Business Level Agreements

Transcription

1 Application Outsourcing the way we see it Business Level Agreements Committing IT to business success Transforming applications into business advantage

2 Contents 1 Overview 3 2 Business Level Agreements 4 3 IT s place in the business value network 5 4 Understanding the business services IT must provide 6 5 Understanding the business value of IT 7 6 Understanding the measures 9 7 The charging model 11 8 Summary 12

3 Overview Application Outsourcing the way we see it It is a well-held business truism that measures and rewards help to change behaviors much more effectively than words and ideals. By targeting measures at the areas where business seeks to succeed and by aligning rewards to the level of success, a company is able to align its people and partners towards its overall corporate goals. There is, however, one area where this is consistently overlooked and where the contractual and bonus structures are based not on the company measures, but on the isolated measures of that area. The area is IT, where the norm is for contracts based on Time and Materials, Fixed Price for delivery or Technical Service Levels for support. With IT becoming increasingly central to the operation of a business, a new approach is needed that commits IT to business success in the same way as everyone else. Business Level Agreements. Committing IT to business success. 3

4 Business Level Agreements For the transition of IT towards business measures, there must be a formal way of detailing the objectives for the IT solutions that reflect the ability of IT to impact the overall business goals, rather than simply being a repetition of overall business goals. Formal Business Level Contracts must be in place that enable IT to understand, and achieve, how it will contribute towards the success of the business. These agreements must meet the following criteria 1. Independently Measurable 2. A direct link to corporate objectives 3. Be under the control of IT to succeed 4. Establish the business case approval process and criteria for changes 5. Have a proscribed domain and known relationships and expectations from other areas Meeting these criteria enables IT to plan on achieving these corporate goals rather than on simply meeting a set of IT goals. 4

5 Application Outsourcing the way we see it IT s place in the business value network The shift from simple Value Chain approaches of the 80s towards the more complex collaborative Value Network 1 methods of the 90s and 00s underlines the importance of defining IT s place within the overall business environment. The key fact to understand is that IT provides support facilities to the business and so has different measures to the overall business. Understanding the Business Service Architecture 2 (BSA) of an organization, it becomes possible to understand the business areas under which IT needs to be measured. Business Level Agreements. Committing IT to business success. 5

6 Understanding the business services IT must provide To understand the place of IT in an organization, it is necessary to understand the overall operating model of that company. By defining the business service architecture, it is possible to understand how the contracts need to be defined. Taking an IT systems perspective will fundamentally fail in enabling the move towards business contracts as applications often provide only a subset of the functionality in an area, have a different purpose than the overall business area or span multiple business areas. Manufacturing Make Items Sales Check Stock Contact Send Materials Add to Stock Ship Order Ship Order Buy Bill Customer Invoice Deliver Logistics & Warehouse Ship Order Pay Finance Invoice Pay Customer 3PL Deliver Supplier Figure 1. Manufacturing Level 0 Service Model This means that, in order to move towards a business contract for IT, there must be clarity from a business perspective as to what IT should be delivering. 6

7 Application Outsourcing the way we see it Understanding the business value of IT The next stage is to understand the value that IT can provide. This is necessary as IT does not provide the same value throughout a business and its value is not the same as the overall business value in a given area. Sales is an excellent example of where the IT and business value operate in extremely different ways. Customer Target Buy Respond Marketing Data Account Management Finance Appro Figure 2. Sales Service Architecture Here is the IT system that tracks sales and manages the approval process. Though a core part of the sales operation perspective, when viewed through a heatmap 3, s place in the Sales arena is clear. Business Level Agreements. Committing IT to business success. 7

8 Opportunity Market Change ROI Competitive Advantage Issue Utility Cost Service Level Figure 3a. Heatmap Classification Matrix Customer Target Customer Target Buy Respond Buy Respond Marketing Marketing Data Data 1 2 Account Management Account Management Finance Finance 5 6 Approv Figure 3b. Heatmap of Sales is the utility area of Sales. It offers no competitive differentiation and no value add. What it does provide is a secure and robust area that maintains the truth about the current sales position and predictions, and enables other parts of the sales and finance areas to make sound business decisions based on this information. So when looking at a business contract for a solution, it is important to understand that its job is not to sell, but to ensure that high quality data is available and the sales process is effectively governed. As such, should be considered a utility and it is the business metrics that should determine the price of the service while the SLA should be relate to the quality of the service. If looking at a full outsource of Marketing however, then more business-centric and ROI capabilities would need to be included in the contract. This is the first stage in understanding the type of agreement required; it defines the type of contract and the type of measures. 8

