Executive summary
This report discusses the elements to be considered when developing a contract with a potential vendor. The aim is to protect the company and ensure that there is fairness in the contract. The report is based on the analysis of available data on outsourcing in the information technology topic.
When developing a contract, the parties should consider analyze the management, structure, vision and goals of the parties, transitional issues, measurement, sustainability, security, termination of contract and quality of services. The impacts on employees and their qualification can be discussed.
Careful consideration of the elements and appropriate policies will lead to the success of the outsourced function. It is recommended that the parties should make an effort to have a win-win situation.
The parties can negotiate to have a common goal and vision which will be used throughout the contract. Good communication skills and an agreement on the measurement of the goals will lead to success.
Introduction
Competition in businesses leads to innovativeness of ideas and change of strategy. Companies have engaged in outsourcing to save on cost and to deliver quality at a subsidized cost. Outsourcing has been effective in improving services and increasing efficiency in some businesses (Vitasek 2011, p. 11).
Malarvannan (2008, p. 1) argues that outsourcing has economic benefits for all since services are given at condensed prices. Consequently, some employees have been displaced. Outsourcing is the process that involves handing over a particular business function to another company.
The two companies involved enter into a contract where the services are offered at a particular cost. The terms of agreement are discussed and signed before outsourcing. In this report, the information technology operations and management will be considered for outsourcing.
The aim of the research report is to ensure that the companies involved get a win-win situation while protecting the business. The company will have headquarters overseers and a local presence.
Issues that emanate from employee displacement, their consequences and possible solutions will be discussed. This report will discuss the elements to be considered when developing a contract with a potential vendor while ensuring that the business is protected.
Elements considered when developing a contract
Business representation
Vitasek (2011, p. 11) notes that the goals of both parties can be shared. This will enable them to collaborate with common interest and form a sustainable relationship.
The outsource buyer and provider can work hand in hand after stating the desirable outcomes. They also state how the companies will team up to achieve the coveted outcomes. Different cultures in different companies can be addressed.
According to Platz and Temponi (2007, p. 1661), the goals should enable the company to effectively compete with others in the external environment and secure revenues. The contract should make note of the expectations and be sensitive to what is happening in the external market.
Management
According to Malarvannan (2008, p. 1), outsourcing buyers should consider management issues when planning to negotiate. The contract that is guided by the cost may end up causing management challenges. After agreeing on the cost, the service provider may engage on activities that will lead to reduced costs and compromise on the quality.
Poor performance and inefficiency may be realized and affect the image of the company. What is more is that the outsource provider will perform to satisfy the outsourcing buyer.
One of the challenges of outsourcing is that the outsourcing buyer may eventually lack opportunities for innovation. The negotiations should emphasize quality, efficiency, innovativeness and adequate costs from both the provider and the buyer.
Ngwenyama and Sullivan (2007, p. 618) state that the management should take note of the geographical distance which may be an implication of outsourcing.
When developing a contract, the outsourcing buyer and provider may consider adopting new communication techniques. The overseers company may be disadvantaged by the distance between them and the local information technology department.
Vitasek (2011, p. 18) argues that communication should be a consideration in the making of the contract. Unlike traditional communication characterized by hierarchy, functional communication is direct and suitable for outsourced business function.
In direct communication, information is widely shared and utilized by the employees. When adopted in the initial stages, managers have the advantage of obtaining information from the employees and making necessary changes.
Structure
A long term relationship is necessary for the success of the contract. The structure should have management controls. The goals should be clear to both the outsourcing buyer and provider. Policies and rules should be known to enable the two parties agree as well as reduce disagreements (Chen 2006, p. 7).
General goals make it possible to make changes during the project without affecting the main objective of the outsourced project (Platz and Temponi 2007, p. 1661).
When developing a contract, the framework should be enabling and provide assistance in management as Vitasek (2011, p. 17) points out. The framework is intended to be used throughout the period the companies will be in contract. It should facilitate employee’s cooperation, good working relations and positive attitude in their work.
The companies developing a contract should recognize that the environment is changing. Policies developed should allow the companies pursue their goals in a dynamic environment. The companies should be accountable and can choose to adopt a culture of continuous improvement.
