Managed well, they can be highly beneficial in terms of cost savings and efficiency gains.
But without due diligence, they can end in disaster.
It's no surprise, then, that they are frequently compared to marriage partnerships: both take hard work; both demand commitment and compromise, and both can easily be sabotaged by misunderstanding and mistrust.
But above all, both are exercises in managing expectations.
In fact, a clear set of expectations, laid out in advance, is a determining factor in an outsourcing contract's success or failure, says Piers Harrison, a managed services specialist at Logicalis.
"When outsourcing contracts go wrong, it's often because an organisation isn't exactly sure what it's looking to achieve by passing certain tasks or processes to a third party.
In other words, its expectations are unclear - both to itself and to the provider," he says.
That, he adds, makes it impossible for either side to agree on what they're aiming for and as to whether service levels are being met.
What's needed upfront is a meticulous process of information- and data-gathering, to gain a full understanding of what can be achieved and what can't, and which tasks it would be beneficial to outsource and which should be kept in-house.
The key components of this decision framework are: o Describe in visionary terms what value outsourcing will create for the organisation; o Define the objectives of the outsourcing decision in measurable components; o Define the scope of the services to be outsourced, full or partial; o Decide if there is to be one or more suppliers; o Fully understand the impact on all employees, including those that may be transferred to the service provider and those that will stay with the client, as both groups will be affected; o Fully understand how the client's staff will work and communicate with the service provider's staff,from the board, through all levels of management right down to the end-users; o Fully define the starting position in numerical terms: costs, staff, assets, and accommodation utilised to a fair degree of accuracy; o Define how the new regime will be managed and monitored; o Define an effective change and cost control management process; o Fully define the management structure and associated responsibilities between all parties.
o Fully define the crisis management and escalation process; o Fully document all the above aspects and record in a formal contract, a service level agreement(s), and relate to all other dependent sub-contracts.