Managing Outsourcer Relationships & The Role of Metrics

Transcription

1 Managing Outsourcer Relationships & The Role of Metrics Kenneth Emery Ouellette & Associates February 17,

2 When asked what the IT organization is responsible for, 89% of CIO s chose negotiating and managing vendors. The State of the CIO Report, 2009 In the future, an IT career will not be about technology but rather about managing a range of service providers. Gartner Building a good relationship with the vendor is probably the most important factor in ensuring a successful partnership. Auditing Vendor Relationships 2

3 Why Outsource? Cost Control Sharpening Focus Enhanced Flexibility 3

4 Paradigm/Mindset Shift FROM Procurement/Contract Management Driven by purchasing/legal TO Relationship Management Driven by affected management Legal protection Relationship building Product/service/price Long-term provider of solutions Simple cost reduction Ability to innovate Complex scoring systems Few critical issues Service level agreements Process performance Arm's length relationship Joint company-vendor teams 4

5 Maximizing the Value of Vendor Relationships A good relationship can: Encourage innovation for improved processes and products Maximize assets without buying new ones Ensure someone else is at the table in times of trouble or survival Enable overall business objectives to be met Result in a win-win for both the client and the vendor 5

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7 Types of Vendor Partnerships The ultimate goal of the partnership is to deliver increased value to the business. 7

8 Vendor Relationship Spectrum Background 8

9 Understanding the Vendor Their job is to satisfy their shareholders by: Locking customers into long-term technology & financial commitments Making sure those revenues are delivered every year at a high margin 9

10 Managing Vendor Partnerships Model Business Drivers Evaluate Processes Evaluate Results Make Decision: Insource or Outsource Manage Relationships Select Vendor Implement the Working Relationship Develop/Negotiate Contract 10 Business Process Management Is the Foundation

11 The Concept of Process Process Definition: a group of tasks that, taken together, create customer and client value by turning inputs (orders, requests, etc.) into outputs 11 Processes Typically: cross functional and departmental boundaries are fragmented, disconnected, unmeasured, and unmanaged, which is why they have to be effectively managed if they are to provide value to clients and customers

12 12 Business Process Management Is The foundation for: Recognizing and understanding the expectations of the clients/customers and evaluating results from their perspective Enabling different functions to focus on common objectives, goals, & priorities, therefore establishing a team culture Measuring the qualitative and quantitative results of the process from end-to-end, enabling benchmarking and scheduled evaluations

13 Business Process Management Is The foundation for: Systematically improving processes Identifying baseline costs Creating an environment which allows objective evaluation of functions to be insourced or outsourced Establishing a shared understanding with the vendor about performance and management expectations Creating a mutual understanding about process improvement opportunities 13

14 Process Measurement Client Perspective Quantifiable & Measurable Map Relationships Performance Metrics Supporting Organizational Objectives Examples of process metrics: - Cost per - Cycle time - Material availability - Customer satisfaction - Quality - Accuracy 14

15 Process Measurement - Design Accurate Objective Easy Timely Comprehensible Harmless Balanced 15 Holistic

16 Process Example Inputs Process Steps Outputs Call Center Meter Read Meter Read Bill Calculation/ Production Remittance Treasury Money in Bank 16 Metrics Cost per customer Elapsed time 80% payment % of uncollectibles Customer satisfaction

17 Insource vs. Outsource Make a strategic decision, not tactical Identify desired business outcomes for customers and financial goals Factor in processes structural to industry and competitive issues Assess present capabilities and process performance Determine the effect on internal and customer relationships 17

18 Insource vs. Outsource Link the decision to assets, people, or operations based metrics Evaluate against primary drivers Cost, Focus, and Flexibility Evaluate market maturity Determine vendor alignment with primary driver 18 Outsourcing is no substitute for executing business strategies.

19 Pre-Award Evaluation Talk to satisfied and dissatisfied customers Evaluate cultural compatibilities Evaluate ability to change and innovate in ways that align with business changes Interview key people who will be managing the relationship and the contract Have they worked in a similar environment 19

20 Pre-Award Evaluation Assess vendor s economies of scale, operational efficiencies, and standardization processes Check for financial stability Conduct site visits Consider that fixed price is not always the best Determine whether or not each company s computer systems will talk to each other 20

21 Contract Restraints Contracts sometimes lack: Room for future adjustments A commitment to cost savings Flexibility for changes in demand Contemplation of mergers, acquisitions, and spin-offs of the company or the vendor Specification to access key people 21

