From FTEs To Results: Going Beyond Labor Arbitrage To Managed Outcome Relationships

Companies have spent years expanding their use of applications development and maintenance services based on a time and materials (T&M) model. Today, many service buyers feel they have maxed out their gains from this approach, and from the labor arbitrage obtained via offshore providers. Clients may face diminishing returns due to increased provider costs, decreased productivity, or both. To achieve the next threshold of value, apps services buyers need to transform staff augmentation relationships into relationships based on outcomes defined in terms of price, deliverables, and service levels, what Forrester calls managed outcome relationships. Clients instead should aim to take advantage of their suppliers' technical prowess, processes, and tools to save money and achieve other, potentially more valuable benefits. The transition from T&M to an outcome-based model goes beyond a normal stage in application outsourcing and is fraught with challenges. This document lays out an approach for sourcing teams to capture these benefits while minimizing risk.