Outcome-based Outsourcing- Easy To Promise Hard To Deliver Article

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Outcome-based Outsourcing- Easy to promise Hard to deliver

'Outcome-based' contracts is quite a popular concept, but the reality is something else. Its a different story of what CIOs say they want and what they actually want to do.

Author: Amarpreet97

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Indeed, the outsourcing providers are touting their ability to move beyond service-level agreements to deliver services tied to customers' business results--higher sales, lower costs, reduced errors. CIOs are quite open to forging such deeper, "outcome-based" partnerships, where their vendors share in the risks and rewards of major IT implementations and upgrades. But if outcome-based outsourcing is to work in actual as projected than customers will have to put more skin in the game as well.

The IT outsourcing movement has been rightly referred as "staff augmentation"--contracting for the cheapest people to hack code, monitor data centers, man help desks, and do other basic but essential IT work. Customers have grown accustomed to managing outsourcing resources.But not business outcomes.

But finally a lot of companies are reaching to a level where they can't squeeze any more savings from body shops. Since IT budgets are still under acute pressure, they're looking into alternative outsourcing models to find new efficiency gains.

A survey reports that 20% of 430 IT pros working with Indian outsourcers cited the "ability to tie project costs to business goals" as a key benefit that would prompt them to work with an outsourcer again.

The enterprise group of India's Infosys has half of its deals carry some element of outcome-based pricing. Wipro, Tata, Accenture, IBM, and other providers are all scrambling to move up the stack to higher-margin services as industry growth slows.

Two-thirds of the nearly $200 million revenue of Symphony Services, a fast-growing provider of outsourced software development services, has an outcome basis, For example, under a contract to provide BMC Software with product development, quality assurance, and customer support services for select BMC products, Symphony will share in the revenue its services help generate, a share that's "drastically reduced" if it doesn't deliver on time.

Outcome-based outsourcing isn't more widespread because most vendors and customers aren't prepared to manage them. All outcomes, whether judged on business results, product quality, or timeliness, must be quantifiable. It is observed that one has to be completely metrics-oriented business to make this work. It took Symphony two years to set up the processes to define and track those metrics, a methodology it now offers to partners as a service.

Outsourcing managers fear losing status and control if they're no longer managing people and projects; and support from top management may be lacking, especially if the benefits of structuring outsourcing contracts around outcomes aren't obvious.

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Outcome-based Outsourcing- Easy to promise Hard to deliver