Sourcing Speak

Like most everything in life, the making of an outsourcing transaction is a process of taking amorphous ideas and concepts (fuzziness) to a point where there is sufficient clarity for all involved to move forward in a coordinated and desired manner (crispness).

While true for all transactional components of an outsourcing, it couldn’t be more so for what’s at its heart – the services. There are plenty of analogies that could be used, but the consultant in me feels more comfortable with an inverted triangle.

Just recognize that time progresses as one moves from top to bottom and the mechanism is nearly complete. The question becomes, where do you start and where does it end?

In part one of this post, we examined the challenge of discussing IT demand in terms meaningful to our internal customers. That accomplished, the CIO’s organization must next fulfill that demand by acquiring, integrating and delivering the appropriate service(s), whether sourced internally or from the marketplace. Imagine for a moment the perfect world, one in which we would be able order the supply-side components of an IT solution where each provider would stand behind the complete realization of an intended outcome (for example, a provider of midrange server operations would put its fees at risk if the total IT solution didn’t, say, increase inventory turns). Back on the ground here in Kansas, however, we recognize that no party providing much less than a total solution (business process and underlying capabilities such as people and technology) would be willing to sign up for a business result. Furthermore, the current trend towards multi-sourcing puts such a total solution (and the business outcome coverage) even farther out of reach. And if the provider of one solution component would commit to the entire business outcome, would we really have faith in that guarantee anyway?

So on the supply side, we tend to be left with “traditional” service level agreements (SLAs), measuring the elements IT performance. Now, that’s not all bad. If we understand (and the provider can perform to) such SLAs, we should in theory be able to architect a solution based on the sum of those individual components. But theory seems to be failing miserably… so why don’t SLAs work as well as they should?

While there can be many shortcomings to SLAs, some are not so obvious. Most SLAs, take server availability, for example, adequately describe the level of quality we require for that part of the solution and are also useful in measuring the performance of the provider. But what if the production problem was a failure of redundant load balancers (yes, this really happened)? Oops –didn’t think to make that an SLA (hey, it was redundant!) — and the service provider gets off scot-free while the customer is angry and frustrated. Or how about the ability of the service provider to onboard the right project resources (e.g., skills, seniority) in the right timeframe. Believe it or not, I know of a case where the timeframe for getting a particular resource is over a year … and counting! Did the customer have that SLA in the contract? No, but access to specialized skills is a realistic expectation of a Tier 1 service provider and a factor that materially contributes to successfully meeting demand. The point is we can’t measure (and don’t want to try to measure) all aspects of a provider’s performance that may possibly impact the IT service (and hence, the business outcome). What we want from our providers is just a good, reliable service – what we signed up for. So what can we do to get the results we expect, when the dimensions of performance are as often qualitative as they are quantitative? Some different thinking is in order!

A recent survey conducted by Accenture and the Shared Services & Outsourcing Network found that 2/3rds of respondents believe conversations with customers and providers about IT performance focus too much on SLAs, and not enough on business outcomes. No news here…after all, the industry has only been talking about managing to business outcomes for oh, the last twenty years or so. Why do things never change? Service providers naturally focus on SLAs – it’s the way they quantify and measure the performance of their services. And let’s face it, much of the ranks of IT leadership have their roots in service delivery, so they tend share the same IT-centric perspective. So we end up with a closed-loop feedback mechanism that keeps us speaking only in terms of, well… SLAs.. The way to escape this “deadly embrace” is to break the mold, and that involves changing mindsets. Let’s look at how this can be done.

First, the demand side. Clearly, a Business Analyst who engages his/her customer in a discussion of Severity 2 Incident Response Times (or substitute your favorite SLA) deserves the glassy-eyed stare s/he gets. But even a more business-focused discussion may not get the IT department much further. For example, take my candidate for the most often-cited and over-used business outcome of the new millennium: “Agility”. So, what does being agile really mean? The ability of IT operations to respond to fluctuations in processing demand? Or perhaps the capacity to quickly resource and deliver IT projects to support new business requirements? How about the capability to act as a business enabler by proactively evaluating emerging technologies and their potential to drive new offerings? And while we’re on the topic… does “agility” mean the same thing to the Chief Sales Officer as it does to the SVP of Supply Chain, or to the CFO? No wonder it’s not easy managing customer expectations! The view, however, is worth the climb, and here are a few practices I’ve found useful in getting there:

1. Make it personal. Find out how your customer’s performance is measured. If the relationship allows, try to discuss what is personally important to your customer (i.e., what outcomes drive his/her compensation, standings amongst peers, chances for promotion, etc.) There’s no better way to cement a business relationship than by showing a genuine interest in helping your colleague attain his or her personal success.