In June 2011 I was interviewing the COO of a California-based bank as part of an application strategy engagement. At the end of the conversation, he asked if Alsbridge had any data on the number of contracts in which the client repatriated all of the services. My answer was, “Off hand I don’t know, but I will find out.” After asking several fellow consultants, I found little or no useful data that would provide a fact-based answer. So, I started digging.The facts uncovered several “AH HA’s!” about the keys to success in outsourcing and the truth about the three R’s of outsourcing.

Click here for a free whitepaper from Alsbridge.

Yet high-profile outages at big name cloud computing vendors—from infrastructure-as-a-service providers Amazon and Rackspace to software-as-a-service vendors like Google and Intuit—may have some customers wondering if the one-size-fits-all approach affords them enough protection against spotty service or system failures. “Cloud providers generally do not offer adequate protections in their standard form contracts,” says Shawn C. Helms, attorney in the technology transactions and outsourcing practice at Jones Day. “In fact, most cloud providers offer up a contract that can fit on the back of a napkin. These simple documents often do not address the critical operational, business and legal issues that need to be addressed if the customer is using cloud services for business critical applications or is storing sensitive data in the cloud.”

While there is less wiggle room at the negotiating table when inking a cloud computing deal than, say, a traditional outsourcing arrangement, the customer does have the power to push for some custom terms or service levels. “Virtualization and other technologies allow for flexibility, customization and customer specific cloud service, monitoring and performance measurements,” says Helms. “If cloud computing providers are sufficiently motivated, they can offer customer customized solutions and related non-standard terms and conditions. It is not a matter of ability, but a matter of desire.”

Here are some contractual terms and negotiating tactics to consider—and a few to avoid—in your next cloud computing contract.

1. Spell out specific service levels. The basic service levels offered up by the average cloud computing vendor are severely lacking, says Helms. A simple availability service level, for example, does not take into account potential degradation in network or software performance. “The system may be available, but it could be running at such a slow speed that it is not really usable,” says Helms. Customers should push for comprehensive service level definitions that address response times for various severity levels of reported errors—for example, the provider must respond to the customer within 15 minutes if there is a level one error, and the error must be resolved in two hours.




2. Anticipate vendor changes. “Difficult issues arise from the cloud provider’s desire to update and change its pricing, services, and the customer’s need to maintain some measure of predictability and continuity to enable the customer to integrate the cloud services into their own enterprise systems,” says Paul Roy, partner in the business, technology and sourcing group at Mayer Brown. Even the most heavyweight customer can’t prevent such progress. But you should insist on sufficient advance notice of major changes and the right to exit if the change creates an unacceptable burden or risk, Roy advises.




3. Work out remedies for poor performance. Plan now for that inevitable missed service level or outage. An influential customer may be able to insist that service level defaults result in service level credits, says Roy. Others may request termination rights in the event of a major outage or subpar service. As an alternative, some cloud agreements contain step-in rights, which allow the customer literally to step into the provider’s facilities and run their cloud offering in the event of a certain trigger, such as chronic failure of service levels). “However, such step-in rights are an extraordinary remedy for the customer,” says Helms, “and are most often strongly resisted by cloud providers.”




4. Be willing to pay more. “Constraints are sometimes unavoidable, such as with the case of personal data protections and other legal compliance obligations,” says Roy. “In one case, the customer’s personal data protection requirements limited the jurisdictions in which the cloud provider could process the customer’s data, resulting in the customer paying higher charges to limit processing to the provider’s infrastructure in local jurisdictions.” The customer had to pay a little more for the custom arrangement, but the business case was still favorable.




5. Never lock in. Avoid any language that will limit the enterprise’s ability to shift from one provider to another, advises Sizemore. That means avoiding vendor lock-in in any form—from multi-year contracts to a platform that makes it difficult to migrate data to another vendor. “Ideally, this would mean a pay-per-user or use contract, where data is stored in either an open systems format or an industry wide standard,” says Sizemore. Termination assistance rights—although a rarity in standard cloud contracts—are also worth fighting for, says Helms. They require that the provider continue performing its services for a specified period of time post-termination and help with the orderly transition of the service to a new vendor or back to the customer.




6. Let some things go. Customers accustomed to standard outsourcing terms will have to adjust. “The traditional outsourcing provisions that concern the customer’s right to control solution details, including architecture, key personnel, security processes, service level standards, location, can be detrimental by imposing costs on a cloud provider, which translates to reduced savings for the customer,” says Roy.




