Rule 1 Success starts by thinking cross-functionally: In general, these services can't be isolated to one functional area. Increasingly, they are touching all employees and customers. For eg, if the objective is to outsource call centers for customer services, a natural evolution would be to find a vendor that could serve all call centers. Or when outsourcing IT support for claims processing, think through the decision to support more than one function.

Rule 2 Think of ways to source innovation: You're not dealing with commodities where there is little innovation, but with functions and processes that have significant impact on the business. In the case of customer call centers, the new innovation could be a process that gets the customer's problem solved as quickly as possible and then helps the agents just as speedily turn their attention to upselling. Partner with third parties that can bring innovation to the process as well as to service-level agreements. That could mean technology that helps call center agents better understand who's calling and what their needs are, and then expediting those calls through sophisticated routing techniques.

Rule 3 Always provide incentives for suppliers: In the early days of outsourcing, companies fixed a price over five, seven, even 10 years. Now, as service deals get more sophisticated, there's a need for more complicated arrangements that include incentives for vendors. For example, give the vendor a reason to build new technology that will improve the process. Also, write business-process outsourcing arrangements that have built-in performance payments indexed to customer satisfaction, stock price or cost reductions. Put more and more of their compensation at risk. Recognize that aligning incentives is critical. You want to create a scenario where you and your provider win together or lose together. Give the partner an incentive based on hit rate of upsell and cross-sell. The ultimate is that they take no fee but instead are compensated in stock (but very few vendors are willing to do that).

Rule 4 Include refresh schedules: For long-term contracts, specify that the vendor has to refresh the technology at a specified rate, but that you share in any benefits. Say you're currently doing $10,000 a day in cross-sell out of your call center. If the vendor can take that to $15,000 a day, offer it 15% of that extra $5,000 on top of the fixed fee.

Rule 5 Seek help from trusted advisors: Remember, you are still learning. Recognize that the vendors have done hundreds of deals, and understand how to maximize their objectives. Leverage experienced advisors and legal professionals who have seen an equal number of these deals. The agreements are quite complex, often involving more than 1,000 pages of contractual language.

Rule 6 Build in flexibility: We know of one company that, when it saw its IT costs spiraling, decided to take costs down as quickly as possible. The company signed a 7-year contract to outsource IT. But after two years, the industry cycle turned and costs came down. Suddenly, the company's main objective was to grow revenues.

Rule 7 Recognize that these are more like strategic partner relationships than arms' length vendor relationships: That means you should pick partners that are culturally compatible and that view your relationship as something to be maintained over the long haul.

Rule 8 It takes time to structure these deals: Effective procurement process can take 6-12 months, not 6-12 weeks, and every step must be carefully managed. It's not uncommon to take more than a year to work through these contracts.

Rule9 Anchor the deals in your company's strategic business context: Basically, if you're buying pencils you don't have to think very hard about how this fits with strategy. Increasingly, outsourced services are moving from the periphery to the core. That means you need to make sure the vendor, services and deals themselves are tied to and supportive of your company's fundamental business strategy. You can't cut costs if your objective is to grow revenues. You might undermine the strategy. And, not only does it need to be anchored in strategy when you do the deal, but it also needs to be flexible to address changes in strategy.

Rule 10 Remember the retained organization: When outsourcing your IT function, it's not as if you're washing your hands of it. You have to keep an inside organization of about 10–15% of the original size to act as a liaison. Sizing, designing and implementing that organization for effectiveness is critical.