Development of an Assessment-Tool for Procurement Business Process Outsourcing

Contents

1 Introduction
1.1 Motivation
1.2 Objectives and scope
1.3 Outline of the document

2 Terminology
2.1 Consulting
2.2 Outsourcing
2.2.1 Types of outsourcing
2.2.1.1 IT-outsourcing
2.2.1.2 Business process outsourcing
2.2.2 Intelligent sourcing location terminology
2.2.2.1 Offshoring
2.2.2.2 Nearshoring
2.2.2.3 Onshoring
2.2.3 Outsourcing models
2.2.3.1 Full business process outsourcing
2.2.3.2 Shared service center
2.2.3.3 Joint venture

3 Procurement business process outsourcing
3.1 Why outsource procurement functions?
3.2 Market trends
3.3 What can be outsourced?
3.4 Locations
3.5 Examples for procurement BPO

4 Presentation of the IT service company gedas AG
4.1 About the company
4.2 History
4.3 Organization of the company
4.4 Service portfolio

5 Development of a business process outsourcing assessment tool
5.1 Development of the procurement BPO assessment tool
5.1.1 Questionnaire
5.1.1.1 general
5.1.1.2 IT
5.1.1.3 Strategy
5.1.1.4 Office equipment/services/IT-licences
5.1.2 Visualization
5.1.2.1 Benchmarking tool
5.1.2.2 Procurement costs
5.1.2.3 Scoring model
5.1.3 Help
5.1.3.1 Summary
5.1.3.2 Glossary
5.1.4 Location assessment tool
5.1.5 Investment tool
5.1.6 Service offering portfolio
5.1.7 Assessment tool documentation
5.2 Integration within existing consulting framework
5.3 Case study
5.3.1 Approach
5.3.2 Case companies
5.3.3 Results
5.3.4 Conclusions of case results

6 Summary, conclusion and outlook
6.1 Summary
6.2 Conclusion

7 Bibliography

List of figures

Figure 1: The outsourcing term

Figure 2: Outsourcing overview

Figure 3: Offshore accelerators and inhibitors

Figure 4: Country specialization by niche

Figure 5: Offshoring advantages and disadvantages

Figure 6: Nearshoring advantages and disadvantages

Figure 7: Onshoring advantages and disadvantages

Figure 8: Outsourcing model overview

Figure 9: The BPO outsourcing model

Figure 10: Shared service center outsourcing model

Figure 11: Joint venture outsourcing model

Figure 12: Outsourcing market

Figure 13: Current and future use of a procurement service provider by industry

Figure 14: Current and future use of direct and indirect materials/services

Figure 15: gedas locations

Figure 16: gedas Group revenues

Figure 17: gedas Group staff

Figure 18: gedas Group profit before taxes, return on sales and return on investment

Figure 19: gedas group matrix organizsation

Figure 20: gedas markets& services: consulting along the entire value-added chain

Figure 21: gedas Intelligent Transformation

Figure 22: Example general information

Figure 23: Example assessment information

Figure 24: Example general procurement information

Figure 25: Example financial information

Figure 26: Example other information

Figure 27: Example IT information

Figure 28: Example IT-costs

Figure 29: Example strategy information

Figure 30: Example current outsourcing activities

Figure 31: Example primary drivers and drawbacks

Figure 32: Example procured materials

Figure 33: Example process information

Figure 34: Example costs

Figure 35: Example supplier information

Figure 36: Example procurement benchmarks

Figure 37: Example procurement costs

Figure 38: Example scoring model

Figure 39: Example summary table

Figure 40: The glossary

Figure 41: Example location assessment tool

Figure 42: Example result location assessment tool

Figure 43: Example investment tool shadow operations

Figure 44: Investment tool hiring & training

Figure 45: Investments by category for the investment tool

Figure 46: Pay-back profile of the investment tool

Figure 47: gedas consulting framework

Figure 48: Example of an intelligent sourcing approach

Figure 49: Integration of intelligent sourcing into gedas consulting framework

Figure 50: Benchmarking results for company A

Figure 51: Outsourcing recommendation for company A

Figure 52: Benchmarking results for company B

Figure 53: Outsourcing recommendation for company B

Figure 54: Benchmarking results for company C

Figure 55: Outsourcing recommendation for company C

List of tables

Table 1: Outsourcing activities

Table 2: Reasons for outsourcing an activity

Table 3: Reasons for not outsourcing an activity

Table 4: Worldwide procurement BPO spending by region, 2002 & 2007

Table 5: Possible outsourcing functions

Table 6: SWOT-analysis

Table 7: The different parts of the BPO assessment tool

Table 8: The meaning of the different colors

Table 9: Weighted questions

List of abbreviations

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1 Introduction

This chapter gives an overview about the topic of the diploma thesis. It explains the motivation, formulates the objectives and describes the scope. The introduction closes with an outline and a short description of each chapter.

