Assessing the Risk and Reward of Outsourcing

Alsbridge Identifies Five Ways to Strike the Right Balance

“The best outsourcing agreement is not necessarily the one with the lowest price,” says outsourcing expert Ben Trowbridge.

Trowbridge, the founder and CEO of Alsbridge, Inc. an outsourcing advisory firm serving Global 2000 businesses says the best contracts strike a balance and focus on the primary goal of meeting business on day one and throughout the life of the contract.

In a recent white paper titled, “Balancing the Risk and Reward of Outsourcing Contracts,” Alsbridge shares five strategies and provides specific guidelines to help companies align their outsourcing agreements with internal strategies and requirements.

Five Ways to Strike the Right Balance

1. Contract Terms – An outsourcing contract is a complex legal document and as such, it will be important for you to fully understand the terms and conditions that you will live with for many years to come.  Governance, delivery locations, and clear termination language are critical pieces of a successful agreement.
2. Statement of Work (SOW) – SOWs should clearly define the roles and responsibilities of the provider as well as the client side. Alsbridge recommends organizing the SOW to market-based towers, such as Server Management, Contact Center Management, Applications Development, etc.  which results in an easier ‘apples to apples’ comparison of competing providers. It also makes it much easier to benchmark the pricing of services periodically over the term of the contract. 
3. Service Levels – “Make sure you measure the correct things,” says Trowbridge. According to Alsbridge, it is imperative to have a Service Level Agreement (SLA), with a methodology by which the provider will provide you with significant service level credits in the event that minimum target levels are not achieved.  Also, look for continuous improvement and flexibility as the contract matures.
4. Transition and Transformation – Document your transformation needs early in the process, this way you will be in a good position to ensure the business value of the transformation. Alsbridge also says that clearly articulated milestones and scope of work are critical to a balanced agreement. The scope should address things such as transition/transformation management, objectives, methodology, high-level schedule, roles and responsibilities of each party, the content of the forthcoming detailed project plan, third-party transitions, security transition, procedures manual development, personnel transitions, a description of how cross-tower services will be implemented (such as change management, incident management, problem management, configuration management and service level reporting), and a description by tower of the changes that will be implemented.
5. Pricing – Expect your outsourcing costs to go down over time. According to Alsbridge, one of the best ways to ensure the long-term success of your outsourcing agreement is to start with an agreement based on market prices.  This means that you are starting the relationship in the right place, and any future pricing adjustments (such as benchmark adjustments) will not be as extreme or emotional as they otherwise might be.

Trowbridge concludes, “Price is always a factor. However, we have to look beyond that and focus on optimizing the overall risks and rewards in several areas such as contract terms, statements of work, service levels, and transition/transformation so that a mutually balanced agreement is built for long-term success.” 

More information on this topic can be found on Outsourcing Leadership under the title, Balancing the Risk and Reward of Outsourcing Contracts.

Visit http://www.outsourcingleadership.com/ for additional information on best practices in outsourcing, shared services, benchmarking, and assistance with your sourcing strategies.

About Alsbridge

Alsbridge, Inc. is an award-winning global advisory firm and a distinguished member of the 2010 Inc. 500 fastest growing privately held companies. Alsbridge redefines the way companies reduce costs and improve back office operations.  Our proprietary benchmarking tools and data resources enable clients to utilize the most cost effective and value added sources globally for information technology, business processes and telecommunications networks.  Through a combination of internal optimization and outsourcing, our clients achieve cost savings that support their strategic business objectives. Founded in 2003, Alsbridge is the proven, effective difference. The company’s web site is: www.alsbridge.com.

# # #