Outsourcing is the delegation of tasks or jobs from internal production to an external entity (such as a subcontractor).  Most recently, it has come to mean the elimination of local staff to staff overseas, where salaries are typically significantly lower.

In long-term relationships, the key component for success of the relationship is best laid during negotiations, which lead up to the signing of the Service Level Agreement.  Some of the common practices employed for a successful management of outsourcing relationship have been listed below.

1. Relationship between key management personnel:

If there is a good understanding and strong working relationship between the key management personnel on both teams, then these relationships often tend to endure.  Research on outsourcing success has indicated that peer friendships and working chemistry with one's counterpart in the other company has been an important factor in long term relationships.

2. Measurable Objectives:

The objectives to be achieved by outsourcing must be quantifiable and must be established as criteria right at the start of the contract.  If the customer can compare the performance with the pre-established objective, then the benefits of outsourcing will be clear.  The vendor would therefore know where they stand in meeting customer expectations.

Well-defined performance criteria have quantifiable objectives, service quantities, quality guidelines, and customer satisfaction and are measurable against other providers.

3. Forming special committees:

Successful outsourcing relationships involve setting up of special executive committees or boards that draw out the best strategies for smooth & effective handling of the outsourcing relationship.  Identification, resolution and rapid escalation of issues are a key responsibility of this team.

4. Incentives and Penalties:

The provider is encouraged to meet or exceed customer expectations by establishing performance based pricing.  When performance exceeds the criteria, the incentives apply and when they fall short, the penalties are imposed.

5. Periodical review meetings:

For a successful software outsourcing relationship, it is better to have frequent formal review meetings. These meetings can discuss what both teams are working towards and a high level view of the future goals and objectives.  Product reviews and deliverables can be discussed at such meetings.

6. Training vendor personnel:

The vendor personnel need to have ongoing training so that they align their business goals to the business objectives of the customer.  The issues driving the client’s needs have to be understood and the vendor’s service has to relate to them.

7. Bridging cultural differences:

Both parties to the outsourcing relationship will have their own culture.  These differences have to be recognized and bridged.  Organizing social events, education on company background, participation in others' quality programs, etc are some of the ways to bridge this gap.