Consider the Source

Service Quality: The Devil’s in the (Governance) Details

by Cynthia Batty,  Global Competency Lead, Governance Services Advisory, TPI

A recent survey of IT executives concludes that poor-quality service remains the biggest risk of IT outsourcing, even though, according to respondents, SLAs are becoming increasingly tighter. In analyzing the results of the survey, conducted by IDG, CIO magazine reports that, “Lax internal governance and an overreliance on contractual obligations may be to blame.”

We couldn’t agree more.   Clients (and their business stakeholders) frequently complain about services – even when service levels are being met and overall services appear to be delivered according to the contract.

Over the past few years, TPI has seen client organizations do a better job defining their objectives, writing contractual terms, and negotiating deals. But this focus on the front end of the process hasn’t been matched by a corresponding commitment to the day-to-day workings of the relationship. As a client quoted in the CIO article put it, “If you’re buying a box or replacing a drive, SLAs work great. But when you’re outsourcing services, it’s still all about people.”

Moreover, management teams frequently lack the experience needed to implement the structured process management mechanisms that a sourcing relationship requires.

Successful outsourcing is characterized by a high-level framework as well as specific mechanisms that client and service provider teams use to manage day-to-day operations and interactions, and to identify and address the people issues that inevitably arise. Similarly, executives on both sides must be committed and prepared to engage in  ongoing governance, as well as resolve particular issues that arise.   The contract alone will not substitute for an active, structured management process.

Since organizations seem to muddle through when services are in-house, the culture shock is all the greater when it turns out that the expected solution is actually a new problem that requires genuine work and effort to resolve.

Not long ago, we informally surveyed our advisor community to ask which party was the source of most problems after an outsourcing contract was signed. In cases where services were generally being delivered according to the contract terms, over half the TPI advisors placed the blame squarely on the client side, while a quarter said both the client and provider were equally responsible. So, in our experience, less than 20% of problems are caused only by the provider.

We’ve seen situations where the client has been able to use various techniques to reset the relationship, resulting in significantly improved services and a stronger relationship. We’ve even seen a client and provider negotiate improved service level targets and achieve them through a collaborative governance process that emotionally rewarded both sides – and didn’t cost any more.

People and process, in a framework that both parties value and subscribe to, measure, and monitor, is the only way to achieve value from the services for which you have contracted. Getting there requires tackling the often unexpected work of outsourcing – the “devil in the Governance details.”

What has your experience been? Is IDG right? Is service your biggest complaint? If so, should you look at your approach to governance?

Should You Sue Your Offshore Outsourcing Provider?

By Cynthia Batty, Global Competency Lead, Governance Services Advisory, TPI

That’s the provocative and interesting question posed by a recent CIO magazine article.  If you listened to your business stakeholders, you’d sue them every time the smallest thing went wrong! In fact, while most companies never sue their outsourcer (whether onshore or offshore), many clients are unhappy, and that unhappiness is often caused as much by the lack of clear governance process as it by the provider’s service failures.

Contract language to address major breaches is important, but most problems result from the nagging little things – projects taking too long, people turning over too quickly, watermelon service levels (green on the outside, red on the inside), issues that don’t get resolved for months – that wear down the relationship and cause deep frustration and emotional distress.

After more than twelve years in the business as both a client and an advisor, I’ve come to believe that the single most important governance process a relationship can have is a defined Issue Resolution process that allows any stakeholder from either party to document issues and problems without engaging in emotion or conflict. Characterized by a crisp “resolve or escalate” mechanism that creates documents and artifacts along the way, Issue Resolution prevents problems from sitting around and festering for a year before a CIO hears about them – we have seen that happen more than we’d like to admit.

An issue resolution process is generally not spelled out in a contract, but is part of a Governance Manual that is identified at a high level in the Governance exhibit in the contract, and generally developed by the parties after the contract is signed. The Governance Manual defines the operational business processes that allow the two parties to work peacefully and effectively together. The Issue Resolution process motivates the service delivery and governance teams to solve problems before they get to the top, through structured escalation and visibility.

