AstraZeneca and IBM Outsourcing Contract: A Case Study Analysis

This case study examines the 2007 outsourcing contract between AstraZeneca and IBM, highlighting the mistakes made by both parties. The agreement, valued at $1.4 billion, involved IBM providing IT outsourcing services across numerous countries. The analysis delves into the reasons for the contract's termination, including outcome-based specifications that didn't account for AstraZeneca's growth needs and IBM's failure to incorporate termination obligations. The study explores the use of a single outsourcing vendor, the lack of a clear exit strategy, and the role of Service Level Agreements (SLAs) in protecting both companies. It also discusses why arbitration was preferred over lawsuits and the advantages of this approach. The study references key documents such as the 2012 SLAs and the principles of collaboration within the contract. Overall, the case study provides a comprehensive overview of the complexities of outsourcing contracts and the critical factors that determine their success or failure.

INFORMATION TECHNOLOGY INFRASTRUCTURE MANAGEMENT
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What mistakes did AstraZeneca make?
AstraZeneca being among the world’s largest pharmaceutical company entered a deal
with IBM in July 2007. The company signed a seven-year contract worth 1.4 US dollars with
IBM. the agreement was based on an agreement that IBM would offer outsourcing
services to the pharmaceutical company . The contract was to spurn over 60
countries, 91 clauses and about 31 schedules, Zulia (2011)..
 The pharmaceutical company went ahead to terminate the contract prior to the agreed
time
 The information technology capabilities of the company are tied to R&D hence
complexity
 The deal was based on an outcome based specifications and did not put into consideration
its growing and development needs
What mistakes did IBM make?
According to Sin (2011) IBM was quick to make an outsourcing contract with
AstraZeneca. This was an opportunity for it timekeeping profits because this was a deal with a
big and better pharmaceutical company that employs the use of information technology in its
daily activities. The agreement made was to be of great aid to the outsourcing company.
However, the IBM made mistakes such as;
 The IBM did not ensure that obligations and requirements for termination are included in
the contract before accepting the deal.
 The IBM used a single outsource vendor instead of dividing the outsource vendors.
 Both parties failed to clearly define the exit strategy during the pre-contract stage
Why are outsourcing contracts for five or more years?
Generally, the whole process of outsourcing included the large number of vendors that trusts
and makes investments basing on the contracts that they make. The IBM made the contract
using the template of the vendors.

Why do you think two major corporations could make such mistakes?
The two parties were quick to sign the deal as they were in good terms. IBM was sure
that they would service the pharmaceutical company without facing problem. The
pharmaceutical company on the other hand never considered their growing factor. It was easy to
just to sign the contract as the requirements at that time were being me by the vendors. Using a
single outsourcing company seemed cheap, easy and conducive as they could easily monitor
them.
Generally, wrong assumption, lack of preparation and low level knowledge on
outsourcing by both parties led t the mistakes. They also overlooked very critical details as they
hurried to seal the deal.
Do you think the 2007 SLA was doomed to fail? Explain your answer.
Yes. The2007 SLA was doomed to fail from the beginning. the reason for contract
termination wouldn’t matter but the service provision and fees battles would soon pop up as the
contract ended.
What provisions in the 2012 SLAs protect AstraZeneca and the vendors?
It is well known that contracts tend to cover the provisions of standard of deals in
technological services, which houses the SLAs and pricing, and also the policy for cooperation.
The policy contains thirteen principles that outline the principles of collaboration. A good
example of the principles in this case is the, “first fix, pay later”. This only means that when a
technological problem is experienced, IBM and AstraZeneca should work together and fix the
problem as fast as possible without considering the cost implications, Bogdanich (2010)..
Why would parties prefer to use an arbitrator instead of filing a lawsuit in court?
Many parties prefer, as a matter of course, that their disagreements be forwarded to a
common arbitrator. The following are factors that many put into consideration when opting
arbitration rather than filing a law suit in a court or rather adding a compulsory arbitration clause
in the contact during contract signing. The using of an arbitrator has more advantages to that of a

law court. It is less expensive, les time is used in the process and there’s less confrontational
arguments as the concerned parties had earlier agreed to the arbitration earlier. This factors are
discussed in length below;
 Time - Arbitration provides an easy, fast and efficient problem resolution compared to
time consuming court proceedings. The arbitration process also limits the ability or
chances of appealing make the case judgement fast and attainable in a short period of
time.
 Flexibility. Unlike the Court litigation which is wholly depends on statutory and
procedural laws, arbitration uses provisions obtained in an agreement between the parties
once the arbitration process commences. The conflicting parties also have an opportunity
to come up with procedural rules for the arbitration process, document exchange or
witness interrogation’s rules to be followed during the arbitration are pre-established and
are added in the arbitration document.
 Cost of case. Arbitration is found to be less costly than filing a law suit, simply because
of its squeezed schedule in an effort to complete the trial quickly. Law suits require a lot
of finance in both pre-trial and succeeding processes, which include paper work and
witness’s deposition.
References
Zulia, U. (2011). Can competition law repair patent law and administrative procedures?
AstraZeneca. Common Market Law Review, 51(1), 281-294.
Bogdanich, W. (2010). Radiation offers new cures, and ways to do harm. New York Times, 23,
A1.
Sin, H(2011). IBM POWER7 multicore server processor. IBM Journal of Research and
Development, 55(3), 1-1.