Glossary


Acquired Rights Directive

First introduced in Europe in 1977, the original Directive was intended to safeguard the rights of workers by ensuring that workers were entitled to continue working for the transferee employer on the same terms and conditions as those agreed with the transferor employer. Whenever a transfer is within the Directive, contracts of employment run with the undertaking; the transferee cannot take the business without the employees and must take those employees subject to existing employment rights and obligations. Further, a transfer cannot constitute grounds for dismissal, whether carried out by the transferor or transferee, unless there is an economic, technical or organizational reason entailing changes in the workforce. ARD has been modified through the years to address specific circumstances.

Activity-based accounting

A form of cost accounting that focuses on the costs of performing specific functions (processes, activities, tasks, etc.) rather than on the costs of organizational units. ABC generates more accurate cost and performance information related to specific products and services than is available to managers through traditional cost accounting approaches.

Activity-based pricing

Clients agree to pay a flat fee to cover the service provider's fixed and variable costs -- including hardware and software, labor, infrastructure and administration and maintenance. Activity-based costing is often used when establishing an offshore development center (ODC) or putting together a build-operate-transfer model.

Amendments

An aspect of the outsourcing contract's Terms and Conditions. Specifies how any subsequent changes to the deliverables as requested by either party will be handled.

Application service provider model

The rental of software.

Approvals

An aspect of an SLA that shows which business groups and IT groups share ownership of the service and their representatives.

ARD

Acquired Rights Directive. First introduced in Europe in 1977. The original Directive was intended to safeguard the rights of workers by ensuring that workers were entitled to continue working for the transferee employer on the same terms and conditions as those agreed with the transferor employer. Whenever a transfer is within the Directive, contracts of employment run with the undertaking; the transferee cannot take the business without the employees and must take those employees subject to existing employment rights and obligations. Further, a transfer cannot constitute grounds for dismissal, whether carried out by the transferor or transferee, unless there is an economic, technical or organizational reason entailing changes in the workforce. ARD has been modified through the years to address specific circumstances.

Audit

An evaluation of an organization, system, process or product. Outsourcing audits take three forms: security, billing and performance.

AUP (acceptable use policy)

A set of rules applied by the owner/manager of a network, website or large computer system that restrict the ways in which the network, website or system may be used.

Back office functions

Those business processes such as finance & accounting, human resources, administration, procurement, payroll, legal accounting, benefits management, information technology, marketing, legal, logistics, payroll and procurement.

Backlash

The term used to describe the effect of public outcry that sometimes takes place when an organization announces its decision to outsource a function and transfer workers to the service provider taking over that function or lay them off.

Balanced scorecard

A method for conceptualizing the strategic alignment between business goals and specific tactics. It provides feedback around both the internal business processes and external outcomes in order to continuously improve strategic performance and results.

Basel II

Financial regulations and privacy regulations in Europe.

Baseline

A snapshot of the state of inputs/outputs frozen at a point in time for a particular process. A baseline should be recorded to establish a starting point to measure the changes achieved with any process improvement.

Baseline period

The period during which a client's current services are documented. These results become the yardstick that determines what services the service provider is obligated to provide to the client. Typically, the service provider will charge a premium for services above and beyond the baseline -- unless otherwise negotiated.

Benchmarking

A study in which components of a company’s contracted services, such as price, service levels and terms & conditions are compared to those of peer companies. Frequently, an independent entity with experience in peer organizations is called in to perform the study. For example, to assess IT performance, a research firm or advisor may collect the client's data and create reports to plot client performance against a selected reference group. This provides a somewhat objective assessment of the performance of the services. Benchmarking is a continuous process whereby an enterprise measures and compares all its functions, systems and practices against strong competitors, identifying quality gaps in the organization, and striving to achieve competitive advantage locally and globally.

Best Practice

A way or method of accomplishing a business function or process that is considered to be superior to all other known methods. A lesson learned from one area of a business that can be passed on to another area of the business or between businesses.

Best shore

A term used by some service providers to describe their strategy of having work done at the optimal location, whether domestically or offshore.

Best-of-breed

Best in class. A philosophy of outsourcing to service providers that have proven their expertise in a specific area.

Billing audit

Regular scrutiny of the bills presented by the service provider to its client. The client should examine potential overbilling (which could be a sign of service level expectations, scope of work or related pricing provisions in the contract).

Body shop

A company that provides temporary workers on a contract basis.

BOT

Build-Operate-Transfer. A firm contracts with an offshore partner to build a shared services or offshore development center and operate it for a fixed interim period. Organizations try this with the expectation that the offshore partner can initiate operations and reach operating stability much faster than it can with an in-house effort.

BPM

Business process management. The orchestration of the interactions between the people, applications, and technologies that comprise a business process and in concert create customer value.

BPMS

Business process management system, a nine-step model that enables companies to model, deploy and manage mission-critical business processes, that span multiple enterprise applications and departments. BPMS is usually used for lesser mature processes to make them repeatable and reliable.

BPO

Business process outsourcing. The transfer of internal business processes, such as customer relationship management, finance & accounting, human resources and procurement, to an external service provider that improves these processes and administers these functions to an agreed service standard and, typically, at a reduced cost.

Build-Operate-Transfer model

A firm contracts with an offshore partner to build a shared services or offshore development center and operate it for a fixed interim period. Organizations try this with the expectation that the offshore partner can initiate operations and reach operating stability much faster than it can with an in-house effort.

Business benefit contracting

A contractual agreement that defines the service provider's contribution to the client in terms of specific benefits to the business and defines the payment the client will make based upon the service provider's ability to deliver those benefits. The goal is to match costs with benefits and to share the risks.

Business outcome achievement

Framework in which the provider doesn't receive any payment unless specified business outcomes are achieved. High risk for the provider, medium risk for the client. Only appropriate for transformation deals.

