Analysis of management practices in performance-based outsourcing contracts

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