7. Consider the private cloud. If you can’t figure out the right balance between customization and standardization, the private cloud might be a better option. Typically delivered by large systems integrators, “it merges some of the technical innovations of a pure public cloud offering, with some levels of customization you get with traditional outsourcing,” says Sizemore. “The cost model is typically more expensive than public cloud options, but does allow some flexibility in terms of SLAs and contracts.”

Alsbridge will host a complimentary eSeminar from 11:00 AM – 12:00 PM ET (10:00 AM – 11:00 AM CT), on Thursday, October 6th, to provide important information about the current state of outsourcing in the banking industry.

Join industry experts Marc Liebman and Eric Smith for a complimentary eSeminar that will cover three case studies in which a bank wanted to compare pricing, terms and service levels to the marketplace. The examples explore the current state of IT and banking systems operations outsourcing, including specific instances that illustrate real opportunities for moving outsourcing in the banking industry into the 21st century.

Participants of this eSeminar will learn:

• The current state of outsourcing in the banking industry
• An analysis of three recent outsourcing engagements in the banking industry
• Future trends for sourcing in the banking industry – A Storm is Brewing

“This eSeminar will provide important information for heads of commercial, mortgage and retail lending and bank operations, COOs, CFOs, CIOs and sourcing executives,” says Alsbridge Founder and CEO, Ben Trowbridge.

Click here to register!

Register here: http://www.outsourcingleadership.com/knowledgebase/eseminars/os-banking-industry-stuck-in-90?utm_campaign=2011Q3-1006-banking-esem

Ingredient #1: Flexibility and Willingness to Invest

In addition to being flexible, the award-winning relationships all demonstrated a willingness for service providers to invest additional expertise and even hard dollars to make things work. No nickel and diming here! Interestingly, the majority of relationships faced difficult challenges during transition or in the early days. In every case, openness and honesty on both sides combined with a genuine interest in constructive problem solving laid the foundation for an excellent relationship. And these were not insignificant issues. For example, early in year two of a five-year deal the credit crisis hit the world. The customer asked the service provider to cut their costs. Being sensitive to the commercial needs of each company, the outsourcer recognized they needed to be flexible and creative. They reduced their client’s costs by moving work to the Philippines, which was a new location for the service provider, and met the savings goals. Another similar case was during a client engagement that went through “rocky moments because of the systems integration issues.” When the going got tough, the service provider stepped up to the plate and addressed the necessary issues. They provided the resources their customer needed to do some special recovery work or redesign. In a third case, it became apparent during transition because of major constraints that were unknown during the RFP process that a large body of work was removed from the original contract. The service provider stepped up to the plate, assumed responsibility and gracefully accepted this blow.

What can be learned from these hard lessons? In every case the service provider met their customers’ needs and made the necessary investments to resolve the issues even when it meant reduced profitability. And in every case, the customer was open and honest about their issues and willing to sign-off on appropriate changes to services and the contract. No table pounding, no standoffs.

Ingredient #2: A Personal Sense of Ownership

Service providers and service delivery aren’t always perfect, which leads us to ingredient #2 – personal ownership. What I mean by personal ownership is a willingness to be held accountable for the success of the relationship and the authority to make decisions. For example, a service provider missed their SLAs for three consecutive months, triggering service credits. With many people involved from both sides, the customer and service provider “got into quite a disagreement as to the amount of the service credits and the period they covered.” Too many opinions and politics were getting in the way. Rather than letting the problem put a permanent stain on the relationship, the customer and the service provider assigned one person from each side to reach agreement about what was fair and pragmatic. This gave them a chance to understand the other party’s point of view, to explore options and to appreciate the impact of the final decision. Another example is a service provider’s Operations Manager who really took their customer’s service level expectations seriously. In this case, a third party company proved to be integral to delivering services across the customer’s footprint. The Operations Manager led the process to integrate SLA’s and now oversees total service delivery for the customer. They are now meeting service levels at no additional charge to the customer for this above-and-beyond service. There are countless examples of services failing to meet expectations or even going off the rails. What distinguishes award-winning relationships is the strong sense of ownership, accountability to make things work, and the authority to make decisions.

