Companies should worry less about tying suppliers to service level agreements (SLAs) and more on building a trusted relationship if Business Process Outsourcing (BPO) projects are to succeed, experts have warned.
According to analyst Gartner, as many as 25 per cent of outsourcing deals fail. Cost rather than business improvement is also still a major driver behind BPO deals, which leads to the high failure rates.
Peter Hanby, director of the life division of Royal and Sun Alliance, which in February signed a £300m, 10-year BPO deal with Unisys, said emotional factors and a feeling of trust played a major role in the choice of supplier.
"It's a relationship for life. At the end of the day, the underlying commitment has to be there. You need things like IT capability and scale, but trust is key. There is one company who I will never ever deal with because that trust wasn't there," he said.
Paulina Lubacz, treasurer of Durham University, said although the university's seven-year deal with Unisys cost more than the in-house service previously in place, she viewed the relationship as a business improvement project.
"For us it was very much about certainty of cost. In terms of speeding up change - for example, we have just introduced a new student management system - other universities are amazed at how we can do this," she said.
"You do need a spirit of partnership because even if you had everything tied down, things are going to change.
"We should have paid more attention to keeping service levels refreshed so you understand what service is being delivered. When we delivered the original SLAs there were too many - they need to be key to the business."
And while price is still an issue, Martin Hepworth, a director at BPO consultancy Troika, warned that haggling too much over the financial terms of a contract was counterproductive.
"It's about getting the right level of cost and quality. Some clients are getting a bit aggressive on price - it's got to be a hard negotiation but a fair one," he said.
But with the BPO market predicted to explode over coming years - analyst firm Ovum Holway predicts growth to £10.3bn by 2005, up from £3.5bn in 2001 - and with the market flooded by companies looking for a slice of the BPO pie, finding the right supplier has never been harder.
David Skinner, a lawyer at outsourcing specialist Shaw Pittman, warned: "Too many IT suppliers are trying to jump on the BPO bandwagon and not being successful. They need to think more about what the customer wants."
And Mike Friend, senior research analyst at IDC, said: "Equity analysts still see outsourcing deals as a sign of organisational difficulty. This is not about IT. This is about processes and management of people."
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