1.1 Motivation

Due to the fact of increasing globalization, mergers & acquisitions, cost pressure and growing expectations of the customers regarding price and quality, companies have to reconsider their strategy and organizational structure to meet the growing requirements of the market. If companies are not able to stand the challenge and can’t fulfill the expectations they will loss customers and consequently market share. To remain competitive they have to shorten the development time for products and optimize methods, structures and organizations in regard to cut the costs. To face these challenges appropriate solutions are needed. One possibility to achieve this is outsourcing. The special type IT-outsourcing (ITO) is already accomplished by many companies but more and more companies are taking into account the possibility of business process outsourcing (BPO). BPO is very critical and has to be considered carefully. Companies give away their in-house functions to external service provider. This comprises a dependency and requires a high degree of trust in the service provider. Once the decision is made it is hard and cost intensive to reverse it. Finding an appropriate business model for example shared service centers, joint ventures or outsourcing to an external provider and identifying adequate onshore, nearshore or offshore locations requires profound knowledge and intensive consulting support.

1.2 Objectives and scope

The global IT-service provider gedas offers consulting for the development, system integration, and operation of IT solutions to companies in the automotive and manufacturing industries.

At the moment gedas is working on the enhancement of its service offering portfolio (SOP). BPO as part of Intelligent Sourcing will be added and should help clients finding appropriate outsourcing business models and relocate activities to low cost countries for the purpose of achieving labor arbitrage. In contrast to IT-related service offerings BPO is more complex and requires higher consultancy support. While currently having their core competencies in the IT sector gedas only have few experiences in BPO-consulting. For the general consulting activities gedas has developed a consulting framework. To address the client’s requirements regarding BPO a specific framework is needed.

Within a gedas project different BPO consulting tools have been developed and integrated into the existing consulting framework. The goal of this diploma thesis is the development of an assessment tool for procurement BPO.

1.3 Outline of the document

The first chapter introduces into this diploma thesis. Chapter 2 gives a fundamental theoretical background of the outsourcing terminology including the types of outsourcing, intelligent sourcing terminology and different outsourcing models. The next chapter covers BPO of procurement, a special area of BPO. It describes the relevance for outsourcing the procurement function with its advantages and disadvantages. Furthermore the current market situation as well as possible locations for procurement BPO are part of this chapter. Part 4 presents gedas company and provides general information regarding the organization and the service portfolio. In chapter 5 information about the development of the assessment tool are provided. The gedas consulting framework is briefly introduced and it is shown how the intelligent sourcing framework can be integrated into to the existing gedas consulting framework. The main part covers the description of the development of the assessment tool for procurement BPO and its different components followed by a case study. Finally a summary and a conclusion about the result of the diploma thesis and an outlook are given.

2 Terminology

This chapter gives a fundamental theoretical background of consulting and the outsourcing terminology including the types of outsourcing, intelligent sourcing terminology and different outsourcing models.

2.1 Consulting

Regarding Gartner consulting covers giving third-party advice and guidance on enterprise management or IT issues. Gartner has defined three categories of consulting services:

Management consulting

Management consulting includes assistance with the development or execution of corporate business strategy, business processes or change management.

Infrastructure consulting

This type of consulting covers the area of system architecture design or development, and infrastructure organizational planning.

Application or technical consulting

The third variety of consulting includes application project management and development, technology assessment, and product tuning.