Business process outsourcing

BPO. The transfer of internal business processes, such as customer relationship management, finance & accounting, human resources and procurement, to an external service provider that improves these processes and administers these functions to an agreed service standard and, typically, at a reduced cost.

Call centers

A batch of operators who handle phone calls. Computer telephony integration has enabled automated resolution of calls and more efficiencies in human calls.

Captive Centers

Offshore companies set up by organizations to provide internal services and in some cases to sell those same services to clients. Often U.S. and European organizations set up captive centers for their outsourced work.

Cash penalty

Penalties paid by the service provider to the client in cases of severe service degradation. For example, a service provider might incur a penalty for failing to meet user response times or customer deadlines. In some situations, the penalties escalate as the degradation becomes more frequent.

Change management

A systematic approach to dealing with organizational change. It encompasses planning, initiating, realizing, controlling and stabilizing change processes on both, corporate and personal level. Change may cover such diverse problems as strategic direction or personal development programs for staff.

Change of character clause

A clause in an outsourcing contract (frequently introduced by the service provider) that stipulates that any changes in functionality are subject to excess fees.

Chargeback system

The opposite of "General allocation systems." An accounting system used in organizations to apply the expense for services where they're actually used. For example, an IT department may implement a chargeback system to give visibility to excessive demands from a particular business unit or department.

Chief sourcing officer

Executive level person who oversees sourcing governance elements in an organization. Typically, the CSO and his or her team is responsible for overseeing every sourcing decision made.

Comanagement process

Business strategies change during the course of a sourcing relationship. A comanagement process is the mechanism for communicating changes, by ensuring that the parties in the relationship understand and agree on the current business strategy, sourcing maxims, sourcing strategy and delivery strategy.

Competency center

Mechanism for implementing the functions of a sourcing management office. It provides centralized services in advising and coaching other divisions in the organization. It collects and disseminates best practices and recommends standards.

Confidentiality

An aspect of the outsourcing contract's Terms and Conditions. Requires the parties to keep confidential, information they acquire with respect to each other.

Continuous performance reporting

The ongoing responsibility of communication, monitoring and reporting of service level agreement metrics. You need to address how performance is monitored and reported; how targets are established; who is responsible for reporting; what the schedule is for client reviews; what the timeframe, content and format will be for standard reports; and when and how exceptions are to be reported.

Contract

The legal document that lays out the terms and conditions of an outsourcing arrangement.

Cooperate sourcing option

Acquisition of services through joint ventures, consortia and models in which two or more organizations pool resources to deploy a solution, for a services company or develop a shared service offering.

Core competencies

Those aspects of an organization that drive its success. A manufacturing firm may consider its product engineering, marketing and brand management a core competency, but not the actual manufacturing of the products it sells. During the 1990s, many large companies abandoned their ambitious diversification strategies -- pursued to mediate risk -- to focus on their sustainable competitive advantages.

Cosourcing

The term used to describe organizations that execute a shared services center with an external vendor. Also known as joint venture.

Cost and value discovery

The ongoing effort to capture the full value and expenses of outsourcing, as it moves through its various phases. In other words, once the business case is made, it continues to be changed, refined and revised to reflect ongoing discovery.

Cost/benefit model

Quantifiable costs plus quantifiable benefits adjusted for the risks equals value. An attempt to quantify every benefit and cost for inclusion in the financial analysis, even the so-called intangible or "soft" costs and benefits. The reason it is important to quantify everything possible is this: If no financial value is assigned to an agreed cost or benefit, that impact contributes exactly nothing to the financial analysis.

Cost-benefit analysis

Process of weighing the total expected costs vs. the total expected benefits of one or more activities in order to choose the best or most profitable option.

Cost-plus pricing

Also known as "open-book" pricing. In this model, the client pays the service provider for the actual cost of the service plus a markup or profit margin. Popular with offshore development center (ODC) or build-operate-transfer models. Frequently used as an interim contractual measure. Only appropriate for efficiency deals.

Customer satisfaction benchmarking

A measurement of how users feel about the services being delivered to them. Frequently, the benchmarking or survey work is done by a third-party firm.

Dashboards

A mechanism to collect, track and communicate the results of various key services and to link these results to business outcomes.

Data center operations

Information technology work encompasses: computer operator training, disaster recovery/power backups, equipment leases, floor/space management, hardware and network operations, HVAC/Halon, job scheduling, monitoring mainframe/server performance, operations/end user support, security, server uptime, storage management/tape backup, trouble/help desk.

Data in motion

DLP systems, which are software or hardware tools that monitor network traffic in order to detect sensitive data that is being sent in violation of information security policies.

Definitions

An aspect of the outsourcing contract's Terms and Conditions. A precise definition of the terms used within the agreement.

Delivery

An aspect of the outsourcing contract's Terms and Conditions. Specification of the dates, locations, responsibilities and any conditions relating to delivery of products and services to the site. Sets out the responsibility for any site preparation work required prior to delivery.

Description

An aspect of an SLA, in which the internal and external service suppliers and services are described.

Direct foreign investment

The practice of opening up a plant, office or other operation in a foreign country and closing or not opening one domestically. A redeployment of capital in foreign lands.

Disaster recovery

Services that encompass getting the organization back to a running state when disaster -- small or large -- has struck. In the context of outsourcing, this includes security, backup, power management and data recovery. One aspect of disaster recovery that's important in an outsourcing arrangement is whether the service provider has an alternative facility in the event of a disaster -- and in how many hours or days a client will be able to recover.

Disposal of assets

A discussion point for organizations outsourcing a function, to determine whether the winning service provider will purchase the firm's pertinent assets, whether they'll pay book value or market value and whether they'll pay cash or adjust their pricing to reflect the value of the assets.

