Orchestrating Outsourcing Success - Page 3

Oct 18, 2004

Binod Taterway

Orchestrating for Success

To manage outsourced services on an on-going basis, you will have take control of how things are done and invest in people and consulting dollars for the overall management of your outsourcing relationship.

Here are some high level goals and objectives:

Establish a Service Management Office (SMO). Many organizations manage outsourcing relationships at the procurement level and don't have an SMO. A SMO is an operating entity that works with your providers daily to ensure successful service delivery.

Depending upon the size of the deal and the number of participants, the level of your SMO could be departmental, inter-departmental, or enterprise-wide. It also needs to include representatives from the service providers.

The SMO combines common sourcing management functions that include:

  • Contract compliance -- Develop a common mechanism to manage all contracts as they come from procurement.
  • Contract renegotiation -- Develop a common process for contract negotiation in concert with your procurement department.
  • Vendor performance evaluation -- Perform quarterly evaluation that ranks vendors based on both objective and subjective measures.
  • Vendor SLA compliance -- Monitor and verify (implement checks-and-balances utilizing performance dashboard) vendor's overall compliance against their SLAs.
  • Quality assurance -- Measure and monitor overall quality of service delivery on a proactive basis.
  • Establish Program Management Office (PMO): While there should be one SMO, the number of PMOs really depends on the complexity and size of the outsourcing deal. The PMOs outsource their common contract functions to the SMO, and they provide governance for outsourced functions, such as desktop support, call center, and help desk.

    Establish an Integrated Performance Dashboard: While dashboard tools abound, organizations are still reluctant to make use of it for performance monitoring. Implementing a performance dashboard would give organizations a mechanism to perform checks-and-balances on their vendors' performance.

    Too often vendors report that they have met their SLAs with their own data. Having objective performance data would help organizations outsource work, while controlling the management and quality of such work.

    Develop Flexible Contracts: Too often outsourcing has become solely an exercise in contract negotiation. And getting the best deal can come at the expense of operational performance where vendors may agree to stringent requirements at first, but back-end the negotiation process while the work is being performed.

    Organizations need to allow for some latitude in their contracts. We recommend that you negotiate a general structure with your providers and then operate for 90-180 days before inking the final form of the contract.

    Leaving some maneuvering room allows both the service providers and the service recipient to make some adjustments before locking in the contract.

    Establish Process Governance: Organizations need to establish processes of outsourcing in collaboration with their service providers. Establishing a process network (process maps that cross organizational boundaries) that involves multiple participants is the starting point before any outsourcing should begin.

    Vendor processes are then mapped to this process network to determine what should be outsourced and what should be retained.

    Measurement metrics and key performance indicators (KPIs) are established in collaboration with your providers leading to better ways to renegotiate the contract and develop service level agreements (SLAs).

    Glass Pipeline Visibility: Processes and contracts establish the structure under which outsource agreements in a multi-sourced environment can operate.

    Glass pipeline visibility refers to participants' visibility to a common problem, issue, or incident. It is an early response system that allows any or all participants to understand the root causes of a problem and recover from them. Glass pipeline visibility is implemented on a dashboard that reports on KPIs -- also known as operational metrics.

    Establish "The Rulebook": Operating Level Agreements: Service level agreements define the structure of the contract, performance, and penalties, but they do not define how participants should operate.

    Operating level agreements (OLAs) take the SLAs as their source and define a set of agreed upon rules among the people who participate in the performance of the service.

    The rulebook is not a legal agreement, but it documents collective agreements among all parties and people that are developed over time and through collective learning.

    By establishing such a rulebook, a group of disconnected providers becomes highly integrated to the overall delivery of your service.

    The rulebook also provides a mechanism to recover from an incident. The rulebook describes an approach to triage and how to recover from it. Over time, the rulebook becomes the true "rules-in-use" by which the organization supports its service delivery.

    Measurement Metrics -- Checks-and-Balances: Many organizations have issues with their service providers' data. They require more granularity for root cause analysis and more data for continuous improvement, yet they do not have anything but a vendors' summary data.

    In the case of a problem, issue, or incident, organizations lack any objective way to perform the checks-and-balances necessary to hold their service providers accountable. Implementing a performance dashboard to report on measurement metrics is the first step to ensure that you have the proper operational control in place.

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