Decision Support Part One: Design outsourcing relationships that yield long-term ROI

I recently spoke at an event where one of my fellow presenters compared the signing of a new outsourcing contract to a wedding. He then followed up with statistics that showed that much like the other happy event, 50 percent of these "business marriages" end in bitter divorce. (Gartner Group studies show that 50 percent of the outsourcing deals do end in failure). According to the experts, this high outsourcing "divorce rate" results from disappointment on the part of the buyer when ROI and other non-financial expectations are not met. These experts also agree that this is caused primarily by three key factors:

• Lack of goal alignment and agreement on how to measure success between the client and the supplier
• Poorly designed agreements
• A lack of a good governance process

In this first article of a two-part series, I will examine the alignment and agreement challenges more closely. In part two, I will explore the governance challenge and conclude with a focused list of three things you can do to forge relationships designed to meet your current and future ROI needs.

Making sure you and your prospective partners see eye-to-eye
According to Jon Piot, COO of Impact Innovations, a Dallas-based IT consulting company, outsourcing marriages get off on the wrong foot when partners fail to completely communicate information during the "courtship" process. "Generally, the customer is hoping to satisfy a set of objectives and solve historical problems but the supplier doesn't get the full picture due to the rigidity of the RFP process," states Piot. "In many cases it is only after the transition and a healthy dose of negative feedback that the supplier begins to understand what the customer really wants," he adds.

Jim Leto, a 30-year industry veteran and president and CEO of Robbins-Gioia, LLC, a leading programme management consulting firm, agrees. "If the supplier is totally focused on cost reduction and has metrics set up to track this -- but you, the client see success in terms of time to market -- you are almost certainly going to be at odds with the supplier," states Leto. The way to avoid this lose-lose situation, according to Piot and Leto, is to make sure that there is a generous amount of open, focused, and direct communication about goals, as well as what constitutes success and how success will be measured during the selection and negotiation process.

Leto advises future outsourcers to identify their goals and what they will measure early in the discussion phase with the service supplier. He strongly advises that you start with the identification of goals, since once these are clearly understood, the prospective partners are in a better position to clearly recognise which financial, which performance, and/or strategic metrics are appropriate for measuring success. These metrics should be, according to Leto, as focused as possible on measuring results as well as the degree to which the supplier is truly producing those results. With this in mind, Leto advises, "Make sure your metrics capture not only whether your supplier is contributing to your goals -- but how much they are contributing to your goals."

Having decided what you want and how you will measure success, the next step is to develop service level agreements (SLA) and contracts that capture these components and are structured to evolve with your foreseeable needs. The latter part of this objective, which deals with the potential evolution of your "needs" is as important as the former, since, as we all know, rapid corporate change is inevitable in our present business climate.