Mark Richards, manager network operations, for TransAlta, an investor-owned Canadian electrical utility company, views problems in outsourcing from a slightly different perspective than many others in the marketplace.
Negotiating Effective BPO Contracts: As the trend toward business process outsourcing (BPO) grows, companies are faced with a new learning curve. They need to understand the elements of establishing a successful BPO relationship, beginning with the proper contract vehicle, which can play a critical role in fostering the chances for success.
Outsourcing: All outsourcing relationships are adversarial in nature because vendors want to be paid as much as possible for delivering as little service as possible, while customers want as much service as possible for as little money as possible. That, in a nutshell, is how Dean Davison, analyst, Meta Group, sees the industry.
Faced with information services (IS) budgets that have become moving targets, top executives now are asking for more accountability in how those investments are measured.
On January 1, 1999, eleven member countries of the European Union (EU) will adopt the Euro as their common currency. This move has complex implications for outsourcing in Europe. It will affect existing and new contracts and, more fundamentally, have an impact on the market structure.
Anticipating change and the likely need for future renegotiation can enable the parties to plan for it, and that preparation can provide a more cooperative environment for making changes.
Renegotiation has become a fact of life in long-term outsourcing contracts, and customers entering five to ten-year arrangements should be prepared for that.That’s the bottom line, according to Syd Hutchinson, senior consultant, COMPASS America, Inc. It’s unusual for a contract not to be renegotiated, he said. There’s no way you can see everything that far out, so you should go into these agreements prepared to renegotiate.
While the promise of outsourcing is bright, outsourcing relationships often fail before they start. Improper guidelines, poor communication between the company and its outsourcer, and unrealistic expectationss frequently lay the groundwork for failure.
There are two problems that pop up consistently in people who have problems with their vendors. Number one is as they are going into the contract, the customer underestimates future work they will require the vendor to do for them. Number two is a failure up front to say what work is in scope and what work is additional. My experience has been that those are the two most common reasons for relationships that so south pretty quickly.
Think benchmarking, and most people think of the benefits all being on the customer’s side. However, the procedure also can benefit the vendor. In today’s market, providing customers with the ability to validate that the pricing they’re getting is market competitive also gives them the confidence to sign a long-term contract.
When companies make the decision to outsource — or they have already outsourced — they often ask the question, Why benchmark? They are confident that outsourcing will save them money, or they know they are already paying less for outsourcing than their internal operations cost. So what is the value of benchmarking?
The benefits of outsourcing traditionally have been described in financial terms. With progress, however, cost reduction benefits have become ‘table stakes’ as even more significant advantages are realized from outsourcing partnerships. Leading organizations have discovered that in addition to cost benefits, outsourcing presents an opportunity to improve the level of service.
There’s a high rate of dissatisfaction among customers with IT outsourcing agreements, according to recent surveys by Deloitte & Touche, Coopers & Lybrand, and others. However, that dissatisfaction appears to signal the industry’s growing pains rather than its demise. The outsourcing market has continued to grow, enjoying a 15 percent to 20 percent annual growth rate for several years.
Are you getting ready to negotiate an outsourcing contract? If so, place flexibility high on the list of negotiation goals. Many customers involved in long-term outsourcing contracts in the past have learned the hard way that the restrictive and static nature of normal contract terms can tie their hands in the rapidly changing outsourced IT environment.
The European Theater is primed and ready for growth in Information Technology (IT) outsourcing. Total European IT outsourcing is estimated at around $15 billion in 1997, and with firms fueled by the need to concentrate on their core competencies, that figure is expected to rise to around $27 billion in 2001.
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