Dispute resolution process

Mechanisms and procedures to attempt to resolve differences amicably and avoid costly litigation. A dispute resolution framework might include provisions that spell out the first point of contact either side would reach out to in initially raising a point of dispute. It might also include the path of escalation, as well as timetables for milestones along the problem escalation path.

DLP

Data Loss Prevention controls.

Downsizing

A term that describes a reduction in staff headcount.

Dragnet clause

A contractual clause that provides that the service provider perform services and functions performed by in-house staff during the one-year period preceding the contract, even if they’re not described in the statement of work.

Economies of scale

A term used to describe the efficiencies a service provider or internal department can achieve through standardization, commodity negotiation and adherence to process management.

Efficiency sourcing deal

A sourcing relationship in which the focus is on efficiency of operations -- primarily in the form of cost reduction or cost control. According to Gartner, these are the most prevalent type of sourcing engagement.

Employee self-service

Giving employees the ability to manage their personnel matters online, just as they manage bill paying and banking online. Typically, the organization installs software or licenses access to a portal.

Enhancement sourcing deal

A sourcing relationship in which the focus is on improving the current state of an IT service or business process. The goal is to improve upon the current state and introduce enhanced operational performance or outcome.

Escalation procedure

The process set up to define the steps taken when service levels don't meet upon standards. This may involve determining fault for missed measures, reporting, problem resolution within a specified time and -- when the problem still isn't resolved -- executive intervention on both the client and service provider sides.

Exit plan

The plan developed for coping with the end of the contract -- whether because the term is up or because termination clauses have been invoked. It's best to assume you'll be moving to a new service provider rather than simply renewing the contract. Think about what the organization will require to maintain service levels and to make a smooth transition to the next provider.

Farmshore sourcing

Comparable to rural sourcing. The placement of jobs in low-cost regions of the service recipient's home country.

Fast track process to selection

A Gartner-defined method for speeding up the traditional RFP process. It moves much of the detailed work about expectations, baselines and service levels typically done during negotiation into the preparation phase, before a given service provider is engaged. The process recommends pre-qualifying providers to limit the number being evaluated.

Fee-for-service pricing

Variable pricing framework based on the amount or quality (or both) of the service delivered. The provider's costs aren't covered unless the service levels are reached. The client organization bears some risk, since costs aren't entirely predictable and service levels may not be achieved. An appropriate structure for efficiency and enhancement deals.A100

Feeny-Lacity-Willcocks model

A method for identifying service provider capabilities by examining competency in three critical areas: delivery, transformation and relationship, each of which overlaps the others. Delivery competency encompasses governance, leadership, program management, behavior management, domain expertise and business management. Relationship competency encompasses planning and contracting, organizational design, governance, leadership, program management and customer development. Transformation competency encompasses technology exploitation, process re-engineering, customer development, leadership, program management, sourcing and behavior management.

Fixed pricing

A model of pricing in which a project is undertaken by the service provider for a pre-agreed-upon price. One advantage is that it's easy for the client to budget for the project. Two disadvantages are that the service provider may overestimate costs beforehand for possible unforeseen conditions or cut corners during the project to compensate for expenses that are higher than anticipated. The service provider will charge a premium for a fixed price relative to the risks involved. Appropriate for efficiency deals.

Follow the sun

24x7 service, in which work is handled onshore, then passed off to an offshore service provider that is in a completely opposite time zone.

Force Majeure

An aspect of the outsourcing contract's Terms and Conditions. Allows the agreement to be suspended or terminated without liability in the event of circumstances arising that are outside of the control of either party.

Foreign Commerce Clause

Part of Article 1, Section 8, Clauses 3 of the US constitution, which empowers the US Congress "To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes" states. This prohibits states from making their own trade policies.

FRAG 21

Financial Reporting & Auditing Group Guidelines

Full disk encryption

Uses disk encryption software or hardware to encrypt every bit of data that goes on a disk or disk volume. AKA 'whole disk encryption'.

Full-service provider

Service providers that offer several business processes, such as IT and HR. They take full responsibility for the complete processes they manage and typically offer to re-engineer the process to make it more efficient. Contracts may run $50 million to $100 million per year and involve hundreds or thousands of employees. The average contract length is typically seven to 10 years.

Functional redundancy

Duplication of services, which are often only discovered when an analysis across business units is performed by an outside entity. When an organization outsources a major function, such as IT or finance & accounting, the service provider squeezes costs out of the processes by uncovering and eliminating or consolidating redundant functions.

Gainsharing

The service provider has some form of incentive for constantly improving the business process. When the client benefits (through reduced expenses, greater revenues or improved efficiencies), so does the service provider.

General allocation systems

The opposite of "Chargeback systems." An accounting system that allocates the expense for a given service by factors other than actual usage -- such as business unit revenue.

Geopolitical risk management

Consideration of the risks inherent in sourcing services from a variety of locations around the globe. Processes in place to monitor potential threats to the delivery of the service, including monitoring elections, changes in executive and legislative power, labor union activities, internal politics and regulatory stances, as well international relations of those countries.

Global delivery model

Using personnel from all over the world to provide maximally efficient service delivery.

Global shared services model

Also known as captive centers or offshore insourcing, where the objective is to consolidate the scattered, autonomous internal service operations of a multinational organization into multiple service centers, serving a specific region of the world.

Governance

Authority: how decisions are made, who makes them and who's accountable for the decisions.

Governance statement of work

Defines where the service provider fits with others and how those relationships will be governed.

H1-B visa

A federal visa program that allows American companies and universities to employ foreign scientists, engineers, programmers, and other professionals in the US.

HIPAA

Health Insurance Portability and Accountability Act, enacted in 1996. The Act seeks to establish standardized mechanisms for electronic data interchange, security, and confidentiality of all healthcare-related data.