An Issue Resolution process is an insurance policy that protects the client from risk and exposure. We are aware of a case where a client had a significant dispute that was not documented in an Issue Resolution process; as a result, while they had a legitimate reason to sue, their own internal lawyer told them they couldn’t proceed.

A few years back I conducted a poll of my TPI colleagues showing that when a dispute resolution process  was started, the issues were typically raised directly to executives, who tended to do the executive thing and “make it go away” – often on terms that were highly dissatisfying to the team and in a manner that didn’t solve the problem. What we’ve learned since then is that by controlling the issue process at the service delivery and governance level, the people closest to the problem are best-suited to solve it properly, and also to create the documentation to drive the executive discussion to a correct solution if required.

Improved Issue Resolution is part of the emerging management science of managing third party service providers – the rules are entirely different in this new world. The goal is to get the services and value, on the happiest possible terms, with the least disruption and angst. A strong Issue Resolution governance process is key to this outcome.

What do you think? Can good governance be more effective than legal action?

Walking the Talk of Telecom Negotiations

By John Lytle, Consulting Director, Compass

Because telecom costs represent a significant investment for a global organization, effective negotiation of telco/service/product contracts is imperative.

But it’s not enough to “play hardball” and threaten to terminate a contract and find new partners if your terms aren’t met.  You need to use knowledge of mature and emerging technologies, market-based price and service standards, and contract terms and conditions to define goals and manage vendor performance.

Some do’s and don’ts:

• Do include contractual provision for annual benchmarks to ensure that rates stay aligned with rapidly evolving market conditions, as well as your changing business requirements.
• Do enhance flexibility by demanding a low, or no annual commitment.
• Do be aware of market standards regarding pricing structures for basic product and service elements, as well as for those less obvious “administrative” charges that seem to appear on invoices.
• Don’t allow published tariffs to be used as the basis of negotiations. They are misleading, since they don’t include the credits, bonuses, and forbearance that typically characterize any large telecom agreement.
• Don’t allow the contract to include prices for services that you don’t use.  Since you have no incentive to negotiate prices for such services, you’ll be at a disadvantage if you need them in the future.

If you follow these and other guidelines and still don’t get what you need, then you have to be prepared to pull the trigger and issue an RFP for new services.

But how do you know when you've crossed the line from a salvageable relationship to a lost cause? "Make the Call," a Compass white paper on telecom negotiation strategies, outlines the basics of renegotiating an agreement with an incumbent service provider, and, if that renegotiation fails, how to go about finding new providers and implementing a smooth transition.

Key Findings from TPI’s New Multi-Sourcing Governance Study

By Cynthia Batty, Global Competency Lead, Service Management, TPI

In May 2010, TPI’s Service Management & Governance experts studied 12 organizations that had either substantial outsourcing activities in place with multiple service providers or that we knew had created an enterprise Outsourcing Center of Excellence (OCoE)  to bring  structure, competency and oversight to their enterprise multi-sourcing efforts. (An OCoE is an umbrella function that provides guidance and support to business units delivering outsourcing and services in an organization — a kind of “control tower” and centralized reporting function for sourced services.) We wanted to understand whether the trends we had identified in 2007 were continuing and how organizations now view their challenges with the passage of time. 

Here are the TPI Top 5 key findings from our recent study:

1, Companies with more modest enterprise multi-sourcing spend still use an OCoE. While the average outsourcing spend is US$500M and above (many in the multi-billion dollar range), we found that one-third of the companies had built their OCoE structure with less than $100M in spend – indicating that enterprise management and process oversight are providing value even in smaller multi-sourcing situations.

2. All OCoEs include Application Development & Maintenance (ADM) in scope. We knew ADM was prominent in OCoE management focus, but to find it in 100% of our subjects was notable. IT infrastructure and business process outsourcing (BPO) were tied at 75% of the responding organizations, with knowledge process outsourcing in 42% of respondents and HR in 33%.

