Comments on: Outsourcing Contract Incentives: What is a Pound of Carrots Worth?

By: Kendall Gordan, SE

Kendall Gordan, SE — Mon, 01 Dec 2008 20:57:16 +0000

All incentives should be verifiable as well as a proven ROI prior to payouts…As my management says, we ARE already paying you for a days work in a days time!

Kendall Gordan, SE
http://www.foxfiresoftware.com

By: Esteban Herrera

Esteban Herrera — Thu, 21 Aug 2008 23:17:40 +0000

There are some not so subtle differences here. I have had a few incentives that work, and a large majority that are ignored by both parties. Two simple thoughts:

1. Of course you should not pay extra for expected performance
2. You should only pay extra for performance above and beyond “expected” if it makes a meaningful difference in business performance. For example, I am not sure my business makes any money by keeping a box “up” for an additional 30 minutes. But I am absolutely sure that if a call center agent upsells customers beyond my expectations, I am making more money and its fair to share some of that with the vendor that is making it happen.

Point #8, by the way, is one of the most important and most often ignored throughout the courtship and negotiation process–and its importance goes far beyond the penalties and incentives discussion. If you don’t understand to a very fine level of detail how your provider makes money, you have no business doing that deal.

By: Eliz

Eliz — Mon, 07 Jul 2008 17:01:58 +0000

I agree that it is difficult to swallow paying an incentive for behavior and perfomrance a vendor should be supply anyway. However I am struggling with how do I get the vendor to be more proactive in process improvements, automation of mundane tasks, strategic thought process? What contractual language can I put in place to ensure the outcome of the above? I shouldn’t have to pay “extra” for these things

By: E-Sourcing Forum » Sourcing Blogs: 360VendorManagement

E-Sourcing Forum » Sourcing Blogs: 360VendorManagement — Wed, 02 Jul 2008 19:16:47 +0000

[...] Outsourcing Contract Incentives: What is a Pound of Carrots Worth? [...]

By: licensinghandbook.com » Blog Archive » Incentives

licensinghandbook.com » Blog Archive » Incentives — Wed, 09 Apr 2008 14:35:03 +0000

[...] is known as an incentive payment. Over at 360° Vendor Management, Tony started the conversation by talking about how to use incentives. Except for some specific things like requirements [...]

By: Outsourcing Contract Penalties: Do Vendors Respond to the Pain? | 360° Vendor Management

Fri, 04 Apr 2008 06:01:35 +0000

[...] Site Map « Outsourcing Contract Incentives: What is a Pound of Carrots Worth? [...]

By: tony

tony — Wed, 02 Apr 2008 13:47:03 +0000

I knew this topic was going to get under the skin of some people! I’m not sure incentives really work because I’m not sure vendors’ staff are incentivized in a way to drive motivation. The results are typically driven by middle level operators who aren’t measured on profit and loss. Personally, I think many clients make incentives too easy to achieve and incentives become a back door for vendors to grab back at margin they lost in negotiations.

It is possible to make incentives that work, but they have to be focused on quality and be carefully considered. For example, I think it’s a renewal discussion point or a change order discussion point in which a client desires higher levels of performance and offers the first 6 months of incentives to achieve the goal. After 6 months, the stretch goal becomes the only goal and failure to achieve it results in credits…

By: Jeff

Jeff — Wed, 02 Apr 2008 11:05:02 +0000

I haven’t yet written about this over at the licensinghandbook.com site… but I’m 100% opposed to incentives that are anything less than penalties. The simple way to say it is that I don’t feel that I should pay EXTRA to get the vendor to do what they’re supposed to do anyways.

Now, in #5 above, you start to go down a path that I might be able to swallow: where you’d pay an incentive to get BETTER performance. But if you’ve got something like a requirements contract going on already (ie: we need at least x widgets each month; or we need x availability each day), I am not convinced that I would want to promise to pay more.

In other words, if I need 90% performance, I will pay for 90% performance - not 89% and not 91%. If I want to pay for 90% performance and really would like 95% performance, but think that the last 5% is going to be REALLY hard to do, I want to simply make it a contingency and I’ll phrase it as a contingency.

OK… I think I have a new topic to write about. Thanks Tony!