Monday, June 13, 2005

Outsourcing: Getting Off on the Right Foot


An effective governance and relationship management process, implemented early, can help both buyer and provider make healthy offshore outsourcing. But effective governance doesn't just happen spontaneously, at least not very quickly. Here are five tips for achieving real "speed to governance."

1) Contract issues are at the root of many problems that arise early in outsourcing arrangements. Many buyers lament that their contracts are hundreds of pages long and are confusing. Given the length and complexity of outsourcing contracts, it is hardly surprising that buyer and provider enter the agreement holding different assumptions about a number of critical issues.

To improve the transition from negotiation to implementation, buyer and provider should conduct joint contract briefing sessions. In such sessions, key members of the provider and buyer negotiation team brief transition leaders, delivery managers and functional managers from both sides. Topics should include the terms of the deal and the underlying intentions behind them, highlighting any issues that were deferred or not fully resolved, as well as critical scope boundaries.

2) Not all outsourcing relationships are created equally. At one end of the spectrum, some are primarily about lowering price by leveraging economies of scale, while others are about transformation, innovation and shared risk/reward. As might be expected, many buyers aspire to keep their providers closer toward the "lower price/less integration" end of the spectrum, while providers often aim to integrate further (and thereby enhance their margins).

3) Ensuring end-user buy-in, both at the employee and executive level, is critical. Many outsourcing arrangements require that buyers make significant process changes to reap cost savings. End users, accustomed to specific ways of doing things and a particular level and type of service, can turn a business case upside down when they don't comply with new processes.

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