In-depth Look at Outsourcing

Study finds direct link between value of outsourcing and strength of the buyer/provider relationship

Study finds direct link between value of outsourcing and strength of the buyer/provider relationship

Boston, MA — January 30, 2006 — During the past 18 months, business relationship management firm Vantage Partners, in conjunction with the consulting firm Cutter Consortium and services provider EquaTerra, surveyed both buyers and providers of outsourcing services to better analyze the link between the value achieved through outsourcing and the effective management of the outsourcing relationship.

In its forthcoming study, Managing Outsourcing Relationships: Essential Practices for Buyers and Providers, Vantage Partners shares the analysis of case studies, in-depth interviews and surveys of nearly 200 buyers, providers and influencers. Virtually all respondents agreed that at least 10 percent of the annual contract value of outsourcing deals is at stake when it comes to effective relationship management; the majority (over 80 percent of buyers and 60 percent of providers) said that relationship management can account for 30 percent or more of annual contract value.

The Vantage work is indicative of a growing realization that all the promise in the world of a productive outsourcing arrangement won't pay off if the relationship is poorly managed," said Michael Corbett, executive director, International Association of Outsourcing Professionals (IAOP).

The Vantage study found that when leading-edge practices are implemented, effective relationship management creates value in terms of increased customer satisfaction, delivery of value-added projects on time and on-budget, quick response time to requests, greater innovation and thought leadership, and resources freed internally to do other work.

According to Fortune Magazine, U.S. companies now outsource $4 trillion each year, 50 percent more than four years ago, and they will outsource 15 to 20 percent annually in the years to come. Despite the growing prevalence of outsourcing, an alarming number of buyers and providers have experienced significant problems in their outsourcing relationships, which is a key driver of outsourcing success, said Danny Ertel, a partner with Vantage Partners and one of the study's authors.

On the flip side, respondents reported that ineffective relationship management destroys the value of the outsourcing relationship as a direct result of resource waste due to inability to trust and delegate, greater need to monitor/audit, frequent conflict escalation, ineffective execution and follow-through, lack of clarity around roles and responsibilities, and decisions made based on limited information.

Said Erte, In fact, our study found that buyers and providers alike realized that managing complex outsourcing relationships effectively — both between the buyer and the provider, and among myriad internal stakeholders on both sides — enhances the value to both organizations. But perhaps most importantly, good relationships don't happen by good will alone; they require good governance structures, effective relationship management processes, skilled individuals and more.

Additional Articles of Interest

  • — Procurement business process outsourcing is a growing trend, but best practices for BPO success are still being written. For insights on how to ensure your BPO project meets its goals, read "Five Success Factors for Procurement Business Process Outsourcing," sidebar to the cover story "Rising to the Challenge of the Outsourced Supply Chain" in the October/November 2005 issue of Supply and Demand Chain Executive.