What makes a great outsourcing agreement?

Outsourcing agreements are often controversial and to be honest people rarely sound that they are fully satisfied by what they get.

This goes for the suppliers and the customers.

We journalists tend to write about the deals that go wrong, with some relish, but this blog should be balanced. So here are some examples of great outsourcing agreements.

I have been following the story about the new government wanting its main suppliers to cost it less. At least it had the courtesy to tell them face to face.

It is a good debate. We have people that say the government is overcharged by 40% on IT contracts while others think suppliers can’t go any lower on price. Whatever the argument it all boils down to cost. But cost isn’t, everything is it?

But two other stories I have been blogging about recently made me realise that suppliers can be driven by enticements other than money.

Take Mahindra Satyam. Satyam before Tech Mahindra stepped in to rescue it was on the verge of collapse after its former chairman was found to have been misreporting its numbers.

At the time I wrote about how it was at risk of losing some of its major contracts. One of these was a contract to build, implement and support the event management software for the World Cup in South Africa.

As it turned out Mahindra Satyam kept the contract. The success or failure of this contract would be pivotal to the re-emergence of Satyam. What more would you need to drive you on? I spoke regularly to Dilbagh Gill, who was in charge of the project. His passion shone through as did all Mahindra Satyam staff when talking about the project.

Never mind the company’s desire to be a headliner on more positive news, this was an important project to start with. Not many are in the public eye to the same extent. But add to that Mahindra Satyam’s determination to succeed and you have the foundations of a great project. The World Cup has just finished and there was no downtime on the system.

The other story I recently blogged about is one won by Indian Supplier MindTree. This is part of the Indian ID scheme which will give 1.3 billion people unique identities using biometric technology.

It’s a big project. MindTree has been awarded the contract to build the enrolment software as well as the application that links this to the biometric technology.

In a recent interview one of MindTree’s directors told me how prestigious the win was for the company. His national pride stood out and his belief that the project would help alleviate poverty. He said of course the company has to make a profit.

See the first part of the interview with MindTree and the second part here.

Of course other great deals are achieved through suppliers being given more freedom to innovate and make money rather than being set rigid requirements.

An example of a good project where the customer gave the supplier license to perform is a deal between Scandinavian airline SAS and CSC.

The customer handed CSC full responsibility for all processes involved in putting passengers on a flight. CSC was given a fixed rate per passenger. It was therefore in the benefit of SAS to be more efficient to increase its profit. It was a great success.There must be lots more so feel free to describe them in the comment section.