Sourcing Speak

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.

Over at CIO Update, John Hughes has recently written some advice for CIOs (Somewhere Between Abdication and Control Freak) that, coincidentally, is quite relevant for those charged with managing suppliers delivering services on an outsourced basis.

The premise is that an optimal solution for leadership exists somewhere between completely abdicating responsibility and pestering everyone until they give up and do it your way.

While I’ve heard of leadership being described in many ways, likening it to keeping plates spinning on thin wooden poles is spot on, as is the portrayal of abdication being the equivalent of starting up the plates and then walking away and micro-management having the effect of severely limiting the number of plate spinners that can be watched managed at a given time.

“Are you serious?” It’s a question we often feel like asking clients after they tell us they expect a service level of at least “four nines” from suppliers because that’s what they believe they are achieving. Yet many times, the client doesn’t have the historical performance information necessary to support their belief.

Let’s talk about nines. When someone says that they want “five nines” or “four nines” they typically mean they want availability or up-time of a system or application to be 99.999% or 99.99%, respectively. What does that equate to in downtime? Below is a chart that shows the allowable downtime under different levels of “nines” (assuming no scheduled downtime on a 30 day month):

With certain exceptions (e.g., financial market systems, air traffic control systems, retail systems the day after Thanksgiving, etc.), it’s worth asking how many organizations would be seriously impacted if the unplanned downtime in month exceeded 4 minutes and 19 seconds for their critical systems. Clients all too often start at the four or five nines level and have to be convinced to consider a more rational (affordable) SLA.

There is a direct correlation between the supplier’s price and the SLAs required by the client, especially as it reaches the four and five nines level. Many suppliers will tie all sorts of provisions to providing four or five nine SLAs such that they effectively undermine the value of the SLA. Even so, suppliers will charge a premium for the risk associated with just the expectation that they achieve this level of perfection. Even a small move to 99.98% can help. While it doubles the amount of downtime, it’s still under 9 minutes a month.

Getting serious about SLAs also means getting the internal IT organization to address SLAs like you expect the supplier to. It’s interesting to see how many client organizations looking to outsource a critical IT function do not have their own effective “commercial grade” SLA measures, metrics and reporting. They’re absolutely sure they are delivering at a best-in-class level, but don’t have complete meaningful reporting to demonstrate it. How reliable is their level of confidence? Certainly not enough for the outsource suppliers: “show me the reports”.

Even if an IT function is currently insourced and there are no immediate plans to outsource it, CIOs should insist that a commercial grade SLA measurement and reporting structure is in place. If the function is ever targeted for outsourcing, this information is invaluable for preparing the RFP, obtaining an appropriate, properly priced solution and holding the supplier immediately accountable upon transition of services. If it’s never outsourced, the information will still be highly relevant to the proper management of the function. Peter Drucker said “What get’s measured, gets managed.” If the internal IT organization is not measuring performance consistent with industry best practices, there’s a good chance they’re not managing the function consistent with industry best practices.