Outsourcing services fees tied to business metrics

18 Dec 2008

With the challenges surrounding the financial industry today, many have begun to look to IT for innovative ways to beat the credit crunch and weather the current global financial storm. With the number of mergers and acquisitions expected to increase as a result of the global financial upheaval, these companies will look more and more to outsourcing to not only manage but better utilize their IT infrastructure to achieve business objectives.

According to IDC, outsourcing spend by companies in Asia Pacific will continue to grow more than 30% this year, with mature outsourcing markets, such as Australia, Japan and New Zealand, spending up to 55% of their IT budget on outsourcing.

A key trend developing is in linking outsourcing services fees directly to an enterprise's business outcomes, an approach that gives clients an opportunity to increase their IT spend only when there is business success.

In order to better react to changing market conditions, enterprises now, more than ever, are looking for IT providers who can partner with them at the business level - having a stake in helping them achieve business outcomes - while delivering game-changing IT services and systems, allowing greater transparency in their IT spend and becoming part of their business model innovation.

'Generally, outsourcing contracts are tied to certain operations-based service level agreements. While important, we've found that this alone is not enough anymore, particularly with today's dynamic market changes, uncertainty and unrest as a backdrop,' said Richard Ruiz, Vice President, IBM Global Technology Services, Asia Pacific.

'There is a growing need among corporations to build deeper partnerships with their outsourcing partners so that the partners have a direct stake in the company's business performance. Our local presence, the greater economies of scale and IBM's ability to stay at the forefront of the latest developments in business and technology mean that we are well-equipped and resourced to revolutionize how we deliver business value through outsourcing.'

For example, IBM's recent agreement with Max New York Life Insurance Company Limited, a joint venture between one of India's leading multi-business corporations and Fortune 100 company New York Life, sees the two companies jointly rolling out an integrated solution for policy issuance and administration for a new life insurance solution, Max Vijay.

As part of the deal, IBM's outsourcing fees are tied to how well the new insurance product, Max Vijay, is selling in India, as IBM provides services across insurance policy system administration, policy setup, new business processing, customer care and claims processing.

In addition, IBM will also use wireless handheld devices to facilitate on-the-spot issuance of insurance policies via GPRS data transfer to back-end systems.

The link between outsourcing services fees and business outcomes is supported by the popular view that a company's outsourcing strategy is now an enterprise asset. Relationships with outsourcing partners can sometimes become enterprise assets that increase the company's shareholder value, as the best in class practices employed by an outsourcing partner will help keep the company's IT system updated and flexible to innovate and lead the market. At the same time, economies of scale enable the outsourcing partner to upkeep the company's IT system at a lower cost.

As CEOs navigate today's rapidly changing global business environment, their ability to shift direction and introduce business model innovations is proving to be a critical success factor.

Related content

Follow Telecom Asia Sport!
No Comments Yet! Be the first to share what you think!
This website uses cookies
This provides customers with a personalized experience and increases the efficiency of visiting the site, allowing us to provide the most efficient service. By using the website and accepting the terms of the policy, you consent to the use of cookies in accordance with the terms of this policy.