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