The Institute for Contract and Commercial Management (IACCM) is truly the leading forum for exchanging negotiation and contract management best practices and for networking with your peers. If you’re not familiar with IACCM and you’re considering methods to improve your negotiation and contract management expertise, I recommend you get involved with this organization.

The IACCM Americas Conference in San Diego was packed with best practice sessions and workshops on methods to improve negotiations and contract management and solution performance. I had the honor of introducing the keynote speaker, David Karabinos, a founder and executive at both TPI and EquaTerra, the leading third-party advisors for information technology (IT) outsourcing and business process outsourcing (BPO), respectively. David gave a thorough overview of the BPO marketplace. With sourcing and contract managers increasingly taking a leading role in negotiation and managing outsourcing relationships, I thought it important to share David’s nine outsourcing management best practices.

1.       Get involved early: Design and build your your internal capabilities to manage the relationship – before embarking on your evaluation and selection process. This helps you define expectations and mitigate risks and failures later on.
2.       Build a comprehensive operating model for managing the outsourcing relationship: This model should includes five areas:

• A three-pronged committee structure (i.e., Executive Committee, Customer Council, and Strategic Initiatives Council) that provides strategic direction and decisions and linkage to the business strategy.
• A governance organization that has clear reporting structure, roles and responsibilities, and is aligned with the outsourcing service provider.
• Clear decision rights to define who has responsibility for key decisions.
• Clearly defined governance processes for relationship, finance, performance, compliance and change management as well as contract administration
• Governance “tools” that automate, provide visibility and control, and decision support for optimizing the relationship.

3.       Don’t underestimate the value of relationship management: Companies outsourcing business processes report that losing 30% of the value of the relationship by not managing it effectively. Supply and contract managers need to step up and take a more active role in helping their companies manage the relationship with their outsourcing provider. Effective management can provide early detection of issues and resolution and help identify new areas for continuous improvement.
4.       Know the difference between risk and value: Outsourcing management encompasses the management of both risk and value functions. Risk management includes compliance, financial and contractual management as well as issues and problems resolution. Value creation attributes include service quality; change and program management; and maintaining open and proactive lines of communication.
5.       Segment your processes by need and criticality: Using the above functions, segment and prioritize your processes to determine an execution roadmap. You will not be able to accomplish all tasks in one fell swoop. At relationship go-live you should have prioritized all compliance, operational and emergency management, and change management issues. Next, look to financial management activities, such as invoice verification, payments, and cost allocation. Finally, transition to knowledge management, review, and demand management activities.
6.       Develop roles and responsibilities around the four major workflows: Major workflows include service quality and compliance; program management; commercial management; and relationship management.
7.       Design your model with the relationship type in mind:There are four relationship types:

a. Transactional – such as contract management and financial management. Skills required include negotiations and analytical.
b. Enhanced – including issue management and performance or SLA management. This requires strong project management skills.
c. Collaborative – including change management and program management. Skills require teaming and consultation.
d. Partnership – including joint strategic planning and new business evaluation. This requires highly creative problem solving and strategic thinking.

8.       Foster key skills and attributes. David’s biggest argument was that there is currently a dearth of suitable skills to negotiate and manage the complexities of outsourcing relationships. He argues that effective outsourcing management requires a mix of strategic planning, negotiation, team-building, and relationship management skills.
9.       Don’t forget the intent of the deal. To achieve optimum value from an outsourcing relationship, everything must be tailored to the intent of the deal and adjusted over the life of the relationship. All activities, including the defined operating model, commercial management, and relationship management activities must be designed to reinforce the original goals of the outsourcing relationship, whether they are simply cost improvements or full transformation.

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