Supplier Performance Measurement and Tracking Tools Prevalence in Enterprises | Market Insights™
Supplier Performance Measurement and Tracking Tools Prevalence in Enterprises
Supplier Performance Measurement and Tracking Tools Prevalence in Enterprises
There is a huge problem with trying to increase productivity in functions, processes and in business teams. Measurements of productivity look at the efficiency of a task. The assumption: if companies focus on making activities more efficient, they will increase productivity. History has not been kind to that belief. So, what enables the ability for teams to break out of their current way of doing business and reassemble the constituent pieces for more effective, more productive results?
Three years ago, I wrote some blogs stating that Service Level Agreements (SLAs) are dead. Unfortunately for businesses, SLAs are still around – they’re like zombies. Companies realized for many years that SLAs don’t work. They are not just ineffective; they constrain companies from getting to their goals for services. But, like zombies, they did not die. Why? Because there was nothing better to use in governing service agreements. Until now. In this blog, I will explain what works better than SLAs, and why.
In digital service models, companies need to move to a new set of metrics. Metrics that focus on productivity. Metrics that focus on velocity. Fluid metrics that allow companies to adjust the target to a changing reality. Metrics that accurately affect pricing. Metrics that do not lock companies into old contractual vehicles that no longer work.
Understanding the importance of effective service level agreements (SLAs) that are practical and create business value, most buyers design contract SLAs that are generally within provider’s control, are measurable, promote convergence of interests, and usually have a proper baseline. However, many buyers feel a need to reassess and redesign their service levels at some point during their contracts’ lifecycle.
Our interactions with a large and diverse group of buyers and service providers have shown that service level redesign is typically driven by one or more of four key reasons:
The core of the SLA redesign process is to understand the mistakes made during contracting and execution. It also requires an effort in visualizing at least three to five years into the future understanding the IT environment that will be sufficient to cater to the business demand. Therefore, this also requires an understanding of evolving business needs.
The process itself consists of four steps, as outlined below:
This process is relatively easy for buyers that early on missed the basics of good SLA design such as practicality, manageability, collectability, measurability, etc. Understandably, it is harder for buyers that are satisfied with their provider’s performance but want to evolve the relationship to the next level to extract more business value.
Yet, whichever category they fall into, we have time and again seen buyers reducing the number of SLAs, believing it will lead to lesser complexity, simpler governance, and reduced cost. However, doing so may not solve the problem as they may end up removing even the “must have” SLAs.
Additionally, we frequently see buyers incorporating metrics that on the surface appear good but in reality cannot be concretely measured or clearly defined, such as innovation, collaboration, next generation delivery, etc.
SLA redesign is a challenging task that must take into account not only cost and efficiency, but also the evolving competence of service providers, peer benchmarks, an understanding of the past, knowledge of business priorities, and, above all else, analysis of its necessity.
What have you experienced with SLA redesigns? What were your drivers, challenges, results, and outcomes? Do you have good, bad, or ugly to share with your peers?
ITO deals in which service providers’ compensation is linked directly to the business outcomes they achieve for the clients have started gaining prominence. While the idea has been around for some time, and indeed should be part of a gradual evolution process from pure FTE or T&M models through to gainsharing arrangements, we’ve observed with interest both parties’ strategic interests (see image below) converging through shared business outcomes on several mega deals.
A number of clients have recently asked for our advice and insights on the upsides and downsides of outcome-based pricing models. Following are the factors we told them they must carefully consider before asking their providers to make the change:
At the end of the day, an outcome-based model is a bit like marriage – it represents the triumph of hope over experience. So be clear about why you are getting into it, choose your partner carefully, share space, and who knows – you could live happily ever after!
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