Hub and spoke model

An organization's practice of having offshore operations of its own, as well as three or four partners with whom it collaborates. This mitigates the risk of having all services provided by a single service provider.

Human capital assets

The availability and capabilities of the people required to deliver a given service.

Human resources management systems

Software that digitizes tasks in HR, such as payroll or employee record management.

Hybrid delivery model

Combining onsite and offshore services to deliver results at a reduced cost. Also known as the dual-shore model.

Import quotas

Legislation that protects a given category of domestic product or service by imposing restrictions or levying taxes on them when they come from foreign sources.

Incentives

A reward provided to the service provider when service levels are exceeded or some other achievement is reached. These terms are laid out in the outsourcing contract.

Indirect Cost

A cost incurred which cannot be directly allocated in full to a single product, service, customer, cost center or business activity; incurred on behalf of a number of cost units or centers to which the cost may be apportioned.

Innovation capture

How an organization will be able to exploit new technologies that may drive improved business process. In some cases, the service provider may be unwilling to invest unless the client pays -- unless the new technology can be amortized across multiple clients. Contracts need to be structured in a way that rewards the service provider with a portion of savings won.

Insourcing

A decision by an organization to retain functions internally rather than outsource. The decision is often made after the organization has performed independent benchmarking to determine that its costs and efficiencies are in line or better than those achieved by comparable organizations. The term is also used in cases where services are being brought back in house after a period of outsourcing them.

Intellectual guidance

Intellectual guidance means evaluating a performance index to progress and suggesting new structures as guiding bodies.

Interactive voice response

Automated phone systems that eliminate the need for a person on the other end of the line. In some situations, organizations discover that taking call center activities offshore means they can put humans back on the phone, since the cost of the labor is less expensive than the IVR systems they have been using.

IP

Intellectual property. An intangible entity that includes some degree of creative effort, such as software design. An outsourcing contract's Terms and Conditions section should include a clause that sets out an indemnity that the service provider will give to the client, to protect the client against claims of infringement with respect to any products supplied.

IP protection

Efforts made by a client and service provider to protect the ideas -- intellectual property -- in a product or process owned by the client.

ISO 9000 Series of Standards

Series of standards established in the 1980s by countries of Western Europe as a basis for judging the adequacy of the quality control systems of companies.

ISO 9001

A quality assurance model from the International Organization for Standardization made up of 20 sets of quality system requirements. This model applies to organizations that design, develop, produce, install and service products.

ITIL

Information Technology Infrastructure Library. A British government service management standard/model that documents best practices for support and delivery of IT services.

ITO

Information technology outsourcing. The transfer of internal non-core IT processes, such as infrastructure, applications development and maintenance, end-user computing, help desk, network support and data center operations, to an external service provider that improves these processes and administers these functions to an agreed service standard and, typically, at a reduced cost.

IVR

Interactive voice response. Automated phone systems that eliminate the need for a person on the other end of the line. In some situations, organizations discover that taking call center activities offshore means they can put humans back on the phone, since the cost of the labor is less expensive than the IVR systems they have been using.

Key performance indicator

Financial or non-financial metrics used to reflect the critical success factors of an organization. KPIs should include delivery dates, quality measurements and financial measures. It is important to review the KPIs on a regular basis and have mechanisms in place to resolve performance issues when they’re not met.

Knowledge transfer

The task of bringing the service provider staff up to speed on internal procedures and processes. Part of the process is establishing what knowledge remains in-house and what should be transferred.

KPI

Key performance indicators. Financial or non-financial metrics used to reflect the critical success factors of an organization. KPIs should include delivery dates, quality measurements and financial measures. It is important to review the KPIs on a regular basis and have mechanisms in place to resolve performance issues when they’re not met.

KPO - Knowledge Processing Outsourcing

Knowledge Processing Outsourcing (popularly known as a KPO) is the combination of Business Processing Outsourcing (BPO), Research Process Outsourcing (RPO) and Analysis Proves Outsourcing (APO). KPO business entities provide typical domain-based processes, advanced analytical skills and business expertise, rather than just process expertise.

L-1 visa

Visas issued to foreign employees of a corporation.

Labor arbitrage

The financial benefit of buying a comparable service elsewhere to exploit the difference in pricing. In outsourcing, the term is often used to describe the savings an organization will enjoy when it hires work to be done in labor markets offshore, where salaries are less than they are domestically.

Limitation of Liability

An aspect of the outsourcing contract's Terms and Conditions. Sets out the extent to which the service provider's liability may be limited.

Location theory

A body of thinking that addresses the questions of which economic activities are located where and why.

Logistics

The study of the flow of goods and services from their point of origin to their point of consumption or use. Also known as "supply chain."

Long-term capacity planning

Evaluating organizational needs for a given function or service, based on historic use, staff growth or reduction and business intentions. Five-year or 10-year planning was once viewed as crucial; now three-year planning is much more common, since organizations adapt so rapidly to changing business conditions.

MNC

Service providers with offices in many countries, which enable them to serve a global market of clients and tap the labor arbitrage available by offshoring certain types of work. Among this category are IBM, EDS, CSC, HP, ACS, Accenture and Keane.

Multinational corporations

MNC. Service providers with offices in many countries, which enable them to serve a global market of clients and tap the labor arbitrage available by offshoring certain types of work. Among this category are IBM, EDS, CSC, HP, ACS, Accenture and Keane.

Multisourcing

A strategy that treats a given function -- such as IT -- as a portfolio of activities, some of which should be outsourced and others of which should be performed by internal staff. This approach moves away from the idea that all of a function should be viewed as a commodity, easily handed over to a service provider. Also known as "selective sourcing."