Therefore consultants provide this expertise to clients who require a particular type of knowledge or service for a specific period of time, thus providing an economy to the client. In other situations, companies implementing a major project may need additional experienced staff to assist with increased work during that period. (cf. Gartner 2004, p.84)

2.2 Outsourcing

„Do What You Can Do Best – Outsource The Rest! “ Motto CeBIT IT Outsourcing Services 2005”

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Figure 1: The outsourcing term (cf. Franze 1998, p. 10)

Outsourcing is a made-up word that combines the three terms outside, sourcing and using. (cf. Franze 1998, p. 10) The term of outsourcing describes the procurement of resources from external suppliers that were generated within the sourcing organization. (cf. McIvor 2005, p. 7)

In the late 80s outsourcing became a popular buzzword in business and management in America. In 1989 Kodak outsourced their data processing and communication networks to DEC, IBM and Businessland. This was one of the first steps in outsourcing. Shortly after the first outsourcing activities of Kodak in America the term of outsourcing became acquainted in Europe too. Over the years outsourcing evolved. More and more companies thought about outsourcing and today outsourcing is well established in business and management. (cf. Schwarze & Müller 2005, p. 6)

For outsourcing a lot of definitions exist and some definitions are more precise than others but the main facts are the same. Gartner for example defines Outsourcing as followed:

A contractual relationship with an outside vendor that is usually characterized by the transfer of assets such as facilities, staff or hardware. It can include facilities management (for data centers or networks), application development and maintenance functions, end-user computing or business process services. (cf. Gartner 2004, p. 272)

A definition of 12Manage is:

Outsourcing is a strategic management model wherein business processes are transferred to another company. The concept is: to let a third party service provider perform the management and/or day-to-day execution of one or more business functions. This third party service provider is insourcing those same processes. Outsourcing occurs when a company uses an outside firm to provide a necessary business function that might otherwise be done in-house. (cf. 12Manage)

In general outsourcing is a strategic management model where companies decide farming out. Companies have to decide either to keep on rendering the needed resources by their own or to get it from external supplier. In business studies it is known as the make-or-buy-problem. (cf. Lamers 1997, p. 12) Outsourcing can cover many areas, including the outsourcing of manufacturing as well as services. It can involve the transfer of an entire business function to a supplier or alternatively may lead to the transfer of some activities associated with the function whilst some are kept in-house. (cf. McIvor 2005, p. 7)

The table below shows different outsourcing activities that companies can outsource. The results were founded out by a research. CAPS Research and AT Kearney gathered survey data of 165 executives across 24 industries globally.

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Table 1: Outsourcing activities

According to the research study of CAPS Research and AT Kearney distribution, procurement, information technology, human resources, finance & accounting, product & service development, call center and marketing are typical activities that can be outsourced. (cf. Monczka, Markham, Carter, Blascovich & Slaight 2004, p. 20)

Outsourcing offers a lot of potential benefits but also risks. The next paragraphs describes the existing advantages and disadvantages that outsourcing can implicate.

The first reason for organizations to outsource is the consideration of cost reduction and improvement of cost structure. While outsourcing the customer benefits from the suppliers cost advantages such as economies of scale, economies of scope, experience and location. Supplier may take on investment and development costs while sharing these risks among many customers and thereby reducing supplier costs for all customers. (cf. McIvor 2005, p. 21) Through the demand-oriented usage of services the customer can convert fixed costs into variable costs. So the supplier has to deal with the problem of excess capacity in times of adverse business conditions. (cf. Hendrix, Abendroth & Wachtler 2003, pp. 28-29) Another motive is the concentration on core competencies. Company’s core competencies are things that a firm can do well and that meet the following three conditions specified. First it provides customer benefits, second it is hard for competitors to imitate and third it can be leveraged widely to many products and market. (cf. Hamel & Prahalad 1990, pp. 79-93) A core competency can take various forms, including technical/subject matter knowledge, a reliable process, and/or close relationships with customers and suppliers (cf. Mascarenhas et al. 1998, pp. 117-132). Every company has a limited number of talented managers. These managers are responsible for processes that determines high added value for the company. Organizations outsource processes in order to not applying too much of the valuable management capacities for administrative border areas. (cf. Dittrich & Braun 2004, pp. 61-62) A next reason is to get a higher level and quality of services. In certain activities higher levels of performance can be achieved by many specialist suppliers. This advantage is not only based on reduced costs. Specialist suppliers can also provide higher level of service quality to the outsourcing company. The management can leverage the value enhancement that the company may not have in-house. (cf. McIvor 2005, pp. 21-22)

Due to rapid changes in technology, reduced time-to-market and increasingly sophisticated customers for organizations it is very difficult to control all activities. While in the past companies attempted to control the majority of activities internal, outsourcing can provide greater flexibility for the organizations. So outsourcing provides management with flexible and scalable services to meet customers' changing requirements, and to support the company's strategic plan. (cf. McIvor 2005, p. 22)

Also a reason for companies to outsource is to get access to advanced technology and innovation. Outsourcing enables companies to design and implement leading-edge enterprise systems to support the business processes and to manage the technology infrastructure with more efficient capital investments and reduced training costs. (cf. McIvor 2005, p. 23) Classified into the three parts cost, competency focus and revenue the following table summarizes the reasons for outsourcing that were founded out by the research of CAPS Research and AT Kearney.

