Guide to a Perfect Offshore Outsourcing Vendor Deal: The "Do" List

CIO — Beleaguered companies are seeking new targets to reduce costs, everything from legal and HR services to business processes and R&D are headed the way of the contact center—overseas. "Many C-level executives are in deal fever mode," says Dane Anderson, vice president of IT Services and Sourcing Technology & Service Provider Research at Gartner. "They feel they have to do something so it's Ready-Fire-Aim all the way."

Aiming after the shot usually means missing the target altogether. But failing to define the target has equally disastrous effects.

"You have to look at the 'who, what, why, when, where, how' and drill down from there," says Anderson. "Don't say 'we need to cut costs' think instead 'we need to cut costs by 15 percent in the next three months,' or whatever the case may be, because specific targets will lead you to the specific actions you need to take."

Defining Cheap

"In the current economic environment, companies are increasingly being driven by commercial considerations as opposed to technical factors," says Anupam Govil, chairman of the Global Sourcing Forum + Expo, a large trade show and forum focusing exclusively on outsourcing. "Hence the definition of a good deal has changed over the last 12 months to imply one that provides more value at lower prices."

However, driving the vendor to rock-bottom prices does not a good deal make. If your deal does not sufficiently profit the vendor, the vendor may extract profits in ways that are not in your best interest.

"It is a business reality that vendors that operate on very low margins, and thereby offer the lowest bids, often cut corners in areas that eventually effect quality, scalability and reliability," explains Govil. "A successful outsourcing agreement has to create win-win solutions for both the buyer and vendor."

A good deal then begins by defining cheap as not the lowest cost, but the best bargain for the desired results.

"Companies that are evaluating the concept of business process outsourcing should strategically define the objective to go beyond the 'cost saving' model," advises Anthony Rossabi, vice president of Carrier Services, North America for Tata Communications. "The organizations should take this opportunity to create a cost effective platform which enables them to transform existing business and launch new services. The key to success will be to leverage vendor technical and process skills, productivity improvement by measuring service levels, redefining the processes, automation and effective governance."

Defining a Good Outsourcing Deal Overall

While end-goals differ from company to company and from deal to deal, there are some general guidelines to follow to ensure you are achieving best advantage in outsourcing negotiations. According to Steve Martin, a partner at outsourcing advisory firm Pace Harmon, these are the top elements to look for:

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