Applications outsourcing customers are generally happy with the levels of service they receive from their providers - but they still want more. That's the message from a recent survey conducted by IT market analysis firm, Forrester Research.

In particular, customers want to see more innovation and more proactive suggestions for improvement from their suppliers. Are they being short-changed - and how could they be better managing outsourcing relationships to get what they want?

"[Providers] keep talking about moving up the value curve, but they need to do more. There is still too much required of the customer to manage them effectively," complained one respondent to Forrester's survey, an airline company manager. "In moving forward, we’d like to see [our suppliers] providing more creativity in a way that allows us to trust their creativity. When we lay out a plan for them to execute they are very good at that, but what is frustrating to us is that we would like to give them more."

But it would be unrealistic to suggest that the blame lies solely with providers. "Clients of applications outsourcing suppliers can’t expect to alter the tendencies of suppliers by themselves, but they can adapt their governance and oversight mechanisms to maximise positive outcomes," says Bill Martorelli at Forrester.

That's going to be increasingly important in the next few years, according to John Hanley, managing director of Fujitsu UK & Ireland's application division. Applications typically represent between 40 percent and 60 percent of IT budgets, and while they have yet to be significantly outsourced, he says that the situation is changing quickly.

“This is the next big area that CIOs are under pressure to address," he says. "The application outsourcing market is not as developed or as advanced as infrastructure outsourcing, but there are huge cost savings which can be realised. However, the costs of getting application outsourcing wrong can be very high – and potentially damaging to an organisation’s ability to do business."

Given the complex nature of application outsourcing, Fujitsu recently commissioned research from MBA students at the London Business School, to investigate best practice in this tricky area.

First, says Hanley, it's vital to get the basics right. "There are specific IT operational challenges which need to be overcome: changes in application software, upgrade decisions, maintaining legacy systems and managing and evaluating complex application portfolios, often with limited resources."

But the London Business School study, which looked into application outsourcing projects at a number of major UK companies, showed that best-practice goes way beyond the basics.

Researchers found that ongoing flexibility is vital. Customers should anticipate the need to manage continuous change, they say: "Like the business processes they support, business applications are constantly being modified and adapted. This doesn't change once they are outsourced. While all IT outsourcing requires ongoing fine-tuning, this is even more the case for application outsourcing."

And increasingly, smart companies are seeking to measure performance on business outcomes, rather than just IT or financial metrics.

That's a view echoed by Kate Vitasek, author of Vested Outsourcing: Five Rules That Will Transform Outsourcing.

"Many conventional outsourcing arrangements are built around a transactional model. Most often, this transaction-based model is coupled with a cost-plus or a competitively bid fixed-price-per-transaction pricing model, to ensure the company buying the services is getting the lowest cost per transaction. The service provider is paid for every transaction - whether it is needed or not," she says. Thus, the more inefficient the entire process, the more money the service provider can make. The company that has outsourced gets what it contracted, but perhaps not the best solution.

Vitasek's 'Vested Outsourcing' approach operates under a desired outcome-based model, "with the emphasis on having the outsourcing provider align its interests to what the client really wants."

Desired outcomes are still quantifiable, she explains, but take a different form: they can be set availability, reliability, cost, revenue generation, employee or customer satisfaction, or even asset investment targets. "In essence, Vested Outsourcing buys desired outcomes, not individual transactions. The service provider is paid based on its ability to achieve the mutually agreed desired outcomes," she says.

In addition, customers need to build in more time to have 'innovation discussions' with their application outsourcing suppliers, says Martorelli of Forrester Research. "That so many clients are seeking more proactive ideas from their suppliers suggests that this aspect of applications outsourcing experience is structural in nature," he says. "To counter this tendency, sourcing and vendor management professionals should help craft governance strategies that elicit supplier input — and even penalise suppliers for failing to comply."

There is much work to do. But the Fujitsu/London Business School study shows that it's a two-way street, with responsibilities on both sides: client and provider.

"If an application outsourcing engagement is not delivering its expected value, the business sponsors need to think about what they can do to improve the situation, instead of blaming everything on the vendor," say the study's authors.

Or, as one respondent told them about previous, less-than-successful attempts at application outsourcing, "People have short memories and need to be reminded of how bad it used to be whenever things go wrong and the blaming game begins."