I recently had the pleasure of speaking with Saibal Sen, author of the book Next Generation Service Contract Management: An Analytics-Driven Approach and the president of Zenesys Consulting. Our discussion centered around how vendor analytics can be used not only to properly measure and manage IT vendors, but also to enhance the productivity of the service delivered by the outsourcing vendors.
Mr. Sen said “Compared to how much outsourcing has evolved over the years — from body shopping to the cloud — the measurement and management of outsourced services is still in the dark ages.” He went on to say that he truly believes that although IT vendor management teams work diligently to monitor and manage their vendors, they lack the depth, consistency and automation to maximize their effectiveness. A lot of these issues can be attributed to the currently available tools and methodologies at their disposal. These tools and methods are underpinned on a limited set of measurement metrics.
He said these legacy and most commonly used metrics are useful, however, they are not enough to handle today’s complex contractual relationships nor improve vendor ROI to the company. These legacy vendor management metrics include items such as these:
- Availability: Amount of time the given service was available.
- Quality: The grade of service.
- Quantity: The number of units contracted.
- Number of incidents: Indicator of how often a service experiences issues.
- Changes: How many times the service specification has to be changed.
- Utilization: To what capacity the contracted service is being actually used.
According to Mr. Sen, in today’s situation, these metrics are reported in monthly snapshots and in varying formats via different mediums such as PDF, PowerPoint or Excel files. However, they should be ideally captured in a database where they can be analyzed for infractions rather than requiring people to spend countless hours in manual reviews.
Moreover, with a database, the reports can be analyzed to derive insights such as trends and benchmarking. Sen remarked that in addition to these legacy metrics, a set of new metrics should be used when assessing vendor performance, risk and value to the company.
The new metrics include:
- Innovation: The speed at which, a vendor is introducing new technologies.
- Agility: The transactional speed, i.e. how fast a vendor executes a request regardless of the service agreement.
- Vendor location: Deviation in price and quality due to differences in location.
- Total cost of ownership: True cost to company as opposed to what it pays the vendor.
- Service standardization, i.e. a measure of vendor mobility: IT’s ability to move to another vendor should the need arise or as a negotiation bargaining chip.
- Policy delta: Deviation in how much a business unit should consume versus what is contracted (effective capacity management). This is about IT’s need to buy just what it needs.
- Billing accuracy: Measure of deviation in what the vendor is charging versus what has been contractually agreed to.
Beyond the benefits of maximizing vendors’ service value through these new metrics, Mr. Sen also stated that there are efficiencies that can be gained within the vendor management function in an IT department.
These efficiencies are created through SLA metrics consistency. Having all of the metrics in vendors’ service level agreements structured in a common format (and creating internal versions of agreed-upon SLAs for this use) provides the following value:
- Standardized cross-vendor metrics for similar products and services can be collected, analyzed and compared (benchmarking).
- Operation procedures to collect these statistics can be standardized and ideally automated with the goals of maximizing collection efficiency and minimizing validation for lowered labor costs, e.g. a single window for managing all products and associated vendors.
- Management dashboards can be created to enhance the interoperability and the ability to share with other stakeholders. This can help with fact-based vendor service improvement conversations or justification of resource allocation by the CIO.
- Over time, in the spirit of machine learning and artificial intelligence, algorithms can be created that will automatically monitor these incoming statistics and create automatic alerts of statistical abnormalities, reduced efficiencies and unexpected cost increases. This advanced capability minimizes the labor needed to sift through the data looking for issues, thus allowing this time to be spent on other value-added activities.
As our discussion drew to a close, he went on to say that in addition to the increased vendor service quality and productivity these metrics can enable, there are also two other significant benefits.
First, these newfound vendor metrics allow IT leadership to derive valuable insights for informed future vendor selection decisions. Second, analytics can pack more punch in the legacy metrics for efficiency and the new metrics he proposes will make companies more agile and competitive in the market.