, major changes often come with internal resistance. Your teams may be disheartened or frustrated by the transition. To avoid dissatisfaction and even turnover, stay in close contact with your staff. Try to keep them motivated and even excited by the upcoming change. Also, check out our "How to Avoid Internal Resistance in Your Company During Software Development Outsourcing" to find out how to deal with th internal resistance that might occur within the company when outsourcing software tasks.

Step #4: Monitor the Exit Plan for Issues

Next, you’ll want to supervise the exit plan to guarantee a smooth transition. Often it’s a good idea to appoint a transition manager who can monitor progress and handle any issues. Check out our "Managing Remote Development Teams” guide for tips and best practices on managing remote teams.

For optimal results, you should have a working timeline of transition tasks. This could be as simple as a list or complex as a dashboard. You should get a weekly report on the exit plan’s progress, as well. 

Identifying exit plan risks ahead of time can also help. For instance, the transition will likely shift extra work onto your internal team. Anticipate these needs by hiring extra assistants or encouraging overtime pay. 

Don’t lose focus on your customers either. Any disruptions to your products/services should be well-communicated. Reaching out regularly will help you maintain client satisfaction and loyalty. If you expect any slowed or stopped services, add more manpower to your customer desk in the interim.

Step #5: Get Closure With Your IT Partner 

Your exit strategy isn’t just a checklist to cross off. During this stage, you may also encounter emotional roadblocks as you make a change. It’s important to process these feelings in a healthy way, so that you’re ready for the next challenge. Some strategies for achieving a graceful exit include:  

  • Don’t play the “what if” game. It’s easy to dwell on what you could have done differently. Yet, it’s better to try and move on. Accept the situation and leave the “what ifs” behind. 
  • Communicate with respect. Even if you feel like strangling your partner, check yourself. Nothing good ever comes out of blaming or criticizing your former partner at this stage. Instead, focus on attaining a smooth transition and release any negativity on your personal time (we recommend the gym!).  
  • Give your team closure. It’s critical to mark the end of the relationship, so that your team accepts the change. Set up a wrap-up meeting or event to help your staff embrace the shift. 
  • Don’t bring baggage to your next partner. Start on the right foot with your new partner by leaving the past at the door. Badmouthing your past provider isn’t helpful and could taint your new partnership.

Step #6: Apply Lessons Learned to Your Next Contract

Now that you’ve concluded your IT partnership, get insights. It can be productive to fully analyze your experience and glean lessons learned. This will give you more data about what worked, what didn’t and how you would evaluate vendors in the future. This information is valuable for maximizing your future outsourcing contracts and business relationships. Check out our “Software Development Outsourcing Contract Best Practices for 2023" guide and find out how to that!

Undertake Exit Surveys

Gather 360-degree feedback from everybody involved in the partnership. (Don't forget managers, team members and third-party vendors.) Make these exit surveys anonymous, so that people are honest about their experiences.

Analyze Future Requirements

Once collected, analyze the feedback so you can create a list of recommendations. Reflect on how you would define future partnership requirements. Take special notice of “soft” areas such as business values or communication. Put everything on paper so that you can draft a stronger exit plan for your next partnership. 

Step #7: Build Bridges for Future Collaboration

Last but not least, keep up a positive relationship after the separation. Just like romantic break-ups, it’s usually best to stay friendly. After all, you may run into your former IT partner at an industry event or through peer connections. 

Of course, this will depend on how well your partnership ended. If you burned bridges with them, it’s unlikely you’re open to future collaborations. However, if you did manage to split amicably, don’t be afraid to explore your options. For example, where it makes sense, you might:

  • Provide referrals to other businesses
  • Share knowledge as industry peers
  • Become part of an after-hours program, network or fund
  • Undergo future IT projects together

At a minimum, it’s worth being able to survive in the same room. Whenever possible post-separation, try to cultivate a constructive working relationship.

Wrap Up Your IT Partnership and Look Forward to the Future

Out with the old, in with the new! A successful split with your IT partner is pivotal to getting your tech projects back on track. As you undergo exit planning, leverage our seven strategies above. Doing so can reduce conflicts and lead to key insights for your next partnership.

Now that you’ve closed the chapter on your former partner, it’s time to look forward to the future. At Netcorp, we’re keen to exceed your partnership expectations. Reach out to get a sense of how our elite teams build rapport with each and every client. We’re proud to construct high-caliber products based on your specific business values.

Paavo Pauklin
Executive Board Member

Paavo Pauklin is a renowned consultant and thought leader in software development outsourcing with a decade of experience. Authoring dozens of insightful blog posts and the guidebook "How to Succeed with Software Development Outsourcing," he is a frequent speaker at industry conferences. Paavo hosts two influential video podcasts: “Everybody needs developers” and “Tech explained to managers in 3 minutes.” Through his extensive training sessions with organizations such as the Finnish Association of Software Companies and Estonian IT Companies Association, he's helped numerous businesses strategize, train internal teams, and find dependable outsourcing partners. His expertise offers a reliable compass for anyone navigating the world of software outsourcing.

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