Declaration and vision
Vitasek (2011, p. 12) states that the vision provides guidance and leads to declaration of intent of service. A shared vision enable outsourcing partners have trust, honor, support and integrity. As a result, the companies enjoy communication, feedback, shared perspective and flexibility.
A common vision facilitates policy making and decision making throughout the contract. The contact becomes effective after both parties have signed the agreement.
Transitional issues
Employees form an important part of an organization. Rivard and Aubert (2008, p. 302) note that the employee’s ability to work may be affected due to transitional related dilemmas. The Information Technology managers and junior employees may be required to become loyal to a different boss.
The outsourcing buyer and the provider should make arrangements for a smooth transition and ensure that the responsibilities are without a doubt known. Vitasek (2011, p. 12) suggests that the buyer of the contract can plan to address the transitional issues before they arise. The employee’s corporation is necessary for the success of the outsourced function.
The companies can agree on the management of work at the initial stages to avoid conflicts, and then schedule how the overall goals will be approached. The management can suggest innovative ideas that will enable them solve daily challenges and experience growth. The management can adopt a culture of regular assessment and make changes where necessary.
Termination of contract
It is crucial to discuss unknown future in case of change that may lead to termination as Vitasek (2011, p. 32) discusses. The contract should address termination notice, plan and transition. This will enable the companies to separate without harming the two companies.
The terms concerning exit should be clear. Termination of the contract may occur due to poor performance. It can also emanate from inability to continue providing the services. There can be several options from which the parties choose from when separating or eliminating the contract.
Platz and Temponi (2007, p. 1661) indicate that data transfer and equipment should be discussed. Depending on the size of information technology outsources business; the period of transitional exit should be discussed.
Measurement
The outsourced buyer should have a measurement plan to assess the success of the outsourced function. They should determine the minimal performance outcomes of the individuals and the entire Information Technology team. Their performance should be better than that of the internal employees of the company.
The measurement should be specific and make note of cost and quality provided. The measurement plan can also follow information technology standards. The outsource buyer should specify the period of time they will allow the outsource provider before evaluating their progress.
Vitasek (2011, p. 12) adds that the measurements of success can be the desired outcomes. The outsource provider can recommend the outcome. The measurements should be attainable and understood by all parties.
Sustainability
When developing a contract, governance mechanisms should be adopted to make the outsourcing sustainable. The structure and reporting mechanisms should be clear and known to all. The decision making process should be enabling and facilitate efficiency. Further instructions can be communicated to the employees (Ngwenyama and Sullivan 2007, p. 618).
Chen (2006, p. 7) suggests that the contract should have monitoring provisions. Monitoring can be done regularly as both parties agree. Auditing reports and reviews are good examples of monitoring. The aim is to ensure that the standards are followed. Recovery plans after failure can be arranged at this stage of developing the contract.
Quality of services
The quality of services should be considered when developing a contract. The end user of a product is the best determinant of the quality of services offered. To get unbiased opinion, the outsource buyer can conduct a research using questionnaires.
The questionnaires would provide information on the level of customer satisfaction. Surveys can also be useful in finding out the quality of service.
Pricing can be discussed when developing a contract. The companies may have to compromise on the price so that they agree. Flexibility, cooperation and creativity are the most effective way of attaining a pricing arrangement (Vitasek 2011, p. 17).
Qualification of employees
The outsourcers may choose to replace experienced and highly paid employees with less qualified and low wage employees. They may choose people with diverse qualifications. Depending on the geographical location, information technology engineers may be rewarded differently.
Those from the developed countries may be given high reward. Those from developing world with same qualification may be paid very little compared to those in the developed world. Outsourcing may involve training of employees to perform the specified function.
Security
The responsibility of the employees changes after outsourcing. Ngwenyama and Sullivan (2007, p. 618) argue that the legal status changes as their employer changes. The employee’s security and other issues are discussed when developing the contract.
The outsourcing buyer and provider may have to consult a human resource or legal person to make appropriate policies.
Every outsourcing project is unique and different approaches are given in legal matters concerning employees. Measures to deal with irregularities and issues such as fraud should be considered when developing the contract.
It is necessary to state mechanisms and procedures in dispute resolution. The statement clearly outlines which conditions are considered arbitration and the course of action, depending on the nature of dispute (Chen 2006, p. 8).