Nearshore outsourcing

The transfer of business or IT processes to companies in a nearby country, often sharing a border with your own country. In the US, nearshoring describes work sent to Canada and Mexico. Nearshoring is a popular model for companies that don’t want to deal with the cultural, language or time zone differences involved in offshoring.

Nearshoring

The transfer of business or IT processes to companies in a nearby country, often sharing a border with your own country. In the US, nearshoring describes work sent to Canada and Mexico. Nearshoring is a popular model for companies that don’t want to deal with the cultural, language or time zone differences involved in offshoring.

Net present value

A baseline against which a future determination of value from the initiative is made.

NIH syndrome

Not invented here syndrome. A culture whereby organizations are loathe to execute on something that wasn't thought up internally or that can't be implemented internally.

Non-performance penalties

The fines incurred by service providers when they breach service levels. The idea of including penalties in a contract are typically there to gain service provider executive attention in the case of non-performance.

Not invented here syndrome

A culture whereby organizations are loathe to execute on something that wasn't thought up internally or that can't be implemented internally.

NPV

Net present value. A baseline against which a future determination of value from the initiative is made.

ODC

Offshore development center. An operation set up for a specific organization by a service provider, which dedicates assets and resources specifically to that single client, in exchange for guarantees of steady work.

Offshore development center

An operation set up for a specific organization by a service provider, which dedicates assets and resources specifically to that single client, in exchange for guarantees of steady work.

Offshore outsourcing

The transfer of business or IT processes to other countries. Dominant offshoring locations include India, China and the Philippines.

Offshoring

The transfer of business or IT processes to other countries. Dominant offshoring locations include India, China and the Philippines.

Onshore outsourcing

The process of engaging another company within your own country for BPO or ITO services. For the US, it means hiring a US-based company to provide services.

Outsourcing

The process of transferring the operation of business processes to an external service provider, which then becomes accountable for those services.

Ownership

An aspect of the outsourcing contract's Terms and Conditions. Specifies when any change of title to products occurs. It also specifies intellectual property rights. "Intellectual property" is intangible and involves some degree of creative effort, such as software design. This clause protects both parties' rights to retain control over their intellectual property, including the rights to their use, publication and copying.

Payment schedule

The payments as agreed upon between the client and service provider for the major milestones, including contract signature, installation and acceptance as set out in a Payment Schedule.

Peer comparisons

The practice of going out and benchmarking service levels, staffing size, transaction costs and other details against other comparably-sized organizations that are non-competitive.

Penalty clause

That part of an outsourcing contract that specifies the penalties imposed by the client on the service provider in the case where the client experiences service degradation.

Performance audit

Confirmation that service levels are being met consistently. This may require access to transaction data within the vendor's IT platform used in managing the client's business processes. Contractual terms may spell out timetables, frequency and support offered by the provider.

Performance monitoring

A continual check of service levels to ensure they're being met. One decision organizations must make in outsourcing is how tightly the monitoring must be. Too tight and transaction costs rise. Too loose and risk increases. Another decision: who should do it -- client or service provider.

PII (Personally Identifiable Information)

Used in information security and is information that can be used to uniquely identify, contact, or locate a single person or can be used with other sources to uniquely identify a single individual.

Pilot project

A risk mitigation tool in which the client tests a potential service provider candidate with a small endeavor or a limited engagement. The idea is to reveal potential problems that may or may not be resolved before a larger scale outsourcing initiative is undertaken.

PMO

Project management office. The group that handles the day-to-day management of offshore projects to ensure that processes are running smoothly. As part of the governance of an outsourcing engagement, the PMO may do weekly check-ins, review quarterly operations, do biannual site visits, handle SLA monitoring and document internal processes for further improvement.

Preamble

An aspect of the outsourcing contract's Terms and Conditions. A full description of the involved parties and processes.

Prime contractor

Sourcing scenario in which a single provider manages service delivery but accesses multiple providers to deliver the services.

Process mapping

Comprehensive understanding of how a business process is organized and executed. Essential to laying out an outsourcing or offshoring analysis.

Process owner

The individual responsible for process design and performance. The process owner is accountable for sustaining the gain and identifying future improvement opportunities on the process.

Process reengineering

Evaluating a given function to figure out how it can be done more efficiently, more cost-effectively or with greater quality.

Program office

Typically, present in complex organizations. The job of this team is to make tactical decisions on program costs; project priorities and milestones; expected ROI; and risk management.

Project management office

The group that handles the day-to-day management of offshore projects to ensure that processes are running smoothly. As part of the governance of an outsourcing engagement, the PMO may do weekly check-ins, review quarterly operations, do biannual site visits, handle SLA monitoring and document internal processes for further improvement.

Project Management Office - PMO

The Project Management Office (PMO) in a business or professional enterprise is the department or group that defines and maintains the standards of process, generally related to project management, within the organization. The PMO strives to standardize and introduce economies of repetition in the execution of projects. The PMO is the source of documentation, guidance and metrics on the practice of project

Quality assurance

A planned and systematic set of activities to ensure that variances in processes are clearly identified, assessed and improved to fulfill the requirements of customers and product or service providers. It includes all actions necessary to provide adequate confidence that the service optimally fulfils customer expectations. Monitoring or checking of the condition of output, whether program code, customer service call or something else.

Quality Assurance - QA

Quality assurance (QA) is the activity(process, standards,techniques, etc) of providing evidence needed to establish confidence among all concerned, that quality-related activities are being performed effectively. All those planned or systematic actions necessary to provide adequate confidence that a product or service will satisfy given requirements for quality. For products, quality assurance is a part and consistent pair of quality management proving fact-based external confidence to customers and other stakeholders that a product meets needs, expectations, and other requirements. QA assures the existence and effectiveness of procedures that attempt to make sure - in advance - that the expected levels of quality will be reached.

