Abstract

Outsourcing initiatives are key to firm efforts to focus on core competencies, alter engrained practices, and attain significant cost reductions in non-core processes. Extensive thought goes into the selection of outsourcing service providers, with the aim of enlisting vendors that have the competence and reputation to lower cost and enhance service levels. However, in addition to traditional fee-for-service outsourcing, another option is to develop a new enterprise that is wholly or partially owned by the outsourcing entity to take on the activities that are externalized—a so-called “enterprise partnership.” This article examines one of the first examples of such a partnership: BAE Systems’ efforts to outsource its HR services in collaboration with Xchanging. It tracks the evolution of the resulting enterprise partnership from the perspective of both the new vendor and the outsourcing firm. The article also discusses the need for explicit contractual recognition of key phases of the outsourcing life cycle as a means to reduce inevitable in-process conflict. Understanding the divergence of interests that naturally emerge is critical to realizing the long-term promise that enterprise partnerships offer.