Thought for the day:<br>The value of outsourcing
- Posted:
- 17:00 07 Dec 2004
- Topics:
- Outsourcing
Alter value measurements as the contract progresses to ensure that you get the most out of your outsourcing contract, says John Creber
When managing outsourced relationships, it is vital to
use all available means to demonstrate to the business that the
outsourced provider is delivering value.
There are a number of techniques and mechanisms you can use to give
senior management an accurate perception of the provider, including
service dashboards, benefit analyses, benchmarks, in-house cost
comparisons and savings registers.
Discussion among those tasked with managing outsourced
infrastructure or business processes often revolves around their
company's perception of the provider, which can be summarised
(politely) as "the SLAs are all green but the business perception
of the outsourced services is very poor".
The areas of outsourced delivery that really add extra value are
often neglected. Commonly these include business projects,
innovation, continuous improvement and - a rare commodity -
imagination.
Contract managers produce service reporting in a variety of ways.
These range from standard service lists with performance metrics,
to sophisticated service dashboards with red-amber-green risk and
value analysis.
Less common are measurements of the intangible aspects of an
outsourcing relationship, and it is these less tangible elements
that often give the best indication of the real value being
delivered to the customer.
The crucial measures
These include subjective measures of key areas such as:
- How much is the provider aligned to the strategic goals of the
business?
- How well does the provider understand the business and what
efforts do they make to further this understanding?
- What innovation is being delivered to solve long-term business
issues?
- What is the overall perception of the provider within key areas
of the business?
- How well does the relationship work at adding value to core business operations?
Although these are subjective measures, as long as they are
consistently defined and tested they will give a baseline from
which improvements can be made. When published alongside pure
service metrics, they give a better reflection of the total
relationship.
Over the lifecycle of an outsourcing relationship these intangible
measures change. At the outset the main objective is to transition
the services or processes with as little disruption as possible.
During this phase the key relationship measure is its ability to
work as a team, and it could be argued that innovation is less of a
priority. But later on businesses will expect to see improvements
delivered, normally to reduce ongoing costs.
At this point innovation is key. It is important that whatever
relationship measures are implemented, they can be modified as the
business environment changes.
A good return?
Value for money has become more important over the the past three
to four years. Service delivery personnel may concentrate on
demonstrating that the contracted services are delivered to
committed service levels, and relationship or contract management
may reflect less specific measures, but there are other mechanisms
for demonstrating the degree to which the arrangement is
working.
In-house cost comparisons provide comfort that specific services
could not be delivered more cheaply and to the same quality
in-house, but should be seen as part of a phased value-analysis
programme.
When applied in conjunction with a formal benchmarking process,
these two measures can demonstrate to the business how well their
provider competes against market rates, and to compare service
levels.
The third phase is often a formal re-negotiation of service levels
and charges, sometimes accompanied by a revision of the contract
term to maximise the commercial pressure that can be brought to
bear on the provider.
Combined with standard service reporting enhanced by measuring the
relationship itself, the formal process of in-house costing and
benchmarking followed by contract re-negotiation can give a
comprehensive picture of the most important consideration - how the
provider is delivering value to your business.
John Creber is contracts manager (managed services) at tobacco
company Gallaher