Rebadge

To transfer an employee from the client company to the service provider: "We'll rebadge the IT organization as part of the agreement."

Reference group

A group of companies that are similar in size, revenue and, possibly, industry to the client organization.

Relationship management

The art and practice of developing solid communication between client and service provider as a form of customer support. This may also be a function within an internal group -- to act as a liaison between users and implementers.

Relationship performance assessment

The effort made to quantify the qualitative nature of the relationship the client has with its service providers. According to Gartner a good place to start to develop the measurements is to look back at the prioritized evaluation criteria used in the service provider selection and evaluation process. Criteria to be evaluated may include contract and relationship, alignment and vision, as well as customer service.

Request for information

RFI. The process of collecting written information about the capabilities of service providers. Typically, it's structured in a way that will allow for comparison among providers.

Request for proposal

RFP. A description of work to be done that is used to solicit bids from potential service providers. An RFP usually includes a description of the organization and its plans, details about the service under consideration for outsourcing and specific requirements expected of the service provider. There's a deadline attached to it to ensure that interested service providers respond in a timely manner. The structure of the document is intended to aid in comparison of responses across providers.

Requirements

An aspect of the outsourcing contract's schedules section. The functional specifications or the user requirements of the software to be delivered.

Return on investment model

A method for gaining visibility into the costs and value-creating propositions of an outsourcing or offshoring initiative.

Reverse Salient

The weak link in any system that impedes progress.

Review date

An aspect of an SLA that typically shows the date of the last SLA review as well as the scheduled date for the next SLA review.

RFI

Request for information. The process of collecting written information about the capabilities of service providers. Typically, it's structured in a way that will allow for comparison among providers.

RFP

Request for proposal. A description of work to be done that is used to solicit bids from potential service providers. An RFP usually includes a description of the organization and its plans, details about the service under consideration for outsourcing and specific requirements expected of the service provider. There's a deadline attached to it to ensure that interested service providers respond in a timely manner. The structure of the document is intended to aid in comparison of responses across providers.

Risk

Negative outcome that has a known or estimated probability of occurrence based on experience or some theory. The likelihood of loss as a consequence of uncertainty.

Risk factors

In outsourcing, these encompass such items as: treating IT or some other function as an undifferentiated commodity, when in fact, there's some strategic component to it; lack of attention to developing the contract or service level agreements; lack of management oversight in contractual and relationship matters; failure to retain requisite in-house capabilities, knowledge and skills; incomplete due diligence in service provider selection; difficulties in constructing and adapting deals in the face of rapid business change; lack of maturity and experience in contracting, negotiating and managing the outsourcing endeavor; outsourcing for unrealized cost savings; and setting unrealistic expectations for the outsourcing outcomes.

Risk management

Assessing risk and developing strategies to mitigate it as much as possible, given business circumstances.

Risk tolerance

How an organization perceives the risk of outsourcing.

Rural sourcing

Sending work to service providers in domestic locations where salaries and operating expenses are lower (such as the Midwest for the United States). An alternative for companies that want to avoid the negative aspects of offshoring.

SAAS

Software as a service. A model of delivering software through a network rather than as a stand-alone application on the computer. The activities behind the software -- including data management -- are handled from another location.

Sarbanes-Oxley Act

SOX. Legislation enacted in 2002 that defines how digital information is to be maintained by public companies and who is responsible for ensuring that compliance has been met.

SAS 70

Statement on Auditing Standards 70. An internationally recognized auditing standard developed by the American Institute of Certified Public Accountants (AICPA). It is authoritative guidance that allows service organizations to disclose their control activities and processes to their customers and their customers' auditors in a uniform reporting format. A SAS 70 examination signifies that a service organization has had its control objectives and control activities examined by an independent accounting and auditing firm. A formal report including the auditor's opinion is issued to the service organization at the conclusion of a SAS 70 examination. A SAS 70 audit ensures that a service provider has adequate financial reporting controls in their operations when working with a client's information.

Scope

An aspect of the outsourcing contract's Terms and Conditions. General description of what is to be supplied (the deliverables), any additional services to be provided and any options.

Security audit

An audit that examines the service provider's ongoing security and privacy practices. The terms of this type of audit should spell out timetables, frequency, reporting results and what action should be taken in the event that problems surface.

Selective sourcing

A strategy that treats a given function -- such as IT -- as a portfolio of activities, some of which should be outsourced and others of which should be performed by internal staff. This approach moves away from the idea that all of a function should be viewed as a commodity, easily handed over to a service provider. Also known as "multisourcing."

Service accountability

The extent to which the client will hold a service provider responsible for meeting designated service levels. Experts recommend specifying 100% service accountability in contracts, though this can have multiple tiers. For example, a client may specify that a service provider process 90% of all requests within three days. What needs to be added is an additional specification that addresses the remaining 10% -- for example, that those be processed within five days.

Service level agreement

SLA. The document that spells out the characteristics of the service required by the organization. The purpose of the SLA is to ensure that the proper elements and commitment are in place to provide optimal services for the business function.

Service level reports

The reports provided by the service provider to the client, specifying how performance measured against service level requirements. Clients should make sure that reports provide useful detail -- service level agreed upon, service performance for the current period, exception reporting for missed measures, and trend analysis of the performance from previous reporting periods. Reports do have a price.

Service oriented architecture

SOA. An architectural concept for delivering software to users as a Web-based service. Unlike typical stand-alone applications, these services can be quite modular, platform-independent, and highly interoperable with other services.

Service outcome statements

Declarations that spell out the outcome expected in a transaction vs. how the transaction is to transpire. For example, a statement for accounts payable might consist of, "Process invoices within 120 hours of receipt."

Service provider

An external vendor that provides services. For example, a service provider might provide services in areas such as human resources, information technology or finance & accounting.

