Published: 06 July 2023
Using strategic elements such as incentives and penalties in managed services outsourcing deals can help align provider behavior to your business objectives. Sourcing, procurement and vendor management leaders can use this research to structure deals that drive quality of services and deliverables.
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Lack of provider behavior drivers — such as a well-defined scope, termination for chronic failures, adequate balance of the impact of a single service-level metric, and the pricing model — can render penalties and incentives virtually useless.
Managed services outsourcing deals that have inadequate penalties and incentives structures, or neglect them altogether, are prone to poor service, cost overrun and relationship breakdown.
Negotiating deal terms before selecting a service provider helps to ensure alignment between the two parties and avoids any conflict that may arise if terms are unfavorable.
Sourcing, procurement and vendor management (SPVM) leaders negotiating IT managed services
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