| Flexibility | | | | from the off. |
| A contract needs to be firm as heck - but it also | | | | Similarly, the modern bane of data protection needs to |
| needs to be flexible if it's going to facilitate a flourishing | | | | be involved in the contract - specifically, who handles |
| and successful relationship. Outsourcing arrangements | | | | what data when, and what steps must be taken by |
| need to cater for a vast variety of potential changes | | | | both parties to ensure the security of said data. For |
| in the business and legislative environment of the | | | | instance, losing customers' personal details can be |
| parties in question: new laws and regulations, new | | | | devastating enough to a company's image without |
| technology, currency fluctuations, changing business | | | | invoking the specter of outsourcing or offshoring. If a |
| needs of the end user or users, and different | | | | provider is to be handling large quantities of potentially |
| macro-economic circumstances can all have drastic | | | | damaging data it is imperative that how that data is to |
| impacts upon the way a company operates and | | | | be handled is specified at the contract stage, allowing |
| interacts with its partners, and unfortunately a contract | | | | the buyer at least some input into how that most |
| needs to be prepared for any and all of these | | | | precious and potentially devastating commodity is |
| changes. Being tied into paying your provider in their | | | | cared for. |
| home currency while it suddenly appreciates 50 per | | | | Dispute resolution |
| cent in a year can suddenly make a contract an awful | | | | In an ideal world, just as in marriage, partners in |
| lot less attractive to a buyer of services… | | | | outsourcing would never argue… But - alas! - it's not |
| Of course, the contract itself (especially if it's going to | | | | an ideal world and some form of dispute, however |
| get anywhere near the lean ideal) can't provide for | | | | minor, is going to come up from time to time in any |
| every eventuality. What it can do, and should do, is | | | | form of relationship as convoluted and complex as |
| provide an adequate framework for both parties to | | | | outsourcing. While the great majority of problems will |
| come together and analyze how the operating | | | | be minor enough to be able to be sorted out quickly |
| environment has changed and what steps need to be | | | | and without the need to turn to the rulebook, in some |
| taken to keep the relationship viable from both | | | | less happy circumstances a quiet word or two just |
| perspectives. Similarly to the need for a robust dispute | | | | won't cut the mustard and more formal dispute |
| resolution framework as discussed below, there is a | | | | resolution procedures will have to be put into play. |
| requirement from very early on in the agreement for a | | | | But what procedures? Again, this is where the |
| structure intended to cope with the vagaries of doing | | | | contract becomes critical. By specifying the structure |
| business together in a hectic world; while events may | | | | of the dispute resolution mechanism, a good contract - |
| conspire against the signatory parties, at least if their | | | | while not providing all the answers itself - will enable |
| contract provides some form of blueprint for working | | | | the signatory parties to work together to resolve their |
| together, some progress may be made. | | | | issues (and it's rare indeed to find a dispute that |
| Contemplating what events might require such | | | | genuinely doesn't have a resolution lurking somewhere). |
| contractual flexibility is a full-time job in itself - especially | | | | Outlining how a grievance is to be addressed, how |
| in a globalized business environment with services | | | | promptly, under what circumstances, and by whom, |
| being delivered from a global platform. Nevertheless, a | | | | before the fact, is a great step towards ensuring that |
| well-drafted contract and two parties looking for | | | | if disagreements do arise they can at least be ironed |
| solutions rather than recriminations are the best | | | | out by a pre-agreed process. If after that process has |
| foundation for overcoming whatever obstacles are | | | | been carried out, one or other of the parties is |
| thrown in the way of the relationship. | | | | unhappy with the resolution, they will at least be aware |
| Fairness | | | | that they were partly responsible for the drawing-up of |
| As stated above, the ideal outsourcing deal is a true | | | | the resolution process itself and agreed to be bound |
| partnership, a coming-together of ideas and talents. But | | | | by its decision. |
| even if an agreement doesn't reach those dizzy | | | | Some contracts allow for the involvement of external |
| heights it needs to display a suitable degree of fairness | | | | conciliation agencies while others specify that resolution |
| if the relationship's not to break down terminally. A | | | | is to be achieved internally to the two parties. |
| contract should be something both sides are happy to | | | | However it's agreed, though, it's important to note that |
| stick by for the duration of the deal, not look to work | | | | the mechanism must be arranged in accordance with |
| around or through as soon as the ink's on the dotted | | | | all relevant laws and regulations (compliance being as |
| line. The concept of fairness here doesn't mean | | | | much of an issue here as anywhere else) and that this |
| equality - there's still a buyer and a provider, after all - | | | | may result in external parties (such as unions or trades |
| but it does mean creating a contract where, as far a | | | | bodies) being involved as a consequence even if the |
| possible, all parties believe they've got a good deal. | | | | contract specifies otherwise. Once again due diligence |
| The stereotypical example of an unfair agreement is | | | | is vital here. |
| one where the buyer's negotiating team has, for want | | | | |
| of a better phrase, done a number on their | | | | Termination preparedness |
| counterparts within the vendor organization, obtaining | | | | All things must end, so they say - and outsourcing |
| extremely favorable financial terms. What tends to | | | | deals are certainly no different. However, a great deal |
| happen in such cases is that the vendor is forced to | | | | of pain and inconvenience can be avoided if that very |
| operate on extremely reduced margins and, invariably, | | | | fact is faced head-on from the beginning rather than |
