Why You Should Consider Evolutionary Contracting

There had been suggestions on how BPO clients and service providers can generate more value from their offshoring and outsourcing engagement. Thomas Young, partner at outsourcing and consultancy firm ISG, suggests a simple master services agreement. Here's how Australian small and medium businesses (SMEs) can benefit from evolutionary contracting.

Dynamic Change and Flexibility

Typically, contracts are carefully mapped and laid out.  It's a contingency plan for all possible scenarios that may happen for the duration of the offshoring or outsourcing contract. However with varying market conditions, global competition and dynamic changes in technology, you need a contract that can withstand the test of time. In evolutionary contracting, terms and protocols reflect flexibility.


SMEs today are in a dynamic global market. Deals can evolve over time. For example, when you're offshoring social media marketing or mobile app development, work changes once customer feedback comes in. Service levels are then changed, which in turn affects pricing.

To deal with this challenge, evolutionary contracting starts by using an input-based metric for pricing - such as FTE (full time equivalent) or a rate card. Then the agreement shifts into an outcome-based pricing model. This enables SMEs to generate more out of their offshoring and outsourcing engagement other than cost savings.

Customised Outsourcing Solutions

Young recommends a Request for Solution. Buyers describe their operational environment, objectives, goals and desired outcome. Service providers are allowed to develop solutions that meets their specific needs. This enables BPO providers to develop solutions instead of being held back by a narrow transactional approach of the Request for Proposal (RFP). BPO clients can get a customised solution that leverage their service provider's capabilities.

If you're business has a well defined service or operates in a static environment, the conventional RFP is the way to go. These are services that aren't going to change in the next years five years so a fixed contract is a better fit.

Both BPO clients and service providers need to make an effort to thrive. Buyers need to look past cost cutting to generate more value and justify their offshoring or outsourcing efforts to the discerning public. On the hand, service providers need to diversify and ramp up their capabilities to adapt in a technology-driven market. 

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