SLA metrics are based on what was contemplated when the contract was negotiated and may not reflect what is needed or expected now. A change process to update the SLAs is part of a good governance structure (another topic).

Like any number, SLA metrics are only as good as the data collected to compute them and these arbitrary numbers are generally surrogates for the business outcomes desired. So “help desk responsiveness” is translated into how many rings before the rep answers the phone, not whether the problem is resolved on that call. Or “number of call tickets closed” doesn’t measure whether the same user had to call back three times for the same thing if the data collected and reported doesn’t directly relate the new call to the previous ones. As fewer is better, determining and collecting the data on repeat calls would reduce the closure numbers – perhaps not the best incentive for the vendor to put effort into tracking and changing procedures to reduce the repeats.

As with anything measured, focus on the numbers won’t necessarily improve or maintain the quality of service. For things like application response time, a number is pretty good e.g. “less than 1/2 sec response to prompting for next entry 98% of the time during peak hours at the user workstation” is relevant and practical as it relates to the business workflow. For other things, like, must have one meetings per month to discuss service incidents, isn’t going to be very helpful without some discipline and goodwill around these meetings: stated agenda, required participants and their authority, what outcomes are required and how will these be executed, escalation and dispute resolution (which is why the rest of the contract doesn’t get filed away).

What each SLA measures and how has to be well understood by both parties, as the vendor will provide most or all of the information. Too few measures won’t yield enough information to determine whether the relationship is delivering what is expected. Too many measures and the process devolves into an exercise to create a batting average: “we achieved 95% of all target measures.” As the measures are rarely all of equal importance, 95% could be either fantastic or abysmal, but it’s not 100% which may have been the expectation.

Building a reasonable set of SLA measures requires a careful look at the business outcomes desired, rather than diving in with a technical system performance view (CPU utilization, etc). After all, outsourcing is about letting go of the operational and technical detail, using others to do that and focusing on managing the business, which of course, includes just enough of the detail to assure yourself things are working.

The final and most important measure is the least precise. Client satisfaction with the services needs to meet the objectives set out for overall service provision, regardless of who delivers it. Keeping in close touch with user concerns and changing expectations is the critical success factor. These changes will demand a very good change management process be built into your agreement and into your budget planning for the life of the outsourcing arrangement.

There’s a lot more that can be said about SLAs – what do you think?

No sooner has Repubilican VP candidate Sarah Palin had her email hacked and made public when Conservative leader Stephen Harper has fake emails sent to those on his mailing list software. Luckily for both candidates, the political fallout has been minimal.

But everyone in political office should sit up and take notice of these events, for they’re just a warning shot across the bow. In future, high- and not-so-high-profile candidates can expect a barrage of cyber-missiles to come their way.

Once the smoke has cleared from this year’s campaigns, I expect there’ll be a lot of discussion in political camps across North America around such topics as information security and damage control in response to some form of cyber attack.

After the Palin and Harper wake-up call, political parties will no doubt pay a lot more attention to security. Unfortunately for them, the hackers will always be one or two steps ahead of them.

For those of us sitting on the sidelines, it’ll be interesting to see what the next bombshell will be.

Outsourcing means bringing in a third party to co-run a part of your business operations. The outsourcer is at the helm of an integral aspect of your core business services or delivery channel. Outsourcing also means that your customers and employees should not and will not differentiate whether the service is being provided by you or an outsourcer.  http://en.wikipedia.org/wiki/Outsourcing; http://www.adp.ca/en/resource/outsource.html

In the same way that your customers don’t expect an ATM to dispense cash when the power is off,  they do expect the ATM to dispense cash and keep their financial records straight when the power is on. Therefore the utility company is not an outsource service provider, but an ATM maintence and cash replenishment company is.

Hiring a company to write a new software application is not outsourcing, but having the same company run a system in production is.

Records management is outsourcing, but shredding is not.

Employee Assistance Programs suppliers are not outsourcers, but Employee Call Centres are.

And so on…..

Constantly desciphering some of the lingo about outsourcing is starting to get under my skin.  The terms ITO and BPO - IT outsourcing and Business Process outsourcing -are in common use and are descriptive tags for a broad subject matter. 

Even though I am an expert of the subject of outsourcing, sometimes when I read about the latest and greatest in outsourcing, I get the same feeling as you get when you go into an upscale coffee bar and apparently don’t know how to order a cup of coffee. In the same way the barrista distainfully corrects your order with insider terms like “west coast dry” or “non fat”, sometimes I have to re-read the article to figure out what the terminology means.

Bear in mind that I am absolutely passionate about the subject of outsourcing to improve business performance. But when the “in the know” people casually toss off terms like LPO, KPO, HRO, ISO, ITO, FAO, MRO - I find that a bit of “lingo-fatigue” is starting to creep in. Although these terms are an attempt to be descriptive, the actual outcome is often the opposite.