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Table 2: Reasons for outsourcing an activity

Besides the advantages that outsourcing can offer, a lot of risks exist too. One of the main motives for outsourcing is the reduction of costs. But many organizations under-estimate the future costs and the managing resources and time that have to be invested after outsourcing a process to an external provider. It is erroneous to assume that once the activity is outsourced no costs and operating expenses for this process exist. (cf. McIvor 2005, pp. 23-24) Another drawback is while outsourcing companies lose direct control over the process and become dependent on the supplier. (cf. Baumgart 2002, p. 18) Organizations have to maintain innovative capacity to stay competitive but through outsourcing they can loss critical skills and intellectual property. As a result supplier can become competitors in the future. Therefore companies should never outsource their core activities. (cf. McIvor 2005, p. 25) Disadvantages that can occur because of the location were described in the “Outsourcing models” section. The table below presents reasons not to outsource corresponding to the CAPS Research and AT Kearney study.

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Table 3: Reasons for not outsourcing an activity

Outsourcing is divided into 2 types. The two basic forms are information technology outsourcing (ITO) and business process outsourcing (BPO). (cf. Köhler-Frost 2005, p. 39) The two areas describe that either information technology or business processes were outsourced. ITO and BPO can be realized by different outsourcing models. The typical three approaches are to build up a shared service center, having a joint venture with other corporations or to outsource to external provider. (cf. Capgemini 2004, p. 2) These outsourcing models can be executed either in onshore, near-shore or offshore locations. (cf. Gartner 2004, p. 169)

The chart below gives an overview about the coherence of the different types of outsourcing, the outsourcing models and the sourcing terminology It includes what can be outsourced, how the activity can be outsourced and where.

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Figure 2: Outsourcing overview

What the two types of outsourcing mean exactly? What does each outsourcing model include and what the differences in choosing the location are? These questions will be answered in the next paragraphs.

2.2.1 Types of outsourcing

Outsourcing is a generic term that has to be subdivided into the two parts information technology outsourcing (ITO) and business process outsourcing (BPO). The following two sections explain what both terms mean and what they do include.

2.2.1.1 IT-outsourcing

The first type of outsourcing is the concept of IT-Outsourcing. Gartner defines IT-Outsourcing as followed:

„The contractual vehicle through which enterprises use external sources to provide life cycle service and support operations for their IT infrastructure. Outsourcing can be partial (i.e., modular or selective) or total, and can involve not only operations but also the acquisition of customer assets and personnel. IT outsourcing is divided into five primary market segments: data center operations, network operations, client/server operations, application management and desktop management.“ (cf. Gartner 2004, p. 211)

In general IT-outsourcing is divided into the two parts IT-infrastructure and IT-process outsourcing. Whereas the first one means outsourcing of hardware and software IT-process outsourcing covers the topic of outsourcing IT-workflows. An example for outsourcing IT-processes is outsourcing of service desks. A typical form of farming out IT-infrastructure is to run a data center by third party. (cf. Köhler-Frost 2005, pp. 78-79)

2.2.1.2 Business process outsourcing

Business Process Outsourcing (BPO) is outsourcing of business functions to achieve various benefits such as cost savings, better quality and ability to focus on core competence (see chapter 2). BPO involves outsourcing processes that are not core to a company, however, are essential for smooth operation of the company. (cf. Tutorial-Reports) It is a strategy by which an organization contracts functions to service providers who specialize in these areas .The service provider is responsible for the execution of the business process and if required making recommendations to improve the system. (cf. Compass Connection 2005) The customer transfers the complete responsibility of these functions to the vendor who guarantees certain service quality standards. Such processes include customer service, payroll processing, inventory management, etc. (see chapter 2)

The global market size for BPO is estimated to be around USD 382.5 billion in 2004 according to market intelligence firm IDC. The research firm expects robust growth in the BPO industry with more and more companies reaping the benefits of BPO all over the world. The BPO market size is expected to reach USD 641.2 billion by 2009 with a Cumulative Annual Growth Rate (CAGR) of 10.9 percent from 2005 to 2009.

