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Outsourcing relationship management (ORM) is the business discipline widely adopted by companies and public institutions to manage one or more external service providers as part of an outsourcing strategy. ORM is a broadly used term that encompasses elements of organizational structure, management strategy and information technology infrastructure.
Outsourcing gained prominence as a business strategy in the early to mid-1980s, originally driven by the desire to reduce costs in labor-intensive business processes. [1]
Outsourcing relationship management appeared as a specific management discipline in 1999 after an industry consortium, the Sourcing Interests Group, [2] began developing guidelines for its member companies.Following this introduction, the theories of outsourcing relationship management were developed by industry groups such as Gartner and the Sourcing Interests Group, universities like Carnegie Mellon and the University of Michigan, and consulting firms including Vantage Partners. [3]
ORM is complementary to other established enterprise management strategies in its relationship to established enterprise resource planning (ERP) tools and the linkage to important business constituents.
In his 2004 book The Outsourcing Revolution, author Michael Corbett discusses the challenges of integrating two separate business entities (the client and the external service provider) across different organizational boundaries and differing objectives. [4] Gartner analysts have published research on outsourcing governance and multisourcing, describing successful outsourcing as “a network of relationships, not transactions. [5]
In a 2006 study, IBM identified business model innovation as the most important success factor cited by the 765 global CEOs surveyed. [6] The survey noted that "fully 65 percent of chief executives and other leaders say they will have to make fundamental changes in their businesses over the next two years. New products and services remain a priority, but they’re placing increasing emphasis on differentiating themselves through innovation in the basics of their business models. They believe that external collaboration across their business ecosystems will yield a multitude of innovative ideas." [7]
There are three aspects of ORM which companies typically pursue as part of their outsourcing strategy:
A 2002 Computerworld article documented the need for managers skilled in ORM for managing IT outsourcing. [8] A 2007 article in DM Review pointed out that there was still a need for specialized outsourcing relationship managers and cited this as a career opportunity. [9]
Carnegie Mellon University developed a Sourcing Capability Model to measure the maturity and skills required for effective outsourcing relationship management. [10] The University of Michigan sponsors research and events [11] focused on the challenges and management strategies for successful outsourcing. [12]
In early 2007, a CIO Magazine article [13] explores this trend. [14]
One study by Vantage Partners (Boston, MA) found that at least 15 percent of the total outsourcing contract value is at stake if outsourcing governance is not managed well. [15] In the book, "Multisourcing," Gartner analysts point out that successful outsourcing is built on "a network of relationships, not transactions, [16] " and outsourcing governance is the most important factor in determining the success of an outsourcing engagement. [17] Gartner found that fewer than 30 percent of enterprises have formal sourcing strategies and appropriate outsourcing governance mechanisms in place. IIn a 2004 survey of 130 CIOs conducted by outsourcing advisory company EquaTerra, 42 percent reported dissatisfaction with their outsourcing relationships, primarily due to weak governance models. [18]
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