| starts giving more attention to more lucrative | | | | swept under the carpet. A good contract will specify |
| relationships or even begins to think of ways to | | | | as clearly as possible how the relationship can be |
| terminate the deal. With Outsourcing 1.0 where | | | | brought to an end smoothly and without disruption to |
| companies view the process as a cost-reduction | | | | the buyer's core activities. Most deals agree that even |
| exercise pure and simple, and where the emphasis at | | | | if one side cancels the agreement unilaterally (with |
| contract is on keeping as much cash as possible off | | | | whatever consequences already outlined within the |
| the table, it's easy to see how this lack of fairness can | | | | contract), whichever side that may be, the provider will |
| quite frequently manifest itself in unsatisfactory | | | | still continue to offer the contractually agreed service |
| agreements - especially when the buyer is a very big | | | | until either a set period has elapsed or another provider |
| player with serious economic clout, or in a buyer's | | | | has been secured. The consequences for a |
| market where providers are constantly exposed to | | | | company's reputation, of course, of not following |
| the danger of being undercut. | | | | through on those guarantees would be catastrophic |
| Because of the intimate and long-term nature of | | | | and buyers should feel confident that even in the |
| outsourcing relationships, however, it's vitally important | | | | event of a total breakdown in the relationship, the |
| for a buyer to keep their provider happy (or at least | | | | service itself won't be affected. |
| content) and keen to keep their client's custom - | | | | Some contracts specify a "right of step-in" whereby |
| without, of course, becoming something of a soft | | | | the buyer receives the right to take control of the |
| target. Approaching a contract with the concept of | | | | relevant portion of the provider's staff and |
| mutual fairness, rather than penny-pinching, at the | | | | infrastructure to ensure uninterrupted service; whether |
| forefront of the mind will help reduce the possibility that | | | | or not those rights are arrogated, some kind of |
| the terms of the contract will be the tripwires that bring | | | | answer to the question "what if the worst happens?" |
| the entire agreement tumbling down. | | | | needs to be given at the contract stage. |
| Incentives and penalties | | | | Also useful is an agreement on transferring data and |
| The aforementioned requirement for fairness | | | | knowledge from one provider to a successor firm in |
| notwithstanding, it's crucial to specify penalties which | | | | the event of the non-renewal of a deal. Throwing toys |
| will come into play in the case of sub-optimal service | | | | out of the pram is all very well for infants but a |
| provision - as well as the incentives encouraging both | | | | multi-million-dollar service provider parting company with |
| parties to up their games. However such penalties and | | | | a multi-billion-dollar client can't exactly just sulk and |
| incentives are going to be shaped, it's important that | | | | refuse to give back relevant data and systems - well, |
| they be, firstly, fair (of course), but moreover that they | | | | that is, it can't if the contract specifies a certain |
| be designed as a result of the clear focus on the end | | | | process in such an eventuality. A mutual agreement |
| result discussed earlier. The idea is not (NB, buyers) to | | | | needs to be reach which specifies that even if the |
| recoup a substantial percentage of the fees through | | | | buyer is transferring its deal to the provider's biggest |
| penalty fines; nor is it (here's looking at you, vendors) to | | | | rival, it will be business as usual until the final day of the |
| tie the buyer in to an increasingly exorbitant reward | | | | existing arrangement. The contract will presumably |
| system for exceeding certain targets. | | | | also specify early-termination penalties and, as |
| Rather, the point is to increase service quality, | | | | mentioned, a dispute resolution process which can be |
| efficiency and effectiveness. Yes, financial rewards | | | | utilized in an attempt to prevent a permanent |
| and penalties can help do this - but they're not ends in | | | | breakdown in relations. |
| themselves. Badly calculated incentives and penalties | | | | |
| can scupper the most promising of relationships (and | | | | This article was first published on the Shared Services |
| at the beginning of a relationship, with a lot of learning | | | | & Outsourcing Network (SSON) - Read it here: |
| still to be done about where precisely the baselines | | | | About The Shared Services & Outsourcing |
| may lie, it is at any rate advisable to be relatively light | | | | Network (SSON) |
| of touch when it comes to putting incentives and | | | | SSON is the largest and most established community |
| disincentives in place). | | | | of shared services and outsourcing professionals, with |
| Intellectual property and data protection | | | | over 25,000 members. |
| IP is a huge issue in outsourcing - whole fields of study | | | | SSON provides the roof under which key industry |
| and practice are emerging from those mere two | | | | experts and organizations share their experience, |
| letters - but however complicated that issue may be, | | | | knowledge and tools, and practitioner peers connect |
| many serious problems can be headed off in advance | | | | with other all over the world, both face to face and |
| by outlining IP responsibilities and entitlements at main | | | | online. |
| contract stage. Who owns the rights to what - | | | | SSON focuses on developing its members through |
| process, software, data - needs to be spelt out at the | | | | providing training, tools, and networking opportunities. |
| beginning of the whole affair to avoid some potentially | | | | SSON staff works from international offices in New |
| extremely nasty clashes down the line. Buyers and | | | | York, London, Singapore, Sydney, Berlin and Dubai to |
| vendors alike need to keep a close eye on any | | | | research current trends and developments in shared |
| proprietary software or systems being used in any | | | | services. |
| aspect of the outsourcing deal; likewise ownership of | | | | More information visit the Shared Services & |
| any brands, trademarks and copyrights which will be | | | | Outsourcing Network (SSON) website. Stay up to |
| used anywhere along the line needs to be clarified | | | | date with SSON's latest twitter posts at twitter. |