Access to skills tops the list of virtually every survey on the reasons for outsourcing; and with loyalty changing and employment arrangements evolving, it is increasingly difficult to keep good people, according to Margaret Hurley, co-author of The Blurring Boundary of the Organisation: Outsourcing Comes of Age.

Launched in May 2001, the book is based on a multi-company research project undertaken by KPMG Consulting and its research arm, the Nolan Norton Institute. It found that outsourcing is becoming a basic business process in most organisations and predicts that the future shape of businesses will involve managing a smaller core operation with increased dealings with external service providers.

"Instead of corporations trying to be the best at everything, they have accepted they may need to turn to the best. Internally provided processes and externally provided activities will be intertwined, with a greater reliance on external roles. With this new thinking, corporations have also accepted that finding the best in one provider may not be possible," Hurley says.

The research also found that short-term outsourcing contracts of three years are replacing the five-to-10 year contracts popular in the early 1990s. Dissatisfied with poor performance and missed goals, the book says, many leading companies are scrapping old and highly generalised deals in favour of smaller, more focused agreements. Shorter contracts provide greater flexibility, as long-term contracts can't anticipate market conditions for the life of a contract, it concludes. Customers are sometimes also much better off with a smaller provider who tries harder, adds John Rundell, KPMG Consulting's Asia Pacific head of outsourcing.

However, sound agreements and contracts continue to underpin successful outsourcing, according to the KPMG book, and for a service-level agreement to remain worthwhile and useful it must change over time and with circumstances.

"The overwhelming message from virtually every interview and workshop [we undertook] for this study is that the absolute centre of any successful outsourcing arrangement is a strong mutual understanding of the objectives by both the customer and the service provider," Hurley says.