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Building IT Outsourcing Relationships

by: Sarah Joson

Thursday, November 1, 2012 | Outsourcing News |

There’s more to an IT outsourcing partnership than the give and take process, especially when IT executives are expected to drive innovation and overall performance of an operation. CIOs are expected to know the latest trends in technology, plus the IT environment in each niche, but how can they take full advantage of IT outsourcing partnerships, specifically for long-term contracts?

One of the most important factors is of course, the cost. With that, what elements in outsourcing relationships can cause drastic changes in a company’s IT division and operation?

Points that can affect outsourcing costs and relationships

CIO.com lists five important points that can affect outsourcing costs and relationships in general.  

1) Scope of services
The type of services to be rendered is by far the most crucial cost driver. What buyers can do is look for a deal that is detailed and covers all the areas that need to be worked on.

In some cases, clients present providers what they exactly needed without margin for additional steps and processes. This then gives providers the upper hand as they usually give a more exaggerated proposal so that when it’s time to negotiate, they will arrive at a more favourable position for the providers.
2) Customizable Service Level Agreements
More often than not, providers use a template service level agreement which they present to the buyers. This serves as a base for the different provisions and definitions of the entire contract. For higher levels of services, of course they would have to modify accordingly to meet each other’s criteria.

Buyers should understand the needs of the providers and avoid low-balling them as this will affect the latter’s performance, and the entire operation. Both parties should be diligent in pricing during the negotiation period and point out if there are any discrepancies.
3) Transparency between parties
Like in any other relationship, having an open and transparent relationship can help foster a healthy working environment. They will be more comfortable in voicing out their concerns. But clients should not forget about who’s in charge of the operation and if deadlines and job orders are being met properly. Making providers feel that they are part of the company’s growth will also go a long way.

4) See what’s in store offshore.
Although offshore outsourcing presents more risks, this specific delivery model can help alleviate costs due to labor arbitrage. There are also benefits in outsourcing offshore as expertise in each region usually varies. 

5) Consider the effect on the processes.
Clients usually fixate on the cost-cutting benefits of outsourcing and fail to consider the potential improvement of the process itself. They should ask the providers what tools can optimize and drive down the costs of an operation. Providers likewise should always inform buyers if there’s a new practice or tool that can decrease costs.

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