Outsourcing Customers Focus on SLAs to Detriment of Business Transformation

Business strategy is getting short shrift in outsourcing relationships while outsourcing customers and providers focus excessively on basic service level agreements (SLAs), according to a recent survey conducted by Accenture and the Shared Services and Outsourcing Network (SSON).

Of 600 respondents, 42 percent said they spent too much time discussing SLAs and not enough time agreeing on business outcomes, while another 25 percent said they devoted a lot of time to SLAs but that it was decreasing.

Tight SLAs are critical to IT and business process outsourcing deals, says Tom Pettit, Accenture’s managing director of North America business process outsourcing. But they can distract customers and providers from larger transformation opportunities in their relationships.

“SLAs are an important part of any managed service engagement. They set expectations and necessary service performance targets,” Pettit says. “However, the overwhelming majority of SLAs are focused on measuring process inputs, rather than business outcomes.”

The myopic focus on operational metrics may be driven by the desire to cut costs: 58 percent of those surveyed cited lower costs as the top reason for outsourcing, far ahead of resource access and capacity (19 percent) and risk reduction (12 percent).

“Companies that focus exclusively on cost reduction as the primary driver may end up getting stuck on SLAs, missing the opportunity to achieve wider business outcomes, such as improved agility, responsiveness and flexibility,” Pettit says. “It’s important to be clear at the outset about why companies are moving to an outsourcing model. In most cases, there are motives in addition to just cost reduction.”

Indeed, the top outsourcing challenge cited by respondents was transformation and change management, which according to Pettit is being driven by economic conditions, changes in technology and globalization. “Organizations, their employees and their customers are under pressure to adapt,” he says. “Innovation needs to be budgeted and supported in the governance process.”

But many outsourcing customers are struggling with internal opposition to or lack of alignment with outsourcing. Their biggest change management challenges, according to the Accenture/SSON survey, were resistance to change from employees (28 percent), poor support from middle management (18 percent), and lack of executive sponsorship (18 percent).

“The centralization of services, whether in an internal shared services model or in an outsourced model, involves shifts in power and influence, changes in roles and responsibilities, and disruption of familiar ways of working,” Pettit says. “These are notoriously difficult and often deeply personal issues that require focused and sustained management attention over extended periods of time.”

More than half of respondents said they had “a long way to go” with their outsourcing operating performance and strategy, while 13 percent ranked themselves in the top quartile. Those results are similar to findings from a recent IDG Enterprise Outsourcing survey in which just over a quarter of respondents rated their own service delivery management and measurement practices as very effective, while 42 percent said they were somewhat effective and 12 percent said they weren’t effective at all.