Outsourcing receives a great amount of attention, spawned in part by the highly publicized announcements of organizations that decide to transfer substantial parts of their IT to external parties. Invariably, the deals are described as successes and the litany of advantages are espoused before the supplier even begins operationalizing the contract. However, as we all know, what is expected and what is delivered over a five- or 10-year contract can be two very different things.
There are several approaches to setting key performance indicator (KPI) incentives in outsourcing arrangements. The term “incentive” is used in this Executive Update to reflect the financial risks and rewards that are allocated to the service provider by the client regarding KPIs. Incentives over the provider can be negative (risk)and/or positive (rewards). Such incentives encourage providers to meet expectations and, where desired, to deliver outstanding service.
Think of disputes that occur in outsourcing deals as mushrooms. To grow and spawn, they need an environment that is dark and full of fertilizer. Your goal is to create an environment that is well lit, with little fertilizer for the mushrooms to feed on. Disputes are not often caused by one particular issue but are usually triggered by an accumulation of many adverse events that eventually lead the parties to start “throwing mud at each other.”
Conducting audits of outsourcing deals is not something every organization focuses on. There are usu- ally so many operational fires to be put out that review and compliance processes can easily be overlooked. Imagine, however, if you never reviewed your staff: they may become disinterested and unmotivated, and (worst of all) you may not know what they are actually doing! Outsourcing arrangements are no different.
Many problems with outsourcing deals stem from the supplier taking over activities that were not well understood by the client organization prior to engaging the supplier.
In this Executive Update we address the profiling exercises that can help organizations understand the services they target. As one CIO put it, profiling makes you “understand what you are doing in some depth — and continue to know it.”
Many people have the view that an organization can let go of commodity functions but must not let suppliers get their hands on strategic areas. Others call that nonsense and use third parties wherever they think they should. The arguments over this point generally result from inappropriate generalizations made on either side. To help you understand some of the complexity, the AMC (Advantage, Maturity, and Competence) Model provides a useful, high-level “helicopter” view of a framework your organization can use to consider its competence relative to its peers, the maturity of the market providing the services, and the degree to which activities are core/noncore in order to deter- mine which outsourcing form is the best to use .
Early outsourcing deals typically reflected the fixed-price model, but today there are many more options. Choosing the right pricing model for your outsourcing contract can be a very difficult task. This Executive Update describes the three basic pricing options for an outsourcing contract, along with the rationale, risks, and management issues behind them.
It is inevitable that your contract will end, naturally through expiration or unnaturally through early termination. Irrespective of the cause of the termination, it is likely that some, or even all, of the services within the contract will not stay with the incumbent service provider. This article discusses how to be better prepared for disengagement and the end of contract.
A SWOT analysis is a tool used for many purposes in business. The acronym stands for strengths, weaknesses, opportunities, and threats. SWOT began as primarily a marketing tool to assess an organization relative to its competitors; today, it has a wider application. This article discusses its use in contracts.
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Fifteen years’ worth of research into information technology and business process outsourcing has produced a basic body of knowledge about outsourcing. But the focus has now shifted to what makes one outsourcing deal more successful than another. In this paper we show that overall strategic business intention must determine the nature of the relationship and the contract.