Veteran outsourcers shared some of their hard-won lessons with us:

Clarify objectives at the start to align for success: Many companies learned the hard way that they had to understand their own objectives before they could invite an outsourcer to the party. Communicating your goals broadly throughout the organization helps set clear expectations. As one executive notes, "Business leaders on our side thought they were getting improved service, but the negotiating team gave that away in favor of reduced price. The result wasn't pretty."

Choose fewer metrics with higher stakes: Outsourcing veterans have significantly narrowed the number of metrics they track over time-and increased the accompanying rewards and penalties-in order to boost focus, minimize administrative demands, and improve their relationships. The first to go: metrics that proved too difficult and time-consuming to measure. After several attempts, the senior vice president of procurement at a UK transportation equipment firm removed engineering efficiency from his outsourcer's list of target metrics for business process improvement. It simply proved impossible to quantify the result.

Shift from input to output metrics where possible: Instead of counting how many hours it took to complete each order, a photographic firm asked its outsourcer to count how many orders it completed each hour. This small change in the way they kept score helped focus the vendor on speeding up throughput. Similarly, Family Christian Stores stopped tracking the uptime of store computer systems in favor of getting the weekly replenishment orders delivered to stores by 8 a.m. every Monday.

Define metrics early in the relationship: Some of the firms we talked to signed their outsourcing contracts long before they identified the metrics they'd use to manage performance. At least one executive identified this as a problem, saying, "It took us more than a year to build the set of metrics we would use to evaluate performance. Things would have gone much more smoothly if those were in place sooner."