Outsourcing deals: Three steps to better performance
Requirements, responsibility, measurements - how to squeeze the most out of your contract
An outsourcing deal isn't a success unless it's delivering measurable results, says William Benn. Here's some advice on how to make sure it does.
While there are many important aspects of IT outsourcing, the one that wears the crown is performance.
Performance should be a simple measure of actual versus desired results - just like the speedometer on your car gives you a clear idea of how fast you are going. But, just as a high performance car does more than go fast in a straight line, performance in outsourcing deals is more than the sum of the numbers - be they MIPS, terabytes or gigabits.
IT outsourcing performance is a combination of qualitative impressions. It is the intangible essence of the outsourcing deal and really drives client perceptions of whether the deal is successful or not. Performance is equally important for the supplier. If the deal does not work for the supplier, they will ultimately walk away.
So, what do we mean by performance? It can cover a number of critical issues. It may be used to refer to the technology or system: does the IT solution work well? Is the system responsive?
It may refer to the people in an IT outsource deal: do they seem capable, approachable and do they react rapidly to incidents and issues?
It may refer to the whole service: does the supplier provide value, innovation and continuous improvement?
If you want your outsourcing deal to work well then you need to worry about the following three aspects:
Define your performance requirements
As always, you'll only get what you want if you have clearly defined your needs as a client, and articulated these in the selection and contract process with your supplier.
These performance requirements should explicitly link to the business outcomes you wish to achieve. And, since you get what you pay for, there should be a clear link between the level of performance and the business case financial model.
Typically, there will be three key questions:
- What is the minimum acceptable level of performance, while still complying with specified standards for security, stability and reliability?
- What level of performance do we want to pay for because it will help us to achieve our business outcomes? For example, e-commerce applications might enable the client to become more profitable if they can process additional concurrent transactions.
- What level of performance would be an attractive or desirable 'bonus'? This is in the 'nice to have' category. If, say, increased performance can save an operator a few minutes a day of time then that's nice as an improved user experience, but usually hard to capture as a tangible business benefit.
Who is responsible for the performance of the solution?
This is the fundamental question for IT outsourcing: does the client specify the solution, or does the supplier?
You absolutely need to communicate your requirements...
...to the bidders during selection. However, if you are overly prescriptive in telling the supplier how you want these requirements to be met then you can expect to be in trouble if the solution fails to perform.
In most cases, it is better to let the bidders 'own' the solution - and for the supplier to be in control of the way in which they deliver services to meet your needs. This is the only way to ensure that the supplier is absolutely accountable for delivering against defined service levels.
As a client you will still want assurance that performance is not being delivered at the expense of security or reliability, and that it can be maintained sustainably and cost effectively (not by budget-busting upgrades in future years). This needs to be a key element of your due diligence in supplier selection.
Measure, monitor and tune the performance of the deal
Even the simplest IT outsourcing deal will have several dimensions that are open to measurement and monitoring in order to establish the performance of the arrangement.
These measures will be a mix of quantitative (e.g. availability) and qualitative (i.e. customer service) so it's important to have clearly agreed parameters: what are the indicators that you want to track, and what is the level of attainment that is acceptable?
Such measures need to be properly understood and accepted by the supplier and by the internal customer community. Indeed, the customers may themselves have a significant impact upon the supplier's ability to hit the required performance standard.
Engaging the internal customer with training and education to help them get the best of the outsourced service is critical if the deal is to actually deliver expected business benefits.
And, things change. Therefore, you will not only need an effective selection of performance indicators and service level agreements in place with your supplier, but you will also need a mechanism by which they can be changed, tweaked or replaced by better measures (i.e. those that better correlate with desired outcomes).
As the outsourcing relationship becomes mature you'll want to have substantive discussions with your suppliers about continuous improvement, innovation and benchmarking to ensure the health and fitness of your deal - and keep performance at the top of the agenda.
William Benn is a partner with Alsbridge, an advisory firm specialising in shared services and outsourcing. Read more on IT outsourcing and beyond at Alsbridge's website.