5 Ways to build better IT outsourcing relationships

By Stephanie Overby , CIO |  IT Management, outsourcing

3. The Value of a Healthy Relationship "Historically, clients have had a myopic focus on cost reductions and securing the 'best deal' without fully appreciating the consequences on service delivery and business user satisfaction," says Daly. "Conversely, service providers have become experts at using change control [later on] to recover the margin that may have been negotiated away during final negotiations."

[ Related: Texas Ousts IBM, Takes New IT Outsourcing Tack ]

A more transparent and balanced approach to building and negotiating an outsourcing relationship will lead to a healthier long-term relationship--with few financial surprises. Communicating more often and more openly with the outsourcers in the evaluation and constructive process increases trust, mitigates risk, and ultimately lowers the cost of the deal, says Daly.

A clear governance model, documented processes and a demonstrated commitment to working together will help set the right tone. If client governance wanes over time, service providers can sweep in to generate more revenues via change order and new services. That value leakage can be costly, says Daly. "While this potential issue is not evident in most sourcing business cases, requirements should be included in RFPs to reduce the likelihood and impact of value leakage. Clients need to maintain a strong governance organization and manage the contract well to fully maximize these benefits over the term."

[ Related: 10 Key Questions to Assess Application Outsourcing Maturity ]

4. Global Delivery Models Outsourcing clients may have legal, contractual or regulatory concerns that prevent the use of offshore outsourcing outright. But, says Daly "it is wise to examine internal assumptions and openly explore solutions other businesses have implemented. Labor arbitrage has been a important driver of the growth in outsourcing for a long time, but there are now more geographic options than ever, providing clients with the ability to diversify delivery locations and mitigate risk."

5. Process Improvement Labor costs aren't the only way to cut IT costs by outsourcing. Maximizing process efficiencies are equally important. Yet outsourcing customers and providers have only just begun to reap these potential savings. Embracing stand-alone service integration and management offerings is one route to take. Clients should also be more receptive as service providers seek to automate as many user interactions, leverage common tools and processes to capitalize on investments and drive down costs, says Daly.

Originally published on CIO |  Click here to read the original story.
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