Ingredient #3: One team, one goal

Fundamentally, these are commercial relationships between two companies. Each one has goals and financial and quality targets they must meet in order to satisfy their own management and shareholders. Consistently these award-winning relationships quickly developed a practice of formally establishing joint annual and long-term goals. These goals generally include commitments to improving service quality, process improvement, and managing financial impact. As one service provider described it, “this is not a perfunctory exercise.” The customer’s Chief Operating Officer and the service provider’s CEO are often directly involved, including approving the joint goals and committing necessary resources. One successful relationship was built on a combination of joint goal setting and what they called “embedding leadership behaviors.” These are five key behaviors that both parties agree to model in everything they do together. Customers pragmatically and universally leveraged their service providers’ capabilities, reaping substantial financial and non-financial benefits year after year. One award-winning customer summed it up by saying that their service provider is able to “add value without adding costs.” And the benefits from the service providers’ perspective are relationships that grow over time in size and complexity, bringing them more revenue, increased profitability and highly referenceable accounts.

Conclusion

There is so much to be learned from these award-winning outsourcing relationships between industry giants. By studying successful relationships and understanding what makes them great, you can avoid common mistakes and stress. It is said that “those who don’t study history are doomed to repeat it.” If you strive for operational excellence, words like cultural fit, trust, efficiency and transparency are just words unless you invest the time and effort needed to figure out what goes into your secret sauce for outsourcing excellence.

Linda Tuck Chapman, President ONTALA Performance Solutions (www.ONTALA.com) is an expert advisor in Outsourcing, Strategic Cost Management, and Vendor Governance. You can reach Linda at (416) 452-4635 or lindatuckchapman@ontala.com.

Determining which of the qualified providers will work best with you requires a close eye during the sales process. I’ve identified six important soft characteristic red flags that can lead to a potentially dysfunctional and damaging relationship. Keeping an eye out for these signs can help you spot a problem before it is too late.

1. Selling rather than solving. Is the provider listening to you and offering what you need to solve your problem? While challenges may be fairly similar from company to company, no two organizations are identical. There will always be nuances in the sourcing context and the organizational culture that calls for more than a cookie-cutter solution. A streamlined, outsourced process may be institutionalized, but how it is applied will be different in each client organization. The provider should be paying close attention to the particulars of how your company operates, not just selling you something that worked for another organization.
2. Telling rather than listening. During the sales process, does the provider want to do all the talking and follow its 80-slide presentation obsessively, squeezing out every last particle of its sales message before letting you get a word in edgewise? A provider’s listening skills and abilities are critical. A strong indicator that it won’t be an innovative provider is if it sells by presenting to you, rather than engaging with you. This could also indicate an inability to listen to your issues during the actual engagement, resulting in a strained, one-way relationship. Whatever the likely cause – immaturity or lack of skills are two likely possibilities – this behavior indicates fissures in any subsequent relationship.
3. Homogeneous rather than diversified. Homogeneity has its advantages (system interoperability, for one), but it is not what you want in a service provider, especially if your company is global. You want a provider with sufficient diversity to understand your cultural nuances. You want the provider’s diversity to mirror yours, with people from around the world of different ages, at different stages in their careers, and with different experiences and skill sets. Fundamentally, people develop the strongest business relationships with those who are like them. So a provider’s diversity – rather than geographic and cultural homogeneity – is important for the long-term growth of a relationship.
4. Complicating rather than simplifying. Does the provider seem to be making the sales process unnecessarily complex? Simplicity is a good thing, and the provider should be able to define its solution in very simple terms. If a provider overcomplicates, it strongly suggests it doesn’t understand your problem. The attempt to add “bells and whistles” and complicate the solution may indicate the provider is trying to exhibit superior insight and intelligence. It is simplicity that demonstrates a clear view, a true understanding of the right path. For example, if you have a simple order-to-cash process and the provider is trying to tack on more features and attachments, with more technology than required, the provider is overselling through a misunderstanding of your needs or because of a desire to broaden the engagement scope. And it’s critical to remember that a complicated solution is less transparent, which in turn creates more governance challenges.
5. Near rather than far. You want a provider with a geographic footprint such that relationships and decision-making are as close to you as possible. Be very wary if the relationship will require all decisions be made offshore. You need someone near you, onshore, with the authority to make decisions, because the farther away decision-making moves from you, the more it loses context and speed. You don’t want to have to wait until the middle of the night for a conversation with someone several time zones distant; you want a solution at the time you need it.
6. Arrogant rather than supplicant. The sales process offers excellent insight into the mindset of a potential provider. If the provider’s sales team overpowers you with arrogance – if it bosses you around, boasting it has solved problems like yours hundreds of times – you have a problem. Yes, on a certain level, the provider will be your partner, but its purpose is to serve you and its behavior should reflect that fact. Remember, the term is “service provider.” It is there to serve you, and that is how the provider should approach the relationship.

