Organisations that develop their firm’s outsourcing
relationships based upon mutual trust rather than relying on
punitive service level agreements and penalties will benefit from a
“trust dividend” worth as much as 40% of the total value of a
contract, according to research by the Warwick Business School.
Ignoring the value of properly managed outsourced relationships
is, according to Professor Leslie Willcocks, who conducted the
research, “tantamount to corporate negligence.”
The study, supported by LogicaCMG, analysed 1,200 outsourcing
contracts from across the world since 1990.
Firms need to agree a “relationship charter” with their
outsourcing partner that sets a behaviour benchmark and includes
regular health checks, balanced scorecards and senior executive
dashboards for the customer to help monitor success levels,
according to Willcocks.
“We found that contracts with well-managed relationships based
on trust – rather than stringent SLAs and penalties – are more
likely to lead to a ‘trust dividend’ for both parties,” he
said.
“Real trust is not naïve. It comes from planning, is steered by
the right people, structures, processes and measurement, and is
earned from performance.
“Ignoring the value of properly managed outsourcing
relationships is tantamount to corporate negligence – simply
because it has such a huge impact on return on investment and the
potential value gained from outsourcing.”
Willcocks and co-author Sara Cullen said that for all but
short-term arrangements, power-based relationships are poor
substitutes for cooperation and trust building processes.
The alternative is to face the high transaction costs of
monitoring and of imposing sanctions, the negative orientations and
behaviours adopted, and the limited goals that can be pursued by
the parties.
Willcocks and Cullen said that the contract was a necessary but
not sufficient governance tool for outsourcing, but added that
poorly constructed contracts, based on faulty cost service
analyses, and containing ambiguities, loopholes and incomplete
terms, can seriously damage outsourcing health.