Tag: SLAs

Develop Metrics That Drive Increased Productivity | Blog

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?

SLAs Constrain Improving Productivity | Blog

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.

Read more in my blog on Forbes

Outsourcing Governance 101: Partnership | Sherpas in Blue Shirts

Governance balances the competing interests and needs of the buyer, end users, and the service provider. The intent of governance is to build a strong relationship, and align strategies, goals, and objectives through collaboration, mutual respect, and continuous communication.

Governance models should be foundationally designed with a joint relationship management structure and processes to build a cooperative, trusting working environment that encourages both the buyer and provider to make collaborative, proactive, mutually beneficial decisions. This requires active leadership by senior management in both organizations, including hands-on sponsorship, ownership, coaching, mentoring, influencing, and intervening, when necessary.

A true win-win partnership, as enabled by effective governance, is one that motivates the provider to do satisfy not just the contract but also all parties, and deliver value beyond the metrics and the original contractual expectations.

Following are the key principles behind setting up a partnership type of relationship with a service provider.

Tiered management structure with peer-to-peer alignment

With a tiered management structure, effective communication, responsive and efficient decision-making, and resolution are supported across three distinct levels to ensure alignment between executives and delivery teams. This keeps the focus on day-to-day service delivery without either party losing sight of strategy goals. The three tiers and their associated responsibilities should be:

  • Executive Committee – enterprise view of outsourcing strategy and provider relationship
  • Management Committee – ensure outsourcing performance is meeting internal and external objectives
  • Operating Committee – manage performance reporting, provider-driven changes, escalated issues, and out-of-scope requests

To ensure objectives are met and the spirit of the partnership relationship is maintained, the people engaged at each level must view their role as working with the provider, rather than policing its activities.

Decision-making and authority rights must be clearly defined and understood by both parties at each level

Defined and documented decision rights will help organize decision-making and execution by setting clear roles and accountabilities, and by giving all those involved a sense of decision ownership. In addition, the executive, managerial, and operational levels must aligned across both parties. While this may seem obvious, governance models often break down due to misalignment of these levels.

Commitment and sponsorship at senior levels is critical

Sponsorship should be evidenced by the commitment of sufficient resources and management time to nurture the relationship at both the tactical and strategic levels. All communications, formal and informal, must make it clear that senior management views the outsourced relationship as a true partnership, and will work together to provide joint oversight to achieve the desired outcomes. Moreover, commitment and plans for strong change management, training, and communication need to be rolled out, reinforced, and managed. 

Governance is successful only when the both the buyer and provider are successful

Buyers must make significant investment in standing up and staffing the governance organization, and management must be aware of the potential impact of the joint governance on current policies, processes, budgets, skills, competencies, and relationships, etc.

To help ensure mutual success, a proactive feedback loop should be developed, and periodic reviews by buyer and service provider stakeholders with progress reported to senior management should be instilled. These regular reviews enable both parties to process feedback, make required changes to the governance model, and proactively manage expected deliverables throughout the contract. They can also present a strategic opportunity to improve buyer and provider organizational capabilities, operational resilience, and competitive analysis in the longer-term.

Has your company experienced misalignment among the executive, managerial, and operational levels? What did you do to rectify the situation?

For insights on two key guiding principles to consider when building your governance team, please read the Proficiency blog in this series.

Outsourcing Governance 101: Proficiency | Sherpas in Blue Shirts

Some organizations – particularly first time outsourcers – tend to think that outsourcing engagement success ends with carefully dotted I’s and crossed T’s on the contract. Unfortunately, they often overlook governance, which is critical to ultimately driving the value captured from the relationship.

What is outsourcing governance? While definitions abound, one Everest Group particularly appreciates was cited in The New Global Services Governance executive point of view written by several of my colleagues:

Governance ensures that stakeholder needs, conditions and options are evaluated to determine balanced, agreed-on enterprise objectives to be achieved; setting direction through prioritization and decision making; and monitoring performance and compliance against agreed-on direction and objectives.

With that stage setting, the blogs in this series looks at three key components of good governance…proficiency, partnership, and playbook. They’ll be refreshers for some readers, and provide new insights for others.

First up is proficiency.

Outsourcing represents a significant change in the way an organization provides its services. Governance of this new service delivery model requires a considerable effort to implement and optimize, even if guided by an experienced team.

A common pitfall is staffing the governance function with personnel that were previously responsible for managing the functions internally, without ensuring they receive the guidance and training required to operate in the new service delivery model.

There is a big difference between knowing what needs to be done and actually implementing and executing it effectively. Understanding governance models, frameworks, and documentation alone will not capture the full value of the relationship. Allocating resources with experience managing service providers and the nuances of outsourced services is critical to achieving the positive results desired.