By paying close attention to these six potential red flags, you can make sure that a bad relationship never has the chance to get started. Even though a particular provider’s capabilities and expertise may appear to be your best choice, it still must be compatible with your culture, accessible, and interested in listening and serving you with straightforward solutions. Otherwise, you’re certain to pay a painful price over time.

Despite the fact that our mothers taught us to take responsibility for our actions, in the complicated relationship pas de deux that is outsourcing, we tend to feel that apologizing and making reparations is not the way to deal with the other party. Despite protestations of partnership between provider and client, our tendency is to frame outsourcing relationships as a constant you win, I lose. If we let the other party have the so-called upper hand in the relationship, we frankly think that we are abdicating terrain, to use a military term.

The prevailing governance structures superimposed on outsourcing relationships don’t foster an admission that sourcing will go wrong from time to time. Governance as we practice it today is predicated on the concept that perfection is a given, and any and all mistakes are a major screw up. The health of the relationship is boiled down to a green-yellow-red scorecard. Obtain as many greens as possible permitting an occasional yellow to demonstrate a degree of humanity is the goal. It’s a game that leaves no room for, and ascribes no value to honestly admitting to a good, old-fashioned screw up.

But in any endeavor, driven by either humans or technology, there is no such thing as perfection. Taking responsibility for a snafu is painful, but it signals that you live your value statement to the injured party and your employees. But it is not enough to apologize when you think sufficient time has passed, waiting until the injured party has moved onto other concerns and has enough perspective to brush the infraction off. It is necessary to act immediately and with sincerity.

Without sincerity and, depending on the context, either a willingness to take on responsibility for the problem or meet the other party at least half way, there is no apology. Unfortunately the concept of amnesia does not exist in a sourcing relationship; the damage caused by empty gestures just festers over time.

A little bit of penance is always helpful. Remediation is good — a bit more “give” than absolutely necessary indicates that the severity and impact of the fault is understood, and that the transgressors take it as a first principle to act in good faith.

Saying we screwed up actually earns the erring party relationship credibility over the long haul. While the short term impact—additional cost or delay, a plethora of sharp emails and calls, perhaps a closer rein on decisions, and greater supervision—is painful, over time, a straightforward admission of responsibility pays off in a better working relationship, deeper trust, and an overarching belief that the parties will always strive to act in the best interest of the partnership. Admission of guilt also builds employees’ faith in the errant company and its leadership, and teaches lessons about customer service and value.

Next time you think that the course of true outsourcing relationship should always run smooth, think again. But saying you’re sorry can go a long way.

Are there reliable predictors of a buyer’s intent for a long-term, mutually beneficial relationship in which providers can trust the customer enough to risk significant investments?

Outsourcing Center studied this question by interviewing 20 customers in highly satisfactory relationships at the time they were interviewed. Although all 20 buyers stated multiple times that they were very satisfied with the services to date, the study found clear evidence of predictors of long-term intent. Findings reveal that there are circumstances in which they would terminate their relationships – rather than trying to work with the providers to reach a compromise – even before the time for contract renewal decisions.

All 20 relationships were for BPO services (not IT) and all had been in existence for at least one year after completing their transition phase (and many for multiple years). The 20 buyers were involved in relationships nominated for Outsourcing Center’s 2011 Outsourcing Excellence Awards program and agreed to answer questions about their future intents for the relationships.

The study posed some questions within the context of a discussion around aspects that would lead to the service delivery and relationship yielding more value to the buyer. The first question asked: “What is your company’s most important objective involving outsourced services during the next 24 months?”

We can differentiate the buyers’ answers into five segments according to their most important objectives at the time of the study:

• 30% – Cost reduction / cost containment
• 25% – Flexibility to scale up and down (buyers in this segment were experiencing a rapid growth phase at the time of the study or were planning acquisitions in the next year)
• 10% – Supporting or enabling globalization
• 10% – Achieving compliance with government or industry regulations and security compliance
• 25% – Other miscellaneous objectives

The study then followed up with this question: “What will happen if the provider does not meet your expectations regarding this objective?”

Outsourcing Center’s study found that 100 percent of the buyers whose most important objective over the next 24 months was cost reduction or cost containment stated they would switch to another provider if the existing provider did not meet their expectations.