BPO has evolved over the years, beginning with time-sharing data processing in the 1960s; according to technology research and consulting firm ebs. Over these years, like outsourcing, BPO has moved from being transactional (task oriented) to being strategic (process oriented). Table 1 provides the key milestones in the evolution of BPO. (cf. Tutorial-Reports)

2.2.2 Intelligent sourcing location terminology

Sourcing is the procurement of resources - whether from internal or external sources - to accomplish business objectives. (cf. Cap Gemini 2004) The intelligent sourcing location terminology covers the topic of what the best location is to get the resources needed. In regard to the location the terms offshoring, nearshoring and onshoring describe different possible ways of sourcing. All shoring models include the relocation of business processes or business units into other regions or countries with the aim of saving costs, especially personnel costs. (cf. EDS 2004) But decisions for outsourcing business processes or business units into other regions or countries cannot only be based on a comparison of the labor costs. (cf. Wullenkord 2005, p. 108) A lot of other criteria have to be taken into account. Criteria for choosing locations are language skills, government support, labor pool, existing infrastructure, educational system, costs, political stability, cultural compatibility and data security. (cf. Gartner2, p. 15) The following chart shows a lot of inhibitors and accelerators that have to be taken into account.

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Figure 3: Offshore accelerators and inhibitors (cf. Gartner 2, p. 15)

Also some countries are specialized in different sectors. The next picture shows some typical shoring destinations and their specialization.

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Figure 4: Country specialization by niche (cf. Gartner 3, 2002, p. 13)

What an offshore, nearshore or onshore location is depends on the location of the outsourcing company. Arbitrative is the geographical distance between the outsourcing company and the outsourcing location.

The following three sections explain the different sourcing types offshoring, nearshoring and onshoring with their characteristics. The pros and cons of each sourcing model will be shown.

2.2.2.1 Offshoring

The term offshoring describes the rendering of business processes abroad, especially to countries overseas. This includes any business process such as production, manufacturing, or services, regardless of whether the work done in the foreign country is still performed by the local company or a third-party. (cf. Reichert 2005, p. 7) The deciding point is the distance between the two partners. This attribute is defined variedly.

Forrester Research Inc., a research group and the most widely quoted company on offshoring statistics, defines offshoring as the use of services delivered by a provider based in a country at least 500 miles away from the G7 country where the buyer is located and where the country of delivery has a cost base at least 50 percent lower than the buyer company’s country. (cf. Forrester Research 2004, p. 9) The Deutsche Bank Research defines offshoring as the business practice by which companies outsource processes across large distances to other parts of the world, often low-wage countries. In contrast to the Forrester Research definition the Deutsche Bank Research characterizes offshoring as outsourcing of business processes from the company to a partner located on a different continent. (cf. Deutsche Bank Research 2004, p. 3) Offshoring means outsourcing business processes to locations on other continents is the most common definition. (cf. Reichert, 2005, p. 9) Typical processes for offshore outsourcing are bill processing, customer service, insurance claims or payroll. (cf. TPI 2005, p. 1)

The most common reason for offshoring outsourcing is a cost advantage. Other reasons are offered process quality, a needed reduced time to market or skill shortages within the own company. Possible problems that can occur while offshore outsourcing business processes are a lack of infrastructure, geopolitical risks in the offshore destination. Also an inhibitor is a time shift between a local company and the offshore outsourcing location. (cf. Gartner3 2002, p. 16)

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Figure 5: Offshoring advantages and disadvantages (cf. Gartner2, pp. 2-17)

From the German perspective possible offshoring locations are for example Canada, Mexico, Brazil, Singapore or India. Unlike Germany for the USA Mexico and Canada were not offshoring locations because of the low distance of the countries towards the USA. Offshoring destinations for the USA can be India, Ireland, Czech Republic or Poland. Because of the closeness Ireland, Czech Republic and Poland are not offshoring locations for Germany.

