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The Shift Towards Outcome-Based Outsourcing

by: Admin

Thursday, February 25, 2010 |

Changing the Outsourcing Platform

The global outsourcing industry has been typified by outsourcing deals based on quick-fix cost-cutting solutions that don't always consider long-term process improvement. As the economies of major outsourcing players recover, buyers and vendors are presented with an opportunity to divert focus on ways to create value instead; writes Kathleen Goolsby of the Outsourcing Journal.

The key factor towards maintaining a successful relationship, both personal and professional, is trust. Attaining that trust depends on a healthy system of communication. For the outsourcing industry, this means increasing the level of transparency and information-sharing are key catalysts in attaining an outcome-based approach. The shift towards outcome-based outsourcing is described by Genpact's Mohammed Haque as “a journey that can take at least 18-24 months to implement” due to the requirement of a complete data assessment of the buyer's landscape.

Advancements toward value-creating platforms require attaining a more in-depth understanding of a customer's industry. Haque explains that it is "extremely important that the buyer understand the level of risk the provider must take to help the customer achieve the desired business outcome. This will only work if it is a complete partnership type of relationship and if there is strong governance and relationship management. And senior leaders on both sides must work together."

Upon getting a good grasp on the needs of a buyer's business context, it then remains to align service level agreements (SLAs) to meet desired strategic goals. To further solidify the commitment of both parties to a value-adding partnership, industry experts advocate employing a model in which the responsibilities for risk mitigation and maximizing returns on investment are shared.

According to Haque, only 5 to 10 percent of outsourcing arrangements today utilize outcome-based pricing – the other 90 to 95 percent of outsourcing arrangements are based on time, materials, or a fixed fee. However, he predicts that within the next five years, outcome-based outsourcing contracts will grow to 40 to 50 percent.

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