Mark Turner,
head of IS procurement at pharmaceutical firm AstraZeneca,
described the challenges he faced in
managing service-effect contracts at last week's Gartner'
Outsourcing & IT Services Summit in London.
A year ago AstraZeneca signed a ground-breaking, seven-year
outsourcing contract with IBM to manage its IT. The contract
was one of the first of a new breed of outsourcing contracts,
specifying
what IT services AstraZeneca required, rather than how it
wanted those services delivered. It required a radically different
approach to negotiation and management.
The contract gave IBM more autonomy in delivery areas where it
has more expertise. AstraZeneca benefits by being able to
concentrate on governance, supplier management, innovation and
other value-adding activities.
The concept of a service-effect contract was still new when
AstraZeneca started out with IBM. "There were not many examples and
weaning both IBM and AstraZeneca into this way of running a
contract was hard," said Turner.
AstraZeneca faced difficulties in assessing the volume of IT
services it needed. "It is quite difficult to find internal staff
who are able to translate the demands of the business into IT
service requirements for the outsourcer," he said.
People wanted to talk about the technology they needed rather
than service requirements, Turner said. "We do not want to get
involved in detail and try not to specify the IT assets in terms of
the software and hardware required to deliver a service. We only
specify exceptions."
He advised business departments to assess what they actually
want from IT to support the direction the business was taking. "You
need to specify outcomes and hold the outsourcing provider
accountable for delivery of those results."
Service level agreements are a key requirement of a
service-effect contract. Turner has made sure that penalties and
bonuses are in place to cover the services considered critical to
the business.
Turner recommended that IT directors and managers embarking on a
service-effect contract should focus on selling the long-term
benefits to the business.
Education is also important. "Programme managers, project
managers and service managers all need to be sufficiently aware of
the terms and conditions of the contract."
Managing a service-effect contract:
Stay away from defining the technology requirements
Specify outcomes and hold the outsourcer accountable for
delivery of results
Be clear about your service requirements
Early visibility of business demand is essential
Make sure programme managers, project managers and service
mangers know terms and conditions of the contract and are confident
in having "difficult" conversations with the outsourcer when SLAs
are not met