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?