Shared risk/reward pricing

Flat rate pricing structure with additional payments based on achieving specified outcomes. Appropriate for enhancement and transformational sourcing.

Shared services

The consolidation of service functions, such as accounting, benefits, HR, IT, marketing, legal, logistics, payroll and procurement, within an organization through the merging of separate activities into one function that crosses business units.

Single supplier

An outsourcing model in which the client organization contracts with a single service provider to provide all of a given function, such as information technology outsourcing or human resources outsourcing. Sometimes referred to as sole supplier.

Site selection

The process of determining which is the optimal city, region or country for taking work to. One methodology -- espoused by Mercer Human Resources Consulting, suggests examining such factors as labor availability, labor quality, labor costs, risks, infrastructure, community, openness, regulatory environment and economy.

Site visit

The process of spending time in the offices of a prospective service provider. One objective is to spend as much time as possible with as many people as possible: team leaders, project managers, customer service agents, technical professionals and upper management. Another objective is to evaluate whether the vendor has reliable voice, data and power systems; the ability to scale up; and experience with the exact process or task being considered for outsourcing.

Six Sigma

A rigorous and disciplined methodology that uses data and statistical analysis to measure and improve a company's operational performance by identifying and eliminating "defects" in manufacturing and service-related processes. Commonly defined as 3.4 defects per million opportunities.

SLA

Service level agreement. The document that spells out the characteristics of the service required by the organization. The purpose of the SLA is to ensure that the proper elements and commitment are in place to provide optimal services for the business function.

SOA

Service oriented architecture. An architectural concept for delivering software to users as a Web-based service. Unlike typical stand-alone applications, these services can be quite modular, platform-independent, and highly interoperable with other services.

Software as a Service

SAAS. A model of delivering software through a network rather than as a stand-alone application on the computer. The activities behind the software -- including data management -- are handled from another location.

Software licensing agreements

The contracted terms organizations have with software publishers for the use of the software. Frequently, the terms should be negotiated with the publisher to encompass a transfer of the license to the service provider if outsourcing is a possibility.

Sole supplier

An outsourcing model in which the client organization contracts with a single service provider to provide all of a given function, such as information technology outsourcing or human resources outsourcing.

Sourcing

The process of contracting with a third party for products or services rather than providing those products or services internally.

SOX

Sarbanes-Oxley Act. Legislation enacted in 2002 that defines how digital information is to be maintained by public companies and who is responsible for ensuring that compliance has been met.

Staff augmentation

Contract workers brought in by an organization to supplement efforts of the internal staff in order to contain costs and handle overflow work.

Stakeholders

Those who have a vested interest in a given decision. Each will posses unique perceptions and expectations of the outcome.

Statement of Intent

An aspect of an SLA. It spells out the characteristics of a service required by the organization.

Statement of Work

The document provided by the service provider to a prospective client spelling out the work to be undertaken and agreed pricing. Details might include the scope of work, where it is to be performed, when deliverables are due, what standards are to be followed, how the results will be evaluated and other requirements.

Statement on Auditing Standards 70

SAS 70. An internationally recognized auditing standard developed by the American Institute of Certified Public Accountants (AICPA). It is authoritative guidance that allows service organizations to disclose their control activities and processes to their customers and their customers' auditors in a uniform reporting format. A SAS 70 examination signifies that a service organization has had its control objectives and control activities examined by an independent accounting and auditing firm. A formal report including the auditor's opinion is issued to the service organization at the conclusion of a SAS 70 examination. A SAS 70 audit ensures that a service provider has adequate financial reporting controls in their operations when working with a client's information.

Steady state

That point at which a transition, such as to a service provider, has been completed and the ongoing effort of management and governance is beginning.

Steering committee

A group consisting typically of executives that aligns processes, projects and goals with business requirements. It also directs the client and vendor relationship. In governance matters, it defines the overall strategy; establishes IT, business, HR, legal, audit and compliance support; provides funding; implements the program management office; and reports to the board.

Supply chain management

Managing the movement of goods from raw materials to the finished product delivered to customers. Supply chain management aims to reduce operating costs, lead times, and inventory and increase the speed of delivery, product availability and customer satisfaction.

SWOT analysis

A scan of the internal and external environment is an important part of the strategic planning process. Environmental factors internal to the firm usually can be classified as strengths (S) or weaknesses (W), and those external to the firm can be classified as opportunities (O) or threats (T). The SWOT analysis provides information that is helpful in matching the firm's resources and a capability to the competitive environment in which it operates. As such, it is instrumental in strategy formulation and selection.

Termination

An aspect of the outsourcing contract's Terms and Conditions. The parties must agree and set out the basis for any termination of the agreement. This will usually only be for situations where one or other is in breach or default of its obligations as specified in the agreement. This clause will set out what notice is required to be given to the other party and will generally allow a period for the default or breach to be remedied before the other party is entitled to exercise remedies under the agreement.

Termination of contract

The cancellation of an outsourcing agreement. Usually, the terms for cancellation are spelled out in the contract as part of a termination clause. This clause protects both parties, since the desire to terminate by one party will severely affect the other. Most contracts require either party to notify the other within a specified period, such as three months. Failure to give adequate notice can result in severe financial penalties. Another aspect of the termination clause should be assurance of service provider assistance in transferring systems and data to an alternative site.

Terms and conditions

The clauses that make up a contract.

Time and materials

A pricing model in which the client pays set rates and related expenses for each worker provided by the service provider. Paying this way, while allowing more flexibility, may lead to a less disciplined approach to the project.

Time and percent conventions

An aspect of an SLA that spells out how times and dates will be used throughout the SLA. It may express how time will be shown, what is meant by "business hours," and what is meant by "business days."

Total cost strategy

Integrating global sourcing into the overall business strategy to obtain a low-cost advantage.

