Outsourcing Relationship Management - Importance of ORM

Importance of ORM

The success or failure of an outsourcing engagement is not guaranteed on the day the contract is signed. Getting the contract right is necessary, but not sufficient for a successful outsourcing strategy. One study by Vantage Partners (Boston, MA) found that at least 15 percent of the total outsourcing contract value is at stake if outsourcing governance is not managed well. It's apparent that a cooperative partnership between the customer and service provider based on effective relationship management and trust can add value to an outsourcing deal. A strained relationship, however, can detract significant value from the expected benefits of the initiative. Value in terms of cost reduction, increased innovation and improved flexibility is degraded by the greater need for monitoring, auditing and issue management. In that environment, conflicts frequently turn to major, disruptive disagreements and important projects are stalled.

In the book, "Multisourcing," Gartner analysts point out that successful outsourcing is built on "a network of relationships, not transactions," and outsourcing governance is the most important factor in determining the success of an outsourcing engagement. But many companies still haven’t realized the truth of this statement. Gartner found that fewer than 30 percent of enterprises have formal sourcing strategies and appropriate outsourcing governance mechanisms in place. In a 2004 survey of 130 CIOs, 42 percent said they were dissatisfied with their outsourcing relationships, according to outsourcing advisory company EquaTerra, primarily due to poorly developed, underbudgeted and undersourced governance models.