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IT increases application outsourcing despite disappointing strategic value

Stephanie Overby | July 15, 2013
Five out of 10 outsourcing buyers will up their bets on applications outsourcing, according to a joint survey from KPMG and HfS Research, but they continue to be disappointed by providers' analytical capabilities and innovation.

Say what you mean
"Today, the vast majority of companies are failing miserably at communicating their strategic needs and encouraging their partners, or potential partners, to meet them," says Fersht. Outsourcing customers musn't leave it to their providers to define their needs for them. "Unless clients understand and define innovation," says Brown, "a provider cannot help enable it."

Loosen the reigns
"Buyers need to consider giving providers more latitude in how they deliver new services," says Brown. "Overly prescriptive contracts and approaches can limit provider flexibility to introduce new and more innovative service delivery models."

Put your money where your mouth is
"When it comes to funding, few enterprises are willing to invest in either their internal or external resources to improve their provider relationships," says Fersht. "Instead, their managers persist in grinding their providers' prices lower and lower." Companies that are serious about joint innovation with providers will fund the relationships accordingly and share the benefits.

Seek partners, not providers
"Providers have become integral to the success of the smart enterprise ... but their clients have to treat them fairly and engage them as an extension of their own enterprise, as opposed to the 'master/slave' model," says Fersht. "Pulling together a disparate set of executives across various internal and external entities and encouraging them to team together to improve the competitive nature of their enterprises is a critical capability."

Get real about capabilities
"Buyers need to be aware that providers are limited in what they can deliver in these high demand strategic areas. And the providers need to set the right expectation with the buyer to ensure there is a clear understanding of what can be delivered," says Brown. "It is a balancing act by the providers to be honest and transparent enough with their buyer, but also not hype their capabilities beyond their means during the sales cycle."

Contract for co-innovation
Those interested in a more strategic partnership with outsourcers will focus on collaboration, not cost, in negotiations. This "evolving skillset requires a shift of focus toward maximizing the size of the entire pie to the benefit of all participants," says Fersht.

"Smart operations leaders need to learn the capabilities of their providers better in order to create contracts that inspire co-investment and co-learning from both parties," says Fersht. Enabling your provider to develop technology and IP that can leveraged across their client base, for example, is one way to create value for both parties.

 

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