Total quality management

A label for the list of prerequisites for achieving world-class quality. Use began in the last half of the twentieth century. Although there is no agreement on what were the essential elements of TQM, many use the criteria of the Malcolm Baldridge National Quality Award. A conceptual and a philosophical context which requires management and human resources commitment to adopt a perpetual improvement philosophy, through succinct management of all processes, practices and systems throughout the organization to achieve effectiveness in the organizational performance and fulfilling or exceeding the community expectations.

TQM

Total quality management. A label for the list of prerequisites for achieving world-class quality. Use began in the last half of the twentieth century. Although there is no agreement on what were the essential elements of TQM, many use the criteria of the Malcolm Baldridge National Quality Award. A conceptual and a philosophical context which requires management and human resources commitment to adopt a perpetual improvement philosophy, through succinct management of all processes, practices and systems throughout the organization to achieve effectiveness in the organizational performance and fulfilling or exceeding the community expectations.

Transaction cost theory

Developed by Ronald Coase in 1932 as part of a lecture given to students at the School of Economics and Commerce in Dundee, Scotland, then turned into a paper titled, "The Nature of the Firm." At its core is this notion: When a company tries to determine whether to outsource or to produce goods or services on its own, market prices aren't the sole factor. There are also significant transaction costs, search costs, contracting costs and coordination costs. Those costs frequently determine whether a company uses internal or external resources for products or services. This is the essence of the make-vs.-buy decision.

Transaction costs

The management costs associated with coordinating, monitoring and controlling the delivery of products or services.

Transactional pricing

Also known as "unit pricing." The client pays the service provider a flat fee per unit of work (order taken, application processed, sales call made).

Transfer of Undertakings (Protection of Employment) Regulations 1981

TUPE. Applicable in the UK. The normal position when an employee stops working for one employer, and starts work for another, is that a completely new contract of employment comes into being. The effect of TUPE is to change this position where there is a "transfer of an undertaking". In those circumstances, the effect of the TUPE Regulations is that the employee is -- for most purposes -- treated as if the contract with his old employer continued with the new employer. This is important for a number of reasons. For example, certain employment law rights (e.g., against unfair dismissal or rights to redundancy payments) normally only apply if an employee has worked for an employer for a certain period of time. If TUPE applies, the time with the old employer counts when calculating for how long the employee has been employed. TUPE cannot be excluded by contract.

Transformational outsourcing

The process of effecting continuous strategic change and tying the results of the outsourcing initiative to strategic business outcomes. It is a collaborative, risk- and gain-sharing relationship among the organization and its service providers to drive enterprise transformation and achieve significant business process improvements.

Transition management

The detailed, desk-level knowledge transfer and documentation of all relevant tasks, technologies, workflows and functions.

Transitional outsourcing

Outsourcing that involves the migration from one platform or mode of operation to another. It consists of three phases: management of the legacy system; transition to the new platform or system; and stabilization and management of the new platform.

TUPE

Transfer of Undertakings (Protection of Employment) Regulations 1981. Applicable in the UK. The normal position when an employee stops working for one employer, and starts work for another, is that a completely new contract of employment comes into being. The effect of TUPE is to change this position where there is a "transfer of an undertaking". In those circumstances, the effect of the TUPE Regulations is that the employee is -- for most purposes -- treated as if the contract with his old employer continued with the new employer. This is important for a number of reasons. For example, certain employment law rights (e.g., against unfair dismissal or rights to redundancy payments) normally only apply if an employee has worked for an employer for a certain period of time. If TUPE applies, the time with the old employer counts when calculating for how long the employee has been employed. TUPE cannot be excluded by contract.

Unbundled pricing strategy

The decision to impose the expense of going beyond uniform service delivery on the business unit that is requesting it.

Unrepatriated earnings

A US policy set during the establishment of the corporate tax structure in the early 1900s, in which earnings of an overseas subsidiary is claimed to be invested overseas, thereby reducing the parent company's US tax liability on those earnings.

User environment

An aspect of an SLA, in which the number of users, geographic location of users and computing platforms are described..

Utility computing

The idea that IT services are a commodity -- akin to electricity -- rather than an aspect of the organization that can provide strategic differentiation.

Value audit

The process in which an organization investigates whether the cost reductions and/or revenue enhancements suggested in an outsourcing business case have actually been captured.

Value-added outsourcing

An aspect of strategic sourcing or multisourcing, in which some functional area is turned over to a service provider. The presumption is that the service provider can add value to the activity that wouldn't be cost-effective if provided by internal staff.

Waiver

An aspect of the outsourcing contract's Terms and Conditions. Allows the parties to retain any rights under the agreement that they may not elect to enforce in the first instance.

Warranties

An aspect of the outsourcing contract's Terms and Conditions. Specifies what either party is required to warrant with respect to the agreement. This can include: quality of services; personnel; fitness for purpose; performance against specification; conformance to standards; warranty maintenance period and service levels.

Whole disk encryption

Uses disk encryption software or hardware to encrypt every bit of data that goes on a disk or disk volume. AKA 'full disk encryption'.

Your mess for less

First probably coined by an analyst at Gartner, to describe the attitude taken by those organizations that view outsourcing as a way to hand over a muddied business process that needs cleaning up, along with the expectation that it should cost less to do when performed by a service provider

Zero Defects

"Zero Defects" is a notional quality standard developed by Phil Crosby. Although applicable to any type of enterprise, it has been primarily adopted within industry supply chains wherever large volumes of components are being purchased (common items such as nuts and bolts are good examples). The principles of the methodology are four-fold: 1. Quality is conformance to requirements. 2. Defect prevention is preferable to quality inspection and correction. 3. Zero Defects is the quality standard. 4. Quality is measured in monetary terms – the Price of Nonconformance (PONC)

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