In information technology, a lot of information and knowledge is shared. Confidentiality is essential and both parties are required to respect each other’s rights (Vitasek 2011, p. 17).
Chen (2006, p. 8) notes that intellectual property can be discussed when developing the contract and state the copyright owner. Licensing and rights to modify the products developed is also discussed in the making of the contract.
Employees and labor
When considering adopting a contract to outsource, it may be necessary to consider the insecurity that emanates from outsourcing. The company faces the displacement challenges. The displaced employees have skills and training in a specialized area and may also face a threat in future if they obtain a job and it is outsourced.
The talented and skilled information technologist experts in the headquarters overseer remain underutilized. On the other hand, the employees in the local area in the developing country have an opportunity to work and utilize their knowledge as they gain skills.
Consequently, the effect of globalization is felt as prices of services are lowered, hence economic advantage to many people (Vitasek 2011, p. 12).
When developing the contract, the outsource buyer should consider legislations pertaining outsourcing. Different states approach the issue differently.
Some emphasize that the company should compensate employees affected by outsourcing or trade agreements with other states (Ngwenyama and Sullivan 2007, p. 618).
Outcomes of outsourcing
When developing a contract, one should consider the benefits for each party. The company outsourcing may realize reduce costs from low wages in the developing countries. Outsourcing in information technology enables the company to have specialized information technology services.
The company provides services to the local community at affordable rates. Outsourcing is an effective way of obtaining quality. Rivard and Aubert (2008, p. 304) mention that the contract can make agreements with better services.
Companies can consider tax benefits in developing countries. Some of the countries can reduce or eliminate taxation for some time to allow growth of business in foreign states.
Ngwenyama and Sullivan (2007, p. 618) reveals that information technology companies that outsource may want to utilize the talent, knowledge and skills of employees without an opportunity to deliver. Outsourcing avails services that were missing to potential market.
The employee may have experience needed to bring innovativeness in the company. A contact has a legal binding and employees are required to perform, receive rewards for work done and receive penalties for poor performance. Outsourced information technology experts may take minimal time to solve a problem.
The company utilizes the knowledge and skills that are absent in the company. The company can also outsource if their tasks are beyond their capacity. The employees will therefore be spared from overworking and fatigue. A company can outsource when preparing for major changes in the structure and management in the company.
Conclusion
When developing a contract, the business can be protected. When negotiating, the parties can share and agree to have common goals, vision and objectives for the outsourced function. The management can adopt new communication techniques to coordinate functions in the different geographical areas.
The structure should facilitate the transition and management. Changes in environment can occur. The contract should cover the process of terminating a contract and legal issue. Quality of services and employee’s qualification can be discussed. The contact should have policies to sustain the project and enable decision making.
Information exchange, data storage and copy right ownership terms are discussed in the development of the contract. The outcomes expected include quality services and reduced costs. There should be a mechanism to measure and asses the progress of the contract.
Recommendations
The negotiations should be conducted in such a way that the outsourcing buyer and provider have a win-win situation. Those signing the contract must be aware of the goals and the policies involved. Understanding of the goals minimizes disagreements and facilitates management efforts.
The outsourcing buyer and provider should make plans together and engage in good communication. The concerns that arise should be jointly addressed for a win-win situation (Vitasek 2011, p. 12).
The main emphasis should be laid on the outcome of the outsourcing. The common goals should be the guiding factor. The objectives should be clear and shared. The measurements should be known and quantifiable to both parties.
Reference List
Chen, Y., 2006. An Empirical Analysis of Contract Structures in IT Outsourcing. Web.
Malarvannan, M., 2008. Top five elements to include in a BPO contract. Web.
Ngwenyama, O. K. & Sullivan, W. E., 2007. Outsourcing contracts as instruments of Risk management: Insights from two successful public contracts. Journal of Enterprise Information Management, 20, 6, 615- 640.
Platz, L. A. & Temponi, C., 2007. Defining the most desirable outsourcing contract between customer and vendor. Management Decision, 45, 10, 1656 – 1666.
Rivard, S. & Aubert, B. A., 2008. Information technology outsourcing. M. E Sharpe.Inc. New York.
Vitasek, K., 2011. The 10 elements of a vested outsourcing Agreement. Web.