Among the buyers expecting their providers to support scalability to support rapid growth, there were two distinct mindsets regarding the future of the relationship, as follows:

• If the provider is “unable” to make the required additional “reasonable” investment to build the capability for supporting growth, the buyer would look at other options to support the growth but would also continue the existing relationship.
• If the provider is not “open” to investing in the necessary capacity to support growth, the buyer would continue the relationship but definitely would not expand the provider’s scope (or footprint) and would consider termination or at least benchmarking at contract renewal time.

The buyers with globalization as their most important objective stated they would either look at alternatives for servicing the entire scope or alternatives for the geographic scope where the existing provider could not deliver services as desired.

Fifty percent of the buyers looking to achieve compliance with government or industry regulations and security compliance said they would exit the relationship at the end of the contract term if the provider did not meet their expectations; the other 50 percent said they would exit earlier.

The study also found that 100 percent of the buyers in the “miscellaneous objectives” segment stated they would work collaboratively with their providers to resolve the issues that were barriers to achieving their objectives. Objectives among this segment of buyers include the following:

• Accomplishing a smooth roll-out of a clinical information system
• Moving services to the cloud
• Helping the buyer improve its customer retention
• Realigning the outsourcing service delivery to match the buyer’s internal initiative to roll all core processes into one business services group

It is significant to note that the objectives listed as “most important” at the time of the 2011 study were also the primary objectives for the buyers when they initially decided to outsource and selected the 20 service providers. Thus, these are definite predictors of long-term intent and mindsets regarding the “partnering” aspects of a relationship.

What did the IT outsourcing world learn? LaPlante, a cloud computing expert, has in-the-trenches advice for cloud computing buyers and prospects.

1. Mistake: Assuming a service interruption would never happen. “This was a big surprise for everyone,” LaPlante says. He suspects few people thought an Amazon service interruption was possible because the service provider has been so reliable in the past. Although, looking back on it, this was an illogical assumption. “I’d bet Amazon’s history is as good as most corporate data centers,” he says.
   Fix 1: Buyers need to build in redundancy. Buyers of all IT services, not just cloud, should put their mission-critical data or Web hosting in clusters and then scatter these clusters across multiple zones. Amazon separates its services geographically into regions and then divides regions into zones. Companies can cluster across zones within a single region. “This yields a very high tolerance rate,” reports LaPlante. Companies that clustered across multiple zones were fine, the WorkXpress CEO says. So were enterprises that were clustered across regions, a much higher threshold with an “extremely high fault tolerance,” La Plante continues. That’s because this outage only affected one zone.

   Fix 2: LaPlante, who started his company in 2002 and began cloud offerings in 2004, says buyers should question their providers about their uptime availability. “Insist on discussing their uptime and service interruption policies. Buyers have to ask the right questions to get what they need,” he advises.

2. Mistake: Buyers did not calibrate their tolerances for downtime.
   Fix 1: Determine those tolerances! LaPlante points out buyers can only make educated decisions once they know their tolerances because they must spend more time and money as the uptime percentages increase.

   Fix 2: Get your platform, infrastructure, and software providers to work together.
   This is especially true for buyers that need high uptime, LaPlante notes. “These three legs of the cloud are co-dependent,” he points out.

3. Mistake: Dismissing the power of today’s and tomorrow’s cloud. LaPlante says some of his clients have moved their WorkXpress platform from the cloud to back behind their corporate firewalls. (The WorkXpress platform itself sits in the cloud.)
   Fix 1: Concentrating on just the facts often leads to positive actions.By not seeing things as good or bad, it’s possible to detach from an incident and create new strategies and solve problems. “Eliminate the judgments and look at the facts, just the facts,” he suggests.

   Fix 2: Don’t let this occurrence delay your embrace of cloud technology. LaPlante predicts the Amazon issue will “accelerate” the value buyers will receive migrating to the cloud because the service providers are now acutely aware of the problem and are striving to increase their uptime.

   “I still believe the opportunity in the cloud is enormous. This is a train that one incident won’t stop,” he says.

Will Amazon Web Services experience another SLA-violating service interruption? He believes Amazon’s reputation rests on the repair. He predicts “a lot of people at Amazon – and other cloud providers – are working hard to fix the problem to ensure it doesn’t happen again.”

But he guarantees “something else will happen.” Ah, the complexities of modern business. Hold on tight and be prepared!

