Analysis of management practices in performance-based outsourcing contracts

Abstract

Purpose – Outsourcing-based performance practices establish goals for supplier performance and compensation. The management of contracts based on performance is complex as is the alignment of long-term relationship and indicators. The purpose of this research is to analyse the practices that contracting companies utilise to manage outsourcing contracts with performance-based compensation. Design/methodology/approach – Multiple case studies were conducted with five contracting companies. Nine performance-based outsourcing contracts were analysed. Findings – The selection and evaluation processes have been neglected by the buyers associated with contracts that are over ten years old. The process of transferring activities relied on the knowledge of employees. Management practices based on indicators and the adoption of results-based compensation are commonplace in a number of contracts and are consistent with theory. Originality/value – This paper identifies management practices that differ between what is expected from the theoretical framework and what is observed in the actual examined contracts. Opportunities for improvement have been identified mainly in the areas of supplier selection and activity transfer; the use of pilot tests and the reengineering of the outsourced processes are suggested.

Contract management and performance characteristics: An empirical and managerial implication for Indonesia

“…There are also several studies contemplated the management practices through outsourced performancebased contacts (Blumenberg et al, 2009;Domberger et al, 2000;Logan, 2000;Omizzolo Lazzarotto et al, 2014). Authors argue that such practices are complex in nature and there is a significant need of creating long term relationship with the business contracts and performance.…”

Understanding outcome-based contracts

“…First, we shed light on the particular effects of OBCs from both the buyers’ and the sellers’ perspectives . Previous studies focused on one of the two exchange partners (e.g., Gruneberg et al, 2007; Omizzolo Lazzarotto et al, 2014), or have looked at OBCs from a more general perspective (e.g., Randall et al, 2011), without taking into consideration the individual views of buyers and sellers. Differentiating between the two views, thereby, seems particularly useful in light of the propositions of TC theory, suggesting different effects of the use of aOBCs versus eOBCs for buyers and sellers.…”

“…Results obtained from a partial least squares regression model based on 96 questionnaires indicate that performance of OBCs is significantly impacted by behavioural and information alignment, whereas material and equipment alignment was not found to exert an effect (Ng et al, 2013). Similarly, Omizzolo Lazzarotto et al (2014) have looked at management practices used in the context of nine OBCs implemented across five firms in different business-business (B2B) settings. Their interview findings reveal a substantial amount of variance in contract and relationship performance, and tentatively support the importance of formal and informal coordination mechanisms between partners.…”

Contracting for Road Maintenance in the Netherlands—The Downside of Performance-Based Contracting

“…Measurement and (functional) specifications are of critical importance for effective PBC. Lazzarotto et al emphasize the importance of utilisation of performance indicators for contract management and performance-based compensation [27].…”