2.2.2.2 Nearshoring

Nearshoring is a form of outsourcing in which business processes are relocated to locations that are cheaper but yet geographically nearer than offshore locations. Forrester Research defines nearshoring as the use of services delivered by a provider based in a country less than 500 miles from the G7 country and where the cost base in the delivery location is 20 to 30 percent less. (cf. Forrester Research 2004, p. 13) In general it can be described as a cooperation of partners on the same continent. (cf. Reichert 2005, p. 11)

The main motive for nearshore outsourcing is cost savings, especially labor costs. Giving preferences to nearshoring over offshoring are thought to do so for a variety of reasons. These reasons should sort out the disadvantages of offshoring. One reason is cultural differences. Shared cultural values and similar mindsets makes is more comfortable working together. Yet another fact that has to be considered by companies is the time difference between enterprise and outsourcing location. Some projects demand frequent traveling from both the customer and the provider end of venture. In selecting a provider resident in a near time zone improves the efficiency of day-to-day information exchange. In this case a nearshore location provides advantages in contrast to offshore locations. Other reasons next to the main reasons mentioned above could be legal similarity, matching language and lower travel and telecommunication costs. (cf. Gartner3 2002, p. 4)

Making a decision for a nearshore location also includes cons. Offhore locations can offer higher cost savings than nearshore outsourcing. Also while outsourcing business processes to other countries companies can lose control due to the geographical distance. (cf. Gartner3 2002, p. 10)

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Figure 6: Nearshoring advantages and disadvantages (cf. Gartner2, pp. 2-17)

Major nearshoring destinations for US businesses are Mexico and Canada. For companies located in Europe Ireland, Czech Republic or Poland are common nearshore outsourcing locations. (cf. Reichert 2005, pp. 11-12)

2.2.2.3 Onshoring

Onshore Outsourcing is the process of engaging another company within the same country for business process outsourcing or IT outsourcing. (cf. TPI 2005, p. 1)

In the onshore outsourcing engagement, the cost of internal and external operations is very similar. Thus achieving the cost savings of outsourcing were reached through scale effects of the service provider. Another objective for onshore outsourcing requires the service provider to have very specific expertise. Because of outsourcing in the same country linguistic problems and cultural risks are not expected. (cf. Bitkom 2005, p. 12) Also geographical, legal and time difference problems do not exist. (cf. Gartner3 2002, p. 10)

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Figure 7: Onshoring advantages and disadvantages (cf. Gartner2, pp. 2-17)

2.2.3 Outsourcing models

After having a closer look on the intelligent sourcing terminology, for outsourcing a process it is also necessary to think about the right outsourcing model. The outsourcing model defines if services should be provided internal, external or by cooperating with external partners.

Corresponding outsourcing models are building up a shared service center as an example for internal outsourcing (captive outsourcing), outsourcing processes to an external service provider (full outsourcing) or forming a joint venture as an example for a cooperation of companies with external partners.

The following picture gives an overview about the different outsourcing models and shows their core attributes.

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Figure 8: Outsourcing model overview (cf. Capgemini 2004, p. 2)

The exactly meaning of each outsourcing model and what it does include, what the advantages and disadvantages are and when which model should be used is described more detailed in the following paragraphs.

2.2.3.1 Full business process outsourcing

Full business process outsourcing is defined as the management and day-to-day execution of an entire business function by a third party service provider that is generated internal until now. (cf. Brudenal 2005, pp. 20-25) The customer non-core processes are service provider core competencies so in general this external service provider is specialized in that operation. (cf. Capgemini 2004, p. 2) Third party service provider keep on running this business process for the customer with full control and get responsibility of the business process. After outsourcing a business process outsourcing companies do not have direct control anymore. This kind of model is the one that is most commonly used in practice. Here the operational risks switch over to the service provider from the company without being involved financially in the target organization. Only small governance and management efforts remain within the company. Business process outsourcing can also involve a transfer of people and physical assets to the provider. (cf. McIvor 2005, p. 7)

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Figure 9: The BPO outsourcing model (cf. van Straten 2002, p. 25)

The quality of the services delivery can be monitored by service level agreements (SLA). Service level agreements as part of frame contracts are complete specifications of services which includes at least the content and scope of services that should be rendered by the service provider, necessary duties of customers, quality standards and their measurements and penalty provisions for services not provided. Furthermore it is possible to add a description of the measurement methods and how they should be used to control the service levels as well as a contingency plan. (cf. Lamberti 2003, p. 37) Due to the fact of monitoring and reporting services the customer gets high transparency of the process and the costs. Companies can benefit from the leading practice of service providers and also take advantage of scale effects to save costs. Along with outsourcing a business process from a customer the service provider bears bulk of the risk through contractual arrangement. (cf. Capgemini 2004, pp. 2-3) Nevertheless by outsourcing a business process the customer gives away control over the process and becomes dependent on the third party service provider. The existing risk depends for example on the standardization, quality and complexity of the outsourced process and the experience of the outsourcing provider.

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