Negotiating a good outsourcing agreement involves much more than just achieving the pricing you desire. As you go through the process, you will go through the normal “give and take” discussions as you work with your potential provider(s). However, it is important that you do not focus solely on pricing. While reducing cost is typically the primary value proposition for outsourcing, you also want an outsourcing agreement that allows you to realize your immediate and long-term delivery needs, provides contract flexibility and ensures that you receive maximum value for the money you will be spending. To meet those objectives, pay careful attention to the five “gotchas” noted below. These areas of the agreement, if not carefully structured, can drain value from your business case and decrease the probability of having a successful and sustainable outsourcing agreement.

1. Statement of Work

A Statement of Work (SOW), when created correctly, describes in great detail (typically 100+ pages for a full information technology outsourcing agreement) the services to be performed by the provider and also clarifies certain client responsibilities. The SOW describes WHAT will be done for the price. A few checkmarks in the wrong responsibility column or a handful of missing tasks can significantly change the amount of service the provider is to deliver and will result in misaligned expectations from the start of the contract. Because the SOW is the “meat” of what the provider will do for you, you need to ensure it fully describes the services you expect from the provider.

2. Service Levels

Service levels work in conjunction with the SOW to scope the services that the provider will deliver. They describe HOW MUCH and TO WHAT EXTENT the services described in the SOW are delivered. Service levels and assumed labor costs are two primary drivers in a provider’s cost model. It is important that the service levels reflect what you need even as you are negotiating price. Importantly, you should realize that the costs go up exponentially as you get closer to a 100% performance target. Outside consultants with market information can help you determine a fair price for the service levels you require. Additionally, there are important service level terms that should be included to allow you the freedom to add and change service levels and to re-allocate service level credits as your business needs change.

3. Termination Language

It can be hard to focus on termination language and termination charges at the beginning of an outsourcing relationship. Termination language is analogous to a prenuptial agreement – it is there “just in case” things do not work out as originally intended. As the final negotiations occur, you may be tempted to give a bit on the termination language in order to get to the price point you want. Depending on your starting point, some “give” might be acceptable but you first need to understand the ramifications if you need or want to get out of the agreement (or pieces of the agreement) in the future. Once the contract is signed, it can be especially difficult and costly to get out of it if the termination language is favorable to the provider.

4. Future Pricing

There are a number of factors to consider regarding future pricing. On the whole, you should expect your IT costs to go down over time due to improvements in hardware and software functionality and pricing, labor arbitrage, automation, and so forth. Because each situation is different, there are no easy “rules of thumb” to apply, but pay close attention to these specific areas:

• Year-over-Year Pricing – You should expect the unit pricing for most towers (possibly excluding applications due to its labor-centric nature) to go down each year, with the provider accepting the risk of continuously improving and streamlining its operations to achieve lower price points each year.
• Cost of Living Allowance (COLA) – From your perspective, it would be ideal to not have a COLA, but the reality is that many providers will require it to give some risk protection in the out years. Any sort of cost of living increases should be tied to a well-known government index. Each tower should have a “COLA index” that indicates the portion of the unit pricing that can be affected by a COLA index. They should be country-specific if you will be receiving labor from an offshore location, and they should be capped to reduce your risk.
• Variance Pricing – Many outsourcing contracts contain variance pricing based on resource usage. An assumed number of resources are built into the annual price, and then adjustments are made up or down based on actual monthly usage. The concept is simple, but you need to watch for how that will work for you based on your future growth assumptions. For example, if a provider expects that your business will grow over time, they may propose a lower base price to meet your initial price point, but then have a relatively high additional resource charge, or ARC rate, for additional volume.

5. Delivery Locations

In return for hitting your price point, a provider may want to include the freedom to deliver from whatever location they see fit. There are many risks associated with movement of work from one team to another, much less from one country to another. Because of the potential impact to your business, you want to make certain that you have some sort of approval authority prior to the movement of support functions. The provider may counter that they are accepting the risk because they are signing up for service levels. However, the potential business impact to you is much greater than their risk of incurring service level credits for missing a couple of metrics.

In summary, these five potential “gotchas” need to be managed closely through the negotiation process. Due to the variations and complexity inherent in each deal you should strongly consider the use of an outside outsourcing advisor to help. Because they understand your perspective as well as the providers’ point of view, they are ideally positioned to help manage through these items (as well as the many other items that will arise) and develop an outsourcing agreement that works well for both you and the provider.

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