Outsourcing built on trust rather than penalties is most
successful, says study.
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.
Leslie Willcocks and his team at the Warwick Business School
analysed 1,200 outsourcing contracts agreed around the world since
1990. The results consistently demonstrated how trust relationships
brought improved service, quality and cost, which helped to
transform the overall efficiency of the contract.
The researchers concluded that firms need to agree a
"relationship charter" with their outsourcing partner that sets a
behaviour benchmark. It should include regular health checks,
balanced scorecards and dashboards for the customer to help monitor
success levels.
"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 naive. 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' report said that for all but short-term arrangements,
power-based relationships are poor substitutes for co-operation and
trust building processes.
Without a trust relationship, firms face the high transaction
costs of monitoring and imposing sanctions, and all of the negative
associations that brings with it.
The contract is a necessary, but not sufficient, governance tool
for outsourcing. Poorly constructed contracts, based on faulty cost
service analyses, with ambiguities, loopholes and incomplete terms,
can seriously damage outsourcing health, he said.