See our Outsourcing Provider Directory here

Outsourcing Relationships Become More Complex

Four years ago IT managers had one question: “Should we outsource?” Today, the questions are more varied. Instead, they are asking: “What should we outsource?” and “How should we do it?”

Benoit A. Aubert and Suzanne Rivard, both professors at the Ecole des Haute Etudes Commerciales and fellows at the CIRANO in Montreal, Canada, monitor trends in outsourcing as the co-chairmen of outsourcing mini-track at the Hawaii International Conference on Systems Science. The conference, held every January, attracts the top academic papers on the subject. “We are trying to provide a forum for IT outsourcing,” says Aubert. HICSS attracts academics and industry leaders.

This year the mini-track examined the changing relationships between buyer and provider. The researchers discovered outsourcing relationships today are a lot more complex than they were five years ago. Back then a buyer would outsource the entire process to one provider. Today there may be several suppliers or a lead supplier who then works with a chain of suppliers.

This increased complexity is forcing buyers to more actively manage their outsourcing relationships. The professors say buyers’ experience is showing: they are becoming quite adept at it.

In addition, buyers are stepping beyond the traditional buyer/supplier relationship and working to help their suppliers in mutually beneficial ways. One paper described how a buyer worked diligently to promote a supplier who was selling the software it developed for the buyer. Both partners shared the profits.

Signing Better Contracts

Research conducted by Aubert, Rivard and Patry (HEC and CIRANO) indicates that clients are now more aware of the risks inherent in outsourcing a non-core process. They understand that their entire IT infrastructure is in their supplier’s hands, which means they will have to bear a large expense if they switch providers or decide to bring the function back home.

This is causing them to write better contracts, which (hopefully) reduce the opportunity for misunderstanding and conflict.† Buyers are now less “naÔve,” says Aubert. But they are willing to take the risks inherent in outsourcing because they understand how difficult it is to implement an up-to-date IT system.

Smaller companies are willing to take on even more risk since outsourcing is the only way for them to have access to ERP solutions.

The professors note there are now more suppliers in the market. This translates into more competition for bids. Buyers are able to negotiate more favorable prices because they can pit one supplier against another.

Buyers Applying Metrics In House

Buyers are also insisting on service levels. They are not shy about announcing they will look for another supplier if the current one doesn’t perform according to the metrics.

Buyers, realizing the power of service level agreements (SLAs), now believe they are not only for outsourcing providers. Aubert says companies are now requiring their in-house IT staffs to meet the same metrics as their outsourcing providers. “If a company outsources 60 percent of its IT needs, it will manage the 40 percent that remains in house as if it were an outsourcing contract. SLAs now apply universally,” notes the professor.

Moreover, buyers have learned what can and can’t be included in an SLA. “They have figured out what information is useless,” says Aubert. Also, buyers are now using independent bodies to oversee the evaluation of the SLAs. Aubert says third parties are more efficient and unbiased than companies trying to assess the numbers on their own.

The papers pointed out IT outsourcing was still growing. But other research conducted at CIRANO indicates that the other departments in the corporation are beginning to outsource their non-core functions after having watched the successes in the IT sector. The research unveiled that one of the biggest growth areas in the future is human resources outsourcing.

Executives are using the lessons their colleagues learned in the IT sector to avoid mistakes when they negotiate their own contracts. IT departments are sharing their contract expertise and knowledge with other areas of the corporation. For example, contract terms today are getting shorter, a trend that started in IT.

“Suppliers are smart. They know how to write contracts that are favorable to them because it’s their bread and butter,” says Aubert. “But buyers are learning. Contracts are much more balanced now,” he says.

Lessons from the Outsourcing Primer:

  • When corporations discuss outsourcing, the questions have changed from “Should we outsource?” to “What should we outsource” and “How should we do it?”
  • Buyers today may prefer to work with many suppliers or one lead supplier who heads up a supplier chain instead of outsourcing with just one provider, as they have done in the past. They are avoiding lock-in relationships.
  • Buyers are less naÔve and understand the risks inherent in outsourcing. This knowledge is letting them negotiate better contracts.
  • Buyers are now applying service level metrics to their in-house IT staff just like they do to their outsourcing supplier.
  • Recent research predicted one of the biggest growth areas in the future is human resources.

Get 3 Free Quotes Logo

  • Save 70%
  • Unrivaled expertise
  • Verified leading firms
  • Transparent, safe, secure

Get Started

Small Teams Call Logo

Start your Outsourcing Journey in 15 seconds.

Get Started

Enterprise & Large
Teams Call
Logo

Explore with an Enterprise Expert

  • Independent
  • Trusted
  • Transparent
Outsourcing

Dive into “Outsourcing”

A Guide to … Selecting the Correct Business Unit … Negotiating the Contract … Maintaining Control of the Process

Order now

Outsourcing Articles

Start your
outsourcing
journey here

"*" indicates required fields

Start your outsourcing journey.

Book a call with an outsourcing expert now

✓ Valid number ✕ Invalid number
This field is for validation purposes and should be left unchanged.

"*" indicates required fields

This guide will walk you through some areas most important when outsourcing, such as
  • Identifying Your Outsourcing Needs Intelligently
  • Research & Selection
  • The Bidding Process
  • Contracts & Agreements
  • Implementation & Onboarding
  • Ongoing Management
  • Evaluating Success
  • Additional Resources

Book a call with an outsourcing expert now

✓ Valid number ✕ Invalid number
This field is for validation purposes and should be left unchanged.

"*" indicates required fields

Become an OC Partner
✓ Valid number ✕ Invalid number
This field is for validation purposes and should be left unchanged.

"*" indicates required fields

Media Inquiries for OC
✓ Valid number ✕ Invalid number
This field is for validation purposes and should be left unchanged.

"*" indicates required fields

Subscribe to our Newsletter
✓ Valid number ✕ Invalid number
This field is for validation purposes and should be left unchanged.

"*" indicates required fields

Submit Press Release
✓ Valid number ✕ Invalid number
This field is for validation purposes and should be left unchanged.

"*" indicates required fields

Submit an Article
✓ Valid number ✕ Invalid number
Accepted file types: pdf, doc, docx, Max. file size: 8 MB.
This field is for validation purposes and should be left unchanged.

"*" indicates required fields

Invite Ben as Keynote Speaker
✓ Valid number ✕ Invalid number
This field is for validation purposes and should be left unchanged.

Go to standard quote

Exclusive Enterprise Assistance

  • Independent
  • Trusted
  • Transparent

Offshore staffing solutions for enterprise. Independent expertise, advice & implementation

  • 200+ Firms, Global Reach
  • Offshore, Nearshore, Onshore, Rightshore
  • Managed Request for Proposal (RFP)
  • Assisted Procurement Processes
  • Vendor Management
  • Unique Build Operate Transfer model
  • Captive & Shared Services
  • Champion-Challenger
  • Multi-site, multi-vendor, multi-source
  • Managed Solutions

For Enterprise and large teams only

  • Book 20-minute consult, obligation free

You will get:

  • Needs Analysis & Report
  • Salary Guidance & Indicative Pricing
  • Process Map

Only takes 1 minute to complete the form

Get Started

Not an enterprise?

Go to standard quote