Outsourcing involves the transfer of the management and/or day-to-day execution of an entire business function or process to an external service provider. The client organisation and the supplier enter into a contractual agreement that defines the transferred services. Under the agreement the supplier acquires the means by which the services will be provided in the form of a transfer of people, assets and other resources from the client (or a previous service provider, where a contract is being re-tendered). The client agrees to buy the defined services from the supplier for the term of the contract.

Although definitions vary a little, at EightyTwenty Insight we recognise three broad categories of outsourced services, requiring different expertise and experience:

• Information Technology Outsourcing (ITO)
• Business Process Outsourcing (BPO)
• Knowledge Process Outsourcing (KPO)

All of these forms of outsourcing are governed by a formal contractual relationship. The health of that contractual relationship is therefore critical to the success of the arrangement. At EightyTwenty Insight limited, our experience suggests that, far too often, clients and providers enter into a contract that legislates for failure rather than success. That is, the contract concentrates on penalty clauses and remedies, rather than the mechanisms that incentivise good governance, relationship management and innovation. Our insight is captured in the white paper ‘Legislating for Success’©.

Outsourcing reference examples in UK Local Government can be found here.