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By Laton McCartney
With outsourcers scrambling to retain and attract new business in a down market, organizations are trying to mitigate risk and maximize their returns in dealing with service providers.
"In terms of their contractual arrangements with outsourcers, clients are imposing much more rigid clauses and demands today," notes Jerry Durant, chairman, The International Institute for Outsource Management.
Specifically, in the wake of the Satyam scandal, Durant says clients are "looking under the hood to ensure the company doesn't go south."
To insure against this clients need to conduct due diligence that includes everything from an assessment of the background of the firm's management to a close look at the outsourcer's track record and financial claims. "There are tipping points you need to watch out for," Durant tells CIOZone. "Sometimes, as an example, you'll see a meteoric growth curve that doesn't match up against the new business the outsourcer has brought in."
Some outsourcers such as those in China are partially subsidized by the government, which makes their finances seem perhaps more positive than they in actuality are.
Another point in measuring the outsourcer's viability: Check the client list for companies such as automotive firms or financial institutions that are financially vulnerable.
Another key in dealing with outsourcers is geographical diversity. Several recent studies including one by the London School of Economics note that companies are looking to hedge their bets with their IT service suppliers so that if problems arise in country A, their work can be seamlessly transferred to country B or C. Today, a number of major outsourcers including EDS with its Best Shore Global Delivery model and Capgemini offer this geographical hedging capability.
Some customers are committing to outsourcing work today even though they may be cash-strapped or not have a new budget in place. In response, outsourcers such Infosys are allowing clients to pay on a per-transaction basis rather than a lump sum and are linking fees to business results.
The upshot: Leave as little to chance as possible.
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