Value Leakage in Outsourcing Contracts

Outsourcing provides client organizations access to a broad range of specialized technical skills, the ability to control and manage operating costs, and the realization of improved efficiency, speed and agility to deliver services. However, studies indicate that the ability to sustain high value realization over the complete lifecycle of the outsourcing contract is a major challenge.

For example, during the initial transition and transformation portions of an outsourcing strategy, the focus is on contractual terms, conditions, and pricing. As the relationship matures, the client and the provider must shift their focus to factors impacting operational effectiveness and relationship management if they expect to minimize value leakage and realize the full benefits of their outsourcing contract.

There are many forms of value leakage in both government and private sector outsourcing contracts. One form of is the inability to achieve efficiencies through key operating metrics and Service Level Agreements (SLAs). Other examples include nonperformance in innovation deployment and in the use of emerging technologies, or non-compliance to regulatory requirements or agency expectations resulting in the inability to support goals and objectives.

Additionally, value leakage may begin to occur when outsourcing contract terms become unworkable because of industry or regulatory changes or as a result of operational challenges caused if the client fails to fully leverage the provider´s talent.

Value leakage may also result from relationship management challenges where unresolved cultural differences get in the way of effective communications and the operational goals of the outsourcing strategy.

However, stopping value leakage carries with it a huge return. If issues surface early and regularly, and have an underlying fact-based diagnosis, then the client and provider are able to address issues, remedy the situation and avoid costly and laborious interventions.

This white paper discusses several key signs of value leakage that client organizations should assess to achieve the most out of their outsourcing contracts. By monitoring and preventing value leakage throughout the duration of the outsourcing contract, both the client and provider can better serve end-users and keep costs to expected levels while continuing to improve service performance.

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