The Outsourcing Dilemma - The Search for Competitiveness.pdf

the outsourcing alternative 33
personnel are moved to other projects. Some movement of the provider’s staff around the
client base will be desirable but even a slight fall off in motivation, such as might happen
if the provider strikes an even better deal with another client, could be very damaging.
Motivating the provider
In order to motivate a specialist service provider there will need to be some inducement
that runs until the end of the contract. In addition there will need to be a firm indication
that a further contract, at least as lucrative as the first one, is available for a job well done.
At a minimum this will involve a risk/reward sharing arrangement whereby, beyond a certain
level, the two parties share further savings or losses in some pre-agreed way. These
partnership or value-added arrangements make up the bulk of the so-called win/win
deals. Increasingly, the emphasis will be more concerned with continuous improvements
to the service rather than just cost savings. A good example of this is the deal by which
Rolls Royce Aero-Engines outsourced virtually all of its IT department to EDS. The key
factor in this arrangement being the EDS pledge to keep Rolls Royce ahead of its competitors
in the IT function.
It has often been relatively easy for the client organization to set out its terms.
Typically, a minimum service is laid down, which will naturally be superior to what they
are experiencing at the time. Then the maximum price is stipulated. Where a partnership
arrangement is in prospect it would be normal for the client to look for a stable price over
a four or five year contract that was no more and very likely less than their current costs.
Once these two issues have been mulled over by the client organization’s management,
they will, initially at least, claim to be happy to share any further savings the service
provider might achieve on a 50/50 basis.
It is certainly true that most current outsourcing success stories are based on
risk/reward sharing deals between client and service provider. It would be equally true to
say that the enormous growth of modern outsourcing is largely based on such arrangements.
However, a number of the providers credited with producing top quality
performances for their clients have apparently performed badly for other risk/reward sharing
clients of roughly the same size and importance. I hope some of the reasons for this
situation will become clear in the later stages of this book.
Conclusion
Using the sword and gun analogy referred to earlier, it is reasonable to picture the conventional
non-core internal function as the sword department. It has been around a long
time and it is under growing pressure from those that argue that it is out of date because
it confuses the importance of key processes. In addition, further attempts to improve performance
do not appear to justify the collective effort made.