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Major Mistakes in Outsourcing Contracts

by: Sarah Joson

Wednesday, January 29, 2014 |

Outsourcing service providers are often criticized for failing to deliver what is expected of them. But as it turns out, it’s probably not entirely their fault.

Mistakes in outsourcing contracts

In MooD International’s "State of Relations in Outsourcing" report which was participated by 201 senior managers and directors, it was found that inconsistencies during contract creation cause providers to miss the mark. One of the key culprits for the inconsistencies is miscommunication.

SupplyManagement.com stated in the report that trust, transparency, innovation, and having a deep understanding of the business model are the usual problem areas of a client-provider relationship.

The study also showed that clients gave their relationships with outsourcing providers a score of seven out of 10, and among board members, it falls to six out of 10.

Sixty percent of the respondents said they are willing to authorize providers to make decisions, and a little over 60 percent believe that it will make an impact and drive value to a business.

George Davies, CEO of MooD International, said trust is one of the things clients and providers need to work on so that the latter will be more comfortable in making the right decisions. Furthermore, he said service level agreements (SLAs) should be double-checked if it is consistent with the requirements of a business.

Meanwhile, 90 percent of the survey respondents stated that continuous communication is crucial to them and for this category, outsourcing providers only scored six out of 10.

Nearly 75 percent said they only focus on service levels rather than the outsourced operation’s business impact. Half of the survey participants said they employ outsourcing partners to deliver business transformation. Twenty-nine percent were found considering multisourcing for their business while 11 percent stated that their in-house team can handle this type of operation.

The executive noted that for the relationship to work, both parties must be willing to measure the progress of the operation and align contracts. Information should also be properly disseminated to ensure that complex contracts are integrated flawlessly to control risks. He added that for the providers to better explain their contributions to the success of a company, they should first be able to analyze and understand their performance and compare it with the initial objectives and agreement of the operation.

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