Not to say that there aren’t some excellent papers out there such as CORE’s research paper on the Canadian outsourcing market http://www.core-outsourcing.org/PDF/John%20Simke%20Presentation.pdf; TPI’s research on KPO http://www.tpi.net/pdf/researchreports/KPO_ResearchReport_july07.pdf or CAT Institute’s paper on ISO http://cat.inist.fr/?aModele=afficheN&cpsidt=3235819 .  For anyone with the time and energy to invest, there is a wealth of information out there to educate yourself on the topic.

If you want to sell an idea, strategy or a service, making yourself understood is a good place to start. This doesn’t mean expecting your listener or reader to figure out what you’re talking about.

Does anyone else feel the same way?

Linda Tuck Chapman is an outsourcing advisor with ONTALA Performance Solutions Ltd., and can be contacted at ontala@rogers.com.

So where does the buyer/supplier relationship start and end, and what is a partnership in this outsourcing relationship? 

The expression “good fences make good neighbours” applies to outsourcing relationships. If you look for key controls in well structured and well managed outsourcing relationships, you’ll find elements like: 1) clear pricing tables and formulae 2) billing with sufficient explanation and mapping back to volume, service level and pricing tables that they can be deciphered 3) scheduled reporting - the right things, the right quantity and the right timing 4) Service Level Agreements that measure meaningful aspects of the services that aren’t so complicated that you need a rocket scientist to calculate and understand the results 5) Descriptive deliverables that include who is going to what, and by when.

These are the foundation for a healthy commercial relationship, but this isn’t a partnership. Partners share equally in risks and rewards. Sophisticated outsourcing arrangements can evolve partnerships. Some great ways to evolve into partnerships are to find ways for both parties to benefit from jointly developing a new product, service or business venture.

Another to evolve a partnership model is to act as a “beta test” site to help the provider evolve their business , while the buyer benefits from early market entry.  One example of this that I have first hand knowledge of is the HRO relationship between Convergys and Fifth Third Bank. HRO was a new venture for both parties, and Fifth Third shared the benefits (and some of the pain) of working with Convergys to leverage their core competency in customer care to create an employee care business. Convergys built a large and growing  business line and Fifth Third got favourable terms and lots of management attention from Convergys.  

Another example is the recent announcement by Department of Homeland Security (US) that Lockheed Martin won a $1.2 billion, 8 year deal from TSA to manage its integrated hiring operations and personnel program. Lockheed Martin will develop an HR application to support recruiting, assessing, hiring, paying and promotion of all TSA employees, in addition to operating it HR systems. This deal is one of the largest public sector HRO deals ever announced, and is a new business line for Lockheed.  More on this can be found at http://www.globalservicesmedia.com/Content/general200808254936.asp  These joint new business ventures operate more like a partnership than a typical outsourcing arrangement since both companies are learning together as they go forward.

Outsourcing deals are growing larger and more complex as this business model continues to quickly evolve. In many cases, the provider is in turn outsourcing some part of their responsibilities. Citing the TSA/Lockheed example, Lockheed will in turn outsource the Learning Management System to Plateau in order to meet TSA’s requirements for training support. http://www.plateau.com/ne/pr2003/113.htm

So…….did I mention TRUST? They’ll need it to help them get past the bumps in the road.

Please send me your comments on this blog, on trust or lack thereof, and how that affected your outsourcing relationships.

Linda Tuck Chapman, ONTALA Performance Solutions Ltd.

lindatuckchapman@rogers.com       (416) 452-4635

A gain sharing mechanism is intended to provide incentives for the service provider to monitor and renew the technology during the life of the contract much as is done in an in-house IT shop. Gain sharing sets out a formula that splits the savings, rewarding the service provider with a portion of the savings as increased profit on the existing services and the client, earning credits for purchase of new services, without needing to find additional funds. For gain sharing to work, the provider needs the flexibility to make infrastructure changes without extensive client approvals as would be needed in facilities management arrangements.

Gain sharing should be a win-win. Put gain sharing your contract and sit back – great things will happen. The service provider will be actively looking for ways to save money because they get to keep some of it as profit and extend their services without losing any revenue. Right? Not in the experience of many who have tried gain sharing over the years. Two reasons: money and money.

Outsourcing arrangements are treated as fixed investment portfolios with targeted revenue returns. Like car leases, gain sharing doesn’t lend itself to work well in an environment where purchased or lease equipment might be changed mid-term, with old equipment to be either re-deployed or disposed of. The depreciation and funding issues you outsourced and their costs (plus a profit) are built into the initial contract pricing. The fixed term investment concept can be so embedded, that, in one case, at agreement termination, the supplier called the client to ask what to do with the now obsolete mainframe that had been hosting the services. The client had to tell them that they owned it, and she wouldn’t be paying any bills for deinstallation and disposal.