Here are two key guiding principles to consider when building the team that will play key governance roles:

  • The retained functions (those that existed prior to outsourcing and will continue to be owned by the buyer) are not the same as the governance functions

    • The governance model is the set of functions that exist as a result of the outsourced services
    • The over-arching goal of governance is to keep the relationship on track by owning key functions related to governing the buyer/provider relationship
    • Governance should be positioned high enough within the business to have the appropriate level of authority and influence, as it is responsible for maintaining alignment of strategy and operations at all levels between the two organizations
    • Those in the governance model maintain a broad set of stakeholder communication channels, which include buyer/provider executive and functional leadership, regional units, Finance, Legal, HR, IT, etc.
  • The skills needed to manage an outsourcing partner are not the same as those needed to run an in-house organization

    • Governance should be designed and staffed separate from the function outsourced; the functions required of a governance model are distinctly different from an in-house service model
    • Defined roles and responsibilities should be based on governance core competencies/skills and accountability for the governance organization, (including issue management, contract and financial management, committees, service performance/monitoring, communications, and administration), and those selected to play a governance role should be carefully reviewed to ensure that they have the competencies/skills for the job
    • Once defined, joint awareness and training sessions with internal/external stakeholders are key to ensuring that all stakeholders know what to expect in the new landscape.

What best practices has your company implemented when building its governance team?

Next in this three-part series: Partnership. Be sure to read it for key principles on establishing a partnership-oriented relationship with your provider.

The Whys, Hows and How Nots of Buyer-Driven Service Level Redesign | Sherpas in Blue Shirts

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:

  1. Unmet or wrong SLAs: Service providers typically meet their contractual SLAs. When they don’t, it generally implies a flaw in the SLA design that needs to be addressed. For example, buyers may be capturing the wrong metrics. Or, they may have established the wrong targets for the right metrics.
  2. More business value: Buyers believe they are achieving insufficient value from their sourcing engagements, in terms of cost, flexibility, responsiveness, business alignment, etc. They may spend too many people and financial resources on defining service levels, yet fail to see material benefits from the service levels.
  3. Requirements change: Buyers’ business and IT requirements may have changed during the contract period – e.g., a newer baseline, regulations, evolving technologies, delivery models, provider capabilities, etc. – and these must be reflected in newer service levels. On the flip side, incumbent providers or competitors may be offering better engagement terms, payment options, or delivery models than when the contract was originally inked.
  4. Sourcing strategy change: Buyers that earlier outsourced to just one provider may be experimenting with multi-provider sourcing, and the different capabilities, services, and delivery models must be reflected in the SLAs when the services are split among providers.

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:

SLA Redesign Process

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?

Can Outcome-based Pricing Replace “Till SLAs Do Us Part?” | Sherpas in Blue Shirts

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.

ITO Deal Demand and Supply Forces

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:

  1. Trust:  Ask yourself, “Do I really trust my partner?” Use your common-sense. Outcome-based models are often used in combination with a base T&M model in situations involving complicated deployment of new technology, where both parties share the risk.  However, not everything goes smoothly in such situations, so don’t fall over yourself to shout “Penalty!” You might need to arrive at a negotiated outcome once your partner admits to an honest, unforeseen mistake. In other words, incentivise your provider to make it right, rather than masking the flaw and investing in a sub-optimal environment for the duration of the contract. The latter is the road to poor relationship health, contract disputes, and a frustrating end-user experience.
  2. Corollary to the Trust Principle, be prepared to Cede control: If the implementation partner is responsible for improved business outcomes, the team needs to have control over the business process and the underlying stack, including platforms, management, and reporting tools, and quite simply…the way you do business. You can play the powerful investor, but let your partner be the empowered CEO. Share your powers.
  3. Identify scope accurately: Building on the above point, the scope is often beyond the obvious. Mere implementation of an ERP system won’t raise productivity or prevent revenue leakage if the overlying process is inefficient. State the scope in line with your desired outcome. For example, scope is not, “implement ERP”; it’s “raise productivity by XX% by implementing ERP and optimizing the accompanying process.”
  4. Know the price of improved outcomes: Most providers won’t tell you they build a risk premium into their base fees on outcome-based models. In other words, while you are encouraging your partners to take on more risks, they want to cap the downside. Remember that they don’t want to, and sometime can’t, back out of a contract. Thus, if the desired outcome cannot be reached, they would have spent significant time and effort without recompense. So, you must carefully evaluate the business case for an outcome-based model. Is the scope large enough? Are the benefits of transformation deep enough?
  5. Make it stick: Arguably, this is the most challenging part, as it’s  often difficult to establish causality between the provider’s performance and business outcomes, making “Cede control” (point #2 above) even more important. In addition, governance models must be suitably evolved and often supported by sophisticated management tools and chargeback mechanisms. Keep in mind that these come with a cost and, consequently, must be built into your ROI model.

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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