22 Contract Restraints Contracts sometimes lack: Procedures for early (planned or unplanned) termination Clear knowledge-sharing objectives Penalties for excessive turnover Clear, measurable metrics Identification of governance structure Regular reviews of vendor performance 22

23 Contracts A good contract is necessary, but not sufficient. Vendor relationship management begins at the start of negotiations, not at the end. The negotiation team and the operations team should have overlap. Therefore, they: - Are grounded in context of the negotiation - Completely understand the business drivers - Are able to ramp up implementation more quickly - Avoid things falling through the cracks - Strengthen the relationship 23

24 Prepare, Prepare, Prepare for Negotiations!!! Create a favorable climate that is not adversarial Understand your business processes and what is important to internal clients as well as to customers Have actual measured metrics results of the business process Obtain independent standards such as market rates, benchmarked evaluations, and best practices 24

25 Contracts - Development Prepare detailed statement of work that clearly outlines the specific roles of the vendor and client Seek to eliminate or minimize joint client/vendor responsibilities Provide for renegotiation opportunities based on: 25 - Changes in functional requirements - Changes in technology - Changes in cost structure - Changes in vendor capabilities

26 Recognizing Cultural & Demographic Differences The risk in discussing or identifying differences: Over generalizing Stereotyping Region Country State Age & Life Experiences of Employees Location Factors Lifestyle Unique Expressions Language 26

27 Recognizing Cultural & Demographic Differences Comparison Examples: Unique Terminology Industry Corporate Factors Corporate Culture Lifestyle: Island Time vs. NYC Time Countries: Germany vs. Italy Corporate Culture: Not-for-Profit vs. For Profit Manufacturing vs. Service Highly regulated monopoly vs. less regulated, more competitive marketplace Philosophical Approach to Doing Business Management Style 27

28 Techniques That Strengthen Vendor Relationships Educate vendor on corporate, business unit, and process strategies Share short- and long-term priorities Set up orientation workshops for the vendor Share company s explicit and tacit knowledge Share vendor s knowledge and expertise with the company Form company/vendor teams Assign buddies from both sides Maintain informal communication networks 28

29 Techniques That Strengthen Vendor Relationships Establish face-to-face meetings Create mechanisms for vendor to interface directly with internal clients Maintain control by the company over internal client relationship Utilize vendors to assist with business cases Provide opportunities for vendors to educate employees at events such as brown bag lunches Bring in vendors for presentations and demonstrations Recognize publicly top performing vendors 29

30 Gaining Commitment Being aligned with the change Agreeing to do what is needed Acting/leading as a unified team Modeling new behaviors Making the change relevant Shaping a common vision and understanding Developing press statements 30 Acknowledging staff feelings and coaching through the change

31 Vendor Governance Models Senior Officer Process Owner Single Point of Contact Vendor Management Office Third Party Dispersed/Line Managers 31

32 Vendor Performance Monitoring Factor Commitment Flexibility Innovation Customer Satisfaction - Cost - Quality - Time - Other Components - Cycle time - Discounted pricing - Responsiveness to changing business climate - Acceptance of new requests - Process improvement - Market opportunities - Implementation of best practices - Increased capacity - Improved teamwork - Responsiveness - Client concerns addressed - Cost - Flexibility 32

33 Vendor Performance Monitoring Evaluations of vendor performance should be done at regular intervals throughout the partnership. Fewer metrics are better than too many. Measurements need to be easily collected. Choose appropriate factors and components for your process and situation. 33

34 Vendor Performance Monitoring Gather metrics by location Do not just accept vendor recommended metrics Audit methods of capturing metrics Use the same metrics for vendors providing the same services 34 Compare total process costs to pre-contract baseline costs

35 Evaluating Your Vendors The longer a client/vendor relationship lasts, the more likely it is to continue Begin reevaluation process 9-18 months before end of contract Reevaluate insource versus outsource decision Review the performance results in terms of cost, focus, and flexibility Review performance metrics 35

36 Evaluating Your Vendors 36

37 37 Don t Underestimate The Costs of Switching Vendors Knowledge transfer Billing/Accounts Payable Training Interface procedures Technology and infrastructure changes Higher contract and negotiation costs Rebadging Loss of vendor supplied tools Increased risk of sabotage

38 Managing Vendor Partnerships Model Business Drivers Evaluate Processes Evaluate Results Make Decision: Insource or Outsource Manage Relationships Select Vendor Implement the Working Relationship Develop/Negotiate Contract 38 Business Process Management Is the Foundation

39 Managing Outsourcer Relationships & The Role of Metrics 39