Another barrier may be in how the provider compensates its staff. Usually, the focus is on new business development and revenue growth. Increased profitability within an existing deal without new revenue coming in may not help the portfolio manager make target.

Lastly, the goals are very different. You are outsourcing for IT services and reduced complexity in-house, and for better cost control. For the service provider, an outsourcing arrangement is first and foremost a financial deal that must be profitable. The CFO in the provider’s organization is just a tough sell as your own.

A good read is A.T. Kearney’s article about taking control of complexity, particularly during times of change. http://www.atkearney.com/res/shared/pdf/Taking_Control_Of_Complexity.pdf

Assuming that you have completed the baseline Design steps -  have a well thought through offshoring strategy, reasonable phasing, a Governance model, you’re ready to move into the next steps of Design . This work is usually led by a Sourcing professional and consists of needs analysis, market analysis, Sourcing strategy, all leading to a competitive bid or other selection process. The role of the Sourcing professional is to set up predictable and manageable commercial relationships that meet your needs. 

Aside from the standard terms, conditions, pricing, etc that you include in contracts, there are some schedules that are often excluded that are pretty important: 

1) Two types of Service Level Agreements - one at the overall relationship level and one that establishes the parameters and measures to gauge the success of each engagement, project or work stream.

2) An established formula to keep pricing current, one that recognizes the impact of fluctuating currency exchange rates. This is often excluded from contracts, causing a lot of tension over time.

3) Reporting details. This too is often one of those details that you think that at the time of contracting that you’ll deal with later. Best to settle all of your requirements up front, minimizing the surprises in store for you and your providers.

4) How much detail you want on your bills. There have been a number of times when I’ve found that the individuals auditing the bill don’t fully understand them or don’t have enough detail to be certain they are right.

5) Document how trouble tickets will be handled by you and your provider. Ensure that your folks understand that one trouble ticket may represent 50+ programmers sitting on their hands until the situation is remedied. Also make sure that you have a Duty Manager available when your provider is working, since they will most likely be on the other side of the time clock.

6) Documented escalation procedures, there if things go wrong. Wipedia defines the term escalation procedure refers to the steps to be taken when service levels do not meet contractual requirements. This may involve determining fault for missed benchmarks, reporting, problem resolution within a specified time and — when the problem still is not resolved — executive intervention on both the client and service provider sides. Retrieved from “http://itlaw.wikia.com/wiki/Escalation_procedure“

7) The war for talent - how you can be assured the company will attract and retain quality resources on your account. McKinsye has a number of good articles on their site talking about the availability of resources, or not, in various locations around the globe.   http://www.mckinsey.com/mgi/rp/offshoring/

More on the Design phase of successful offshoring later.

Please post success stories about Programs that have worked, and your observations about those that didn’t fare so well. Thanks!

Linda Tuck Chapman

Founder & Managing Director,

ONTALA Performance Solutions Ltd.

lindatuckchapman@rogers.com

The virtual recruiting seminar turned out to be a big hit, and it’s succeeded in raising the profile of the VPD around the world, especially with Gen X and Gen Y. If that’s an audience you’re targeting, for whatever purpose, Second Life is something worth giving some thought too. There’s a lot more to it than you might imagine. Those in the know will tell you that it’s certainly not just a virtual reality game for geeks. It may become a pervasive technology that smart companies will take advantage of for marketing, recruiting, hosting events and a bunch of other stuff.

Let’s talk provider strategies for IT application development and maintenance (ADM). In one company that really got it right, there was unquestionable senior leadership support for offshoring. But it took them 2 years before got any traction.  Once they clarified their strategy, determined the phases of its evolution, developed simple, accessible processes and put a great Program Manager in place, they successfully offshored 95% of their $50 million annual budget for application development and maintenance (ADM),  in just 9 months.  

After I met with each of the line of business CIO about their experiences with offshoring both within this company and in any prior lives, successes and concerns with offshoring, they came together as an Executive Steering Committee where I played it back in the form of a phased implementation strategy.

The first thing to agree on was the offshore service providers - how many and who - leveraging the Strategic Sourcing work that had been completed. Some rules of thumb about deciding on the number and location of offshore service providers you’ll be working with:

1) Consider how much business you have based on your new net spend. Will your company continue to spend at pre-offshoring levels, doing more with the dollars or will you capture the savings and reduce budgets? Spend will determine how important your business will be to your providers.

2) When you are first going offshore, picking one provider won’t give you much opportuntity to learn how things could work, since you’ll only have one experience. In the case of the company I am citing, selecting three providers proved to be a good number. Competition can be healthy but working with more than 3 providers can be complicated and expensive in terms of infrastructure costs, management time, etc. While they started with three providers, they let these companies know that this number would go two in the next year or so. The companies they chose were quite different in size. I can describe them as an “800 pound gorilla”, a mid-sized domain specialist, and a small company. The mid-sized domain specialist company was dropped after about 18 months because they were difficult to work with. The powerhouse company proved surprisingly responsive and brought many best practices, and the small company was unbelievably flexible and responsive. The small company needed more coaching and training than the larger company, but the great relationship between them and their customer overrode any concerns and both parties are very satisfied with their relationship. With both offshore providers, the quality of work was excellent and the development cycle time much shorter than prior to offshoring.

2. Do your IT offshore providers also have BPO expertise? Sooner or later all systems and processes touch one another, so can one company support both needs? Once you successfully offshore ADM - which is the best place to start and learn from- you will likely initiate Business Process Outsourcing (BPO). You can minimize some of the risks and complexities of going with a new, untested provider by using the same company(s) for ITO and BPO. This strategy may fly in the face of a “best of breed” strategy, but can produce the most successful offshore programs overall. Consider that once your BPO productivity levels are stable, you’ll invest in transformation activities to generate additional benefits. Transformation actions always include process redesign, but invariably you’ll also be making changes to supporting applications and/or technology. Naturally, your ITO provider will be involved, and it helps if they are the same company as your BPO provider.

3. Think about geography. Do you want your providers in the same city or countries to minimize your risks and costs? Do you want them in different cities or countries to minimize risk? Do they have the capability to take their operations offshore from their location, giving you the benefits of changing market conditions? Does your contract give you the right to approve or deny migration of your business to a new location within their operation? How good is your knowledge of their laws and business norms in the countries where they do business? Can trust be built and will it grow?

Minimizing the number of offshore providers based on a sound, long-term strategy is an important decision in designing a viable offshore program. More on strategy next time……

Linda Tuck Chapman, Founder & Managing Director

ONTALA Performance Solutions  ontala@rogers.com

On “surprises:” A proactive governance model that monitors the routine operations of the relationship provides a mechanism to identify and deal with these before operational level people of both parties dig in to a fixed position (creating a win-lose mentality which erodes trust), and it must be used.

Too often, when things are running reasonably well, these regular meetings and reviews of performance are seen as a waste of time, then a crunch occurs and the ability to deal with it is greatly reduced as the trust and communications haven’t been exercised. Governance, or as some prefer, a dispute resolution and score boarding discipline is a topic on its own for another day.

Seems obvious, doesn’t it? But the experiences of many bear out that it’s not that simple. For example, given turnover in the vendor and customer’s management, odds are the people around the table that set out the terms of the contract won’t be in place to operationalize it, let alone deal with the on-going nurturing and maintenance of the relationship over its term. With every personnel change, the meaning of words of the contract will change, usually in ways that will create differences and tension. The better the story is told in the contract, the less room there will be for misunderstanding.

Outsourcing contracts have to cover a myriad of issues. Some are relatively common across all relationships: terms of payment, performance incentives/penalties, services to be delivered, to what levels and how these are measured. Specific measures are important: “best industry practice” can easily become “since we’re one of the largest (best, premiere, etc) outsourcers in Canada, what we do is by definition best practice. Sound like a conversation you’ll never hear? Then you either have a very good contract in place or you just haven’t heard it yet.

I picked the title to illustrate that something as simple as defining a “business day” may not be unambiguous and could create a service gap. A “business day” is usually defined as a day when government offices and banks are open in the customer’s province. Easy, but assume that your outsourcer has (or later acquires) an office in India. What level of support will be available when it’s a holiday there? Will the local staff who haven’t worked on the service in years (or given turnover, at all) be able to effectively respond? Or will services be available if the offices are closed because of a cyclone (an event usually excluded from SLAs by force majure clauses)? What is your expectation and how is your service provider going to address them?

Another example closer to home is selling goods online across the US-Canada border with a US partner providing the goods, with the online services provided by a Canadian outsourcer. Your US partner’s expectation is nightly settlement of amounts owed using ACH for funds transfer. But what if it’s a Canadian bank holiday (Boxing Day, Civic holiday, St. Jean Baptiste) in your province? Will that mean you’re in default because it’s not a US bank holiday and non-receipt of payment triggers a penalty? In this case, the outsourcing arrangement had to obligate the outsourcer to make special banking arrangements to see payments were made on those Canadian holidays that weren’t also US holidays (and incidentally, also not to pay on US holidays). In short, defining a “business day” locally may not be enough. You have to understand how your partner does business and what things your business requires that will be other than the assumed BAU (business as usual).

What are your issues? Comments?