The next stop in outsourcing: Accountability
Source: The Outsource Blog View: 527 Date: 2012-04-18

With the nation’s focus on the need to create jobs, the habit of outsourcers to cite the traditional value of cheap labor will no longer be of adequate value for an increasingly sophisticated clientele.

This is forcing outsourcers into a new age of value-based solutions and accountability. Accountability involves more stringent control of services delivered based on an overall business outcome (value-based) — not according to time and materials. Relationships are structured as long-term consultations and management, not short-term labor arbitrage projects. The workforce is more skilled, as domain or vertical experts and located across the globe, including increasingly in the U.S.

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These pressures create a tremendous opportunity for the IT industry. Here are a few things your organization should know about how to take your vendor relationship to the next level.

* Think about creating value, not lowering cost: In a traditional outsourcing engagement, IT examines a particularly manual or cumbersome process and then evaluates the options for conducting it more efficiently and frugally. But, chances are, your business has already taken that step — you probably took it years ago. The next step is about technology-driven engineering and productivity. This productivity is measured on one key tem — business value.

In a value-driven engagement, vendors are evaluated based on the business outcome they create, not the time and materials they consume. It’s about the final output from the client’s success, which is a mutually beneficial relationship for both parties. The risk is shared among both parties — and when risk is involved, it’s not just about pricing and cost. The key currency in a vendor relationship is value, which can be a welcome change for any company that’s seen an outside party run up the bill based on number of FTEs.

* Align the vendor with your business: In order for an outside vendor to deliver business value, the vendor needs to have a clear idea of both the business’ and IT’s overall business goals and strategy. In these visibility-driven engagements, they’re handled as long-term consultations, not short-term cost-cutting projects.

Outsourcers embed themselves in the IT department, using their technology expertise to suggest ways the business could be run more efficiently. In many cases, this uncovers problems or opportunities a client did not know existed. It’s an additional level of sophistication, evaluated not by the needs of the outsourcing client, but by the needs of the client’s client. When overall business goals are met, this creates a relationship of optimum value to the customer.

* Focus on management: In a particularly uneasy and pressure-packed time in the economy, your biggest ally in a vendor relationship is organized and strict management practices. These aren’t traditional benchmarks; they’re best practices that align directly to a business outcome. If a vendor is held to a particularly high standard in a business context, that vendor will utilize its full array of expertise and resources to ensure client success.

But effective measurement does not come without visibility and clarity in the beginning. One shortfall from the “gainsharing” days in the 1990s was that these types of projects failed because of their lack of structure and true visibility. The outside party tied its work to client success, but the projects were structured in a way that never articulated what success was and the attributes of the success were not visible. If success is tied to solid, measurable business outcomes, then the vendor and client can march toward the same goal as true partners, with shared risk and investment.

We are at a crux point in the IT services industry. The traditional days of labor arbitrage are over, leading to a more sophisticated level of vendor-client relationship. With change comes opportunity, and savvy clients can use these pressures to create a more productive and long-term engagement.

An accountable outsourcer is not just a marketing term; it represents the next step in a 35-year-old business idea. With additional accountability, we see a future where both vendor and client is set up well for success.

Devott Publications
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