3. OCoEs are providing sophisticated management frameworks to their organizations. Nearly every OCoE had created a sourcing life cycle, and to support this, processes for the business units doing outsourcing, policies, standards and guidelines. Fully 100% of them had created a “playbook” for the business units to support their outsourcing efforts.

4. The surveyed organizations see material value in their OCoE management structure. One respondent enthusiastically reported that, because of their proactive management efforts, they were able to “collaboratively partner with the business to provide solutions at a cost-effective rate in a standard manner to minimize risk – and got a perfect audit!” Another reported that, whereas the previous focus had been on cost and labor arbitrage, the organization is “now changing to a broader value view beyond cost – including productivity, innovation, etc., with more focus on transformation.”

5. The reporting structure of OCoEs is volatile. While all of the OCoEs we studied reported to a C-level executive (CFO, CIO, CPO) or higher, the reporting structure for half of them had changed in the last 18 months – in some cases from CIO to COO; in another case from CFO to CIO. This indicates the evolving understanding in organizations of the nature of the sourced services management discipline, and the ongoing search for where it fits in an organization.

Our multi-sourcing governance study results demonstrate in concrete terms that as companies mature their sourced services management capability, they are able to ensure overall service quality and improvement by building an internal capability and resource to fine-tune this process.

To learn more about this study or to discuss creating a Outsourcing Center of Excellence inside your organization, e-mail Cynthia Batty, Global Competency Lead, Service Management, TPI, or phone her at +1 201 978 0542.

 

Top 5 Ways to Ensure Successful IT Sourcing Management and Vendor Management Collaboration

By Cynthia Batty, Global Competency Lead, Service Management, TPI

Organizations with complex IT purchasing and delivery of hardware, software and services are examining their structures and wondering how they can work more effectively. While the purchasing department usually negotiates the contracts, we often observe vendor management organizations (VMOs) scattered through areas like operations, HR and IT. For example VMOs in the IT area commonly have responsibility for the overall relationships and performance of the hardware and software suppliers.

Most sourcing clients recognize the need for a separate organization to manage sourced services (SMO) in various organizations; this can include both service delivery and relationship and metrics. Here are the TPI Top 5 tips to ensure that your SMOs and VMOs collaborate productively to yield the best results for your organization.

1. Define the terms. Vendor management typically manages vendor relationships, delivery, metrics, efficiency and cost yield for contracts generally associated with physical (or virtual) delivery of supplies, assets or inventory. Sourcing management addresses similar aspects of service providers. These two types of relationship management ─ VMO and SMO ─ require different client skill sets to be effective.

2. Create a clear definition of roles. The client VMO and SM groups will relate to entirely different organizations inside the provider ─ with different motivations, objectives, and approaches. Clients should focus on both aspects and should not expect that these very different management style disciplines will be effective if applied in the wrong area.

3. Cooperate with data. Sharing information about common providers alerts both organizations to opportunity, leverage, and problem-solving, as well as providing insight into prospects for growing or developing a provider who is performing well.

4. Understand the difference between contracts for services and for products. IT services contracts are extremely detailed and often prescriptive. While contracting for IT hardware and software can be complex, especially regarding engineering and supply chain processes, it has less immediate effect on the client’s daily business operations.

5. Share business processes to achieve maximum control. During the delivery period (the longest and most complex part of the provider relationship), TPI recommends a specific group of management processes that produce data and knowledge about the relationship performance that is essential to best practice management. Our processes focus on the management of contract, relationship, finance and performance and support the client executive team with the best data for planning and decision making.

Read Cynthia's entire TPI Top 5 here . . .

TPI’s seasoned experts can help you achieve your global sourcing goals through objective advice, robust market data, knowledge of your industry and extensive experience with service management.

E-mail Cynthia Batty, Global Competency Lead, Service Management, TPI, or phone her at +1 201 978 0542 to learn more.