9 Application Outsourcing Understanding the measures the way we see it The next stage of the process is to understand the business elements that are to be measured and how these should be reflected in either the SLA or the pricing model. At a high level, this is about the interactions between the business services as these are the external points for the service. Customer Target Customer Target Buy Respond Buy Respond Marketing Marketing Data Data 5 6 Account Management 4 Account Management Finance Finance 7 Figure 4. Measures Figure 4 shows the measurement points for the system. A first stage business level outsourcing agreement would therefore focus on six key measures 1. The number of, and time to, process status updates allowed by the system 2. The number of, and time to, process that could be sent to sales people 3. The number of, and time to, process that could be entered into the system 4. The time to access basic data directly 5. The secure and audited approval of sales opportunities at set stages 6. Accurate and timely reporting of the pipeline All of these are volume metrics and deal either with the performance element or with the number of interactions. These enable the system to be measured in a more business-centric way but do not really shift it towards it being managed as a business service. These therefore, represent the first stage of a Business Level Agreement. The moving of the SLA away from technical elements towards more business-centric measurement helps to prepare the ground for a more radical and truly businesscentric approach. Business Level Agreements. Committing IT to business success. 9

10 Customer Target Customer 3 Target Buy Respond Data 4 Marketing Account Management 5 6 Buy Respond Data Marketing Account Management Finance 7 Finance Figure 5. Marketing Measures To understand how an IT service can be delivered as a more business-centric service, Figure 5 shows how Marketing is measured as a business service. Here, there are a number of basic criteria and three additional measures aimed at enforcing quality. 1. Number of Customers Targeted by a campaign 2. Number of Customers who respond to a campaign 3. The ratio of Targets to Respondents for the campaign 4. Number of generated by marketing 5. Number of used by the sales team 6. Ratio of supplied to used leads 7. The reported Sales 8. The Sales associated with supplied leads The criteria in bold are the difference between the basic volume metrics and the more active business performance metrics. These shift the emphasis away from simply counting something towards a measurable impact of one action on another. The outsourcing of marketing would not only concentrate on the volume metrics but would also measure the effectiveness of the campaigns being run. The broad numbers, particularly the sales figures, will provide a guide as to the impact of the marketing function but it is the ratios which enable the organization to determine the effectiveness of one option against another. Combined with the price of the service, this generates a coherent picture of which providers will offer the best business value. The first stage of Business Level Agreements is to move away from technical measures and SLAs and towards business volume metrics. The second stage is to move towards actual business effectiveness measures. 10

11 Application Outsourcing the way we see it The charging model in this paper is considered to be a utility area of a business while marketing is considered to be a business-value-add area of business. This means that not only are their measures different, but that their charging models should be different as well. For, the volume metrics point the way the choices for charging could be 1. Number of users 2. Number of people in the sales team 3. Number of sales opportunities 4. Contract value of sales opportunities Others exist but mostly reduce to a variation on these four. The four however, are not completely equal in terms of being valid for a business contract. The first is a simple IT contract based around user licensing and does not take into account the purpose of the interaction. The last assumes that has an impact on the value of the sales which, given it is stated as a utility, is unlikely. Therefore, the two real choices relate to the size of the sales team and the number of opportunities. Both offer a strong business metric for. If it is primarily considered a sales support tool then sales team (no. 2) would be the sensible metric. If however, it is considered to be a sales tracking tool, most normal in modern solutions, then the number of opportunities (no. 3) makes more sense as this reflects the business purpose of. In marketing, the case is different as the measure in marketing is not utility but ROI. The question, therefore, is what is the return on investment rather than what is the specific transactional cost. The contractual charge should be based as a fraction of the impact of the marketing function rather than just the cost of the service. The objective is to motivate the partner to over-achieve and so a sensible approach is to offer a base-lined risk-reward contract which consists of two parts 1. Cost X% base. The base price of the service is a defined percentage below the cost to deliver 2. Value * Y * X%. The risk price is based on the overall impact of the campaign. Y represents a measure of efficiency of the campaigns take from the measures outlined above. The objective here is to motivate the partner to improve both the overall value and sales of their work as well as the efficiency of their work. The latter measure ensures that the sales team s time is not being wasted while the former is linked to the amount that the partner puts at risk. The charging model and the measures are linked but separate. The commitment of the IT provider is to deliver the service against the provided measures and to do so at the given business cost. Together, these two elements represent the change away from technical contracts and technical SLAs towards true Business Level Agreements. Business Level Agreements. Committing IT to business success. 11

12 Summary Business Level Agreements require a business framework within which to work. They additionally require an understanding of what impact an outsourcing partner can have in the delivery of a service. By understanding the measures and the most effective charging model, it is possible to free the customer from technical concerns and allow them to focus on operating their business effectively. Business Level Agreements for IT represent understanding the business service, understanