Having the contracting essentials in place – getting the ‘arm’s-length’ aspects right – is half the risk management battle. The relationship management levers – getting the ‘hand in hand’ aspects right – is the remainder. You must position and invest in the relationship and then measure and manage performance actively.
Positioning the relationship – contractor to partner
There is plenty of talk of IT service providers being partners with their customers.64
Before dismissing this as mere marketing and sales hype it is important to recog- nize how long you plan to have a relationship with your IT providers and thus why you need to worry about the softer stuff.
Most IT services avoid categorization as commodities and therefore disallow the straightforward substitution management ploy common in other contractual relationships. Most are not transaction-oriented so a form of ongoing dependency exists.
So you need to deal with people – as well as the machines they build and run for you – and work through those normal, thorny people issues. What sort of sales targets does the service provider have for your account this year and is this measured quarterly? Are incentives being offered to you so you can try their new products and become an early reference site? How do staff bonuses get calculated and does your assessed ‘satisfaction’ have any relevance for the pay packets of the delivery and account team? If your service provider’s customers were queued up in their priority order, where would you be?
Investing in the relationship
So if managing service providers effectively requires the development of a relationship, how much time and effort do you need to put into this?
Not necessarily that much and not necessarily on a one-on-one basis. One firm in Australia calls in their key IT service providers a couple of times a year and provides them a joint briefing about the business strategy and the major IT implications arising. Service providers are asked to nominate their interest in the
initiatives that they think can add the most value and to suggest areas that might be lacking.
Where critical, high-volume or high-value IT services are being delivered under contract, daily contact of one form or another may be required. This should be more than exception-based; because otherwise the service provider will be wincing every time they hear from you! Ideally, rather than being the ‘nagging customer’ you should encourage the service provider to call you with potential problems before they have occurred and impacted you.
Measuring and managing performance
If you have got service levels that you absolutely must have met then frankly you probably don’t need to wait until the end of the reporting month to find out how the service provider believes it performed on them – your staff and customers will tell you! However, this regular reporting process is important to manage gradual, incremental and long-term change in the right direction. For example, if the top three endemic issues are reviewed and actions set in place to resolve them each month, at the end of a three-year arrangement you will have got through the top 100.
Don’t get lost in the metrics and measurement maze. Focus on getting meaningful reports and most importantly, improvements in the required areas.
Other performance management tools including auditing and benchmarking should be in play but will typically play a subsidiary role.
Auditing
In large outsourcing deals, regular audits are necessary to ensure a transition-out remains possible and tenable. Service provider records, documents and other related obligations – not tied to day-to-day – should be checked periodically.
Process-based compliance checking is also important in areas where output management just isn’t good enough. For example, reviewing security and infor- mation management procedures to ensure sensitive data being controlled and looked after by third parties is not in danger of being exploited.
Benchmarking
Many large-scale IT outsourcing contracts include specific provisions for benchmarking. Before benchmarking you need to think carefully about what you are trying to achieve. Plenty of companies attempt to use benchmarking to beat their service providers up for a better deal. This is often interpreted from a straight cost perspective, but can also be adjusted to consider quality of service issues.
Benchmarking should provide an objective measure of performance against what would be achievable by others in the same situation. It is theoretical but
should be grounded in an analytical framework with a level of accuracy sub- stantially better than the order-of-magnitude cost or quality improvements sought through undertaking it.
You should be aware that service providers confronted with a poor bench- marking report will probably dispute it and seek to obfuscate the results. If you can cut through that, the real issues may emerge – it may be difficult for the service provider to see how their prices can be cut or service lifted without their margins being impacted.