A lot of companies (in particular smaller and midsize) are really not considering the different approaches as to how to manage and utilize the relationship.
There are two distinct approaches to managing an outsourcing relationship. One approach is to utilize the Passively Managed Approach...the other one is the Actively Managed Approach.
There are advantages and disadvantages to both.
The characteristics of the different approaches can best be described as follows:
Passively Managed Relationship (PMR):
The approach is characterized by having a defined (non dynamic) responsibility the outsourcing provider is tasked with. It is chosen because the client wishes to utilize the expertise and competency of the outsourcing provider in a defined field. The client utilizes the organizational knowledge available.
The scope of the relationship is contractually defined and as such Key Performance Indicators (KPIs) can be set. By using easily quantifiable KPIs benchmarking and evaluation is easily achievable.
Actively Managed Relationship (AMR):
The responsibilities using the AMR approach are rather loosely defined. Instead of hiring the outsourcing provider to benefit from their organizational knowledge (expertise in certain processes) the client hires workers with certain qualifications.
These workers are then tasked dynamically to satisfy the needs of the clients. The tasks assigned will change throughout the duration of the contract as per the client instructions. Because the relationship has not been clearly defined during the contract stage KPIs are most often not easily identifiable.
Which Model To Choose:
When reviewing the two different approaches to manage the relationship it is helpful to identify what drives the need for the AMR versus the PMR.
The PMR has been the favorite of corporations for the longest time. Not a lot of companies wanted to utilize the AMR model. Corporations like the PMR model because it makes everyone accountable. KPIs are properly defined and expectations can be measured against the KPIs.
However..this has been changing over the past few years.
The AMR model has been gaining in popularity.
The driver behind an increased adoption of the AMR model has been the increased pace of technology changes forced upon corporations. Simply put....the need to adapt to changing technology trends has rendered the PMR model often times useless for a lot of corporations.
The emergence of the cloud and the digital marketplace have greatly increased the pace at which technology changes have to happen...and a PMR is often times not capable to keep up with the change in requirements.
The need to evolve is what has been forcing companies to adopt the AMR model.
Of course..there are also challenges which come with it.
I believe there are two distinct disadvantage utilizing the AMR model.
First of all the lack of KPIs makes it not as easy to evaluate if the relationship is working well. Expectations cannot be measured against results as in the PMR model.
Secondly, there is a need for greater management involvement by the client. In order to make the outsourcing relationship work using the AMR model the client has to integrate itself more closely into the day to day operations of the outsourcing provider. As the name suggests...Actively Managed Relationship (AMR) truly means more active involvement.
At the end of the day it comes down to what the client(the corporation) needs. If the client believes there is real need to be dynamic and respond to changing technology trends then the AMR model is the way to go.
The need to stay involved from the client side and the relative lack of KPIs is a small price to pay if the results are delivered.
On the other hand..if all what the client needs is the expertise an outsourcing provider can deliver pertaining to a defined area of responsibility...then the PMR approach is the way to go. It certainly is easier to manage from the clients perspective.