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Warning Signs that Mean Trouble in your Outsourcing Deal

by: Karen Cayamanda

Tuesday, March 2, 2010 |

During the global financial crisis, many companies put outsourcing contracts on hold to focus primarily on ways to keep the business going, while some opted for contract renegotiations. With all the factors to take into account when it comes to closing or renegotiating outsourcing deals, how would you know that you are on the right track?

Danger signs to look out for in your outsourcing contract

In the article “A dozen danger signs that your outsourcing contract is on the rocks”, Linda Tucci brings together some insights of different experts on the mistakes commonly committed as well as misconceptions in outsourcing deals.

  • Lack of innovation and productivity gains - According to Thomas Young, partner and managing director with the CIO Services-Infrastructure at IT consulting firm TPI, documentation is the key to a successful outsourcing contract. When it comes to continuous improvement, Young said that productivity gains which are greater than 3-4 percent need investment from both buyer and vendor, and it should be explicitly stated in the outsourcing contract.
  • Cultural differences - Culture clashes may not result to a good, long-lasting relationship between buyer and vendor.
  • Optimizing price but failing to focus on quantity - When a  company aims to reduce costs, it usually tends to ignore the quantity / consumption of services. According to Young,  "when I tell clients to take costs out, I tell them to focus on the Qs [quantity]."
  • Neglecting governance and contract “maintenance” - Young said that failing to create a good contract that is flexible enough to adapt to changes in business and technology is a big mistake committed by companies. In a constantly evolving industry such as outsourcing, it is crucial to have a well-written contract that provides room for any changes.

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