IT departments should set outsourcing suppliers service targets that measure the genuine impact of IT to the business, rather than focus on technical performance such as availability of IT systems and helpdesk response times, Gartner said last week.
Delegates at the analyst firm's IT and outsourcing summit heard that organisations fail to reap the full benefit of outsourcing because they inundate suppliers with performance metrics, but fail to identify which ones are genuinely important to their business.
Gartner research director Gianluca Tramacere said businesses often used service level agreements (SLAs) to lock down every aspect of an outsourcing contract, but sometimes lost sight of what was really important to the business.
"The problem we have is that organisations tend to have too many SLAs. And apart from having too many, they tend to use them in an ongoing way without reviewing them," he said.
"They do not look at whether they are measuring the right things."
Tramacere cited the example of a luxury car manufacturer that consistently failed to meet its product targets because of IT problems.
It solved the problem by replacing a complex array of SLAs with two requirements: the production line should not stop for more than 15 minutes at a time or more than 120 minutes in a month.
But Gartner warned it was a mistake for organisations to view penalties as a way to squeeze cash from suppliers. "The idea is to drive behaviour, not to get your money back for poor service" said Tramacere.
"If the fault was in March but the supplier continues to perform in May, June or July, let them earn half of the money back. If they continue to perform let them have the other half. At the end of the process you have an improved service and you have spent no extra money."
Gartner said that about 20% of the annual contract value was the right level for any penalty. It said it might be cheaper for suppliers to absorb smaller penalties rather than fix a problem, but said penalties any higher than 20% would damage the outsourcing relationship.
Six steps to managing service level agreements
- Many organisations often leave defining and managing service level agreements to the IT department, but it is essential all affected parts of an organisation be involved
- Define your key business processes
- Measure the activities that are critical to supporting the business
- Examine the measured results to identify problems and root causes
- Make the necessary corrections
- Continuously monitor and improve your process to maintain your gains
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