Five Fatal Flaws of Outsourcing Agreements
Author: Steven Zolman
Let’s face it, outsourcing is a way of life these days, but it is flawed especially in the area of contractual agreements. No matter when you did your agreement, it’s time to check for and mitigate the Five Fatal Flaws. I’ve seen a lot of outsourcing agreements, and most of them are simply not sustainable. They suffer from one or more of these fatal flaws:
For one reason or another, most organizations don’t communicate well. The world changes and those changes usually mean alterations in the goals of an outsourcing agreement. Effective and regular communication is essential to make sure the changing business goals of an organization are aligned with the outsourcing supplier.
We all know the RFP process is broken. If the process for selecting an outsourcing partner is broken, the results will rarely be what is expected. The quest for an “apples to apples” comparison has forced organizations to spend a lot of time and energy creating documents that identify past business needs rather than looking for an outsourcing partner that can provide flexibility and cost effective service.
Outsourcing agreements need a lot of care and feeding. The management of a major outsourcing agreement can be a full time job, and it is unusual for an organization to dedicate the time and resources needed to monitor, manage and mitigate the risks inherent in a long term agreement.
I can’t count the number of times I’ve seen just plain bad Service Level Agreements. They focus on the more technical aspects of an agreement; things that can be easily monitored, and in some cases manipulated rather than the business impact of these technical components.
5. Price vs. Outcomes
Unit price is just one factor in selecting an outsourcing partner. Sustainable long term agreements focus on business outcomes as well as overall pricing, but focus on pricing alone can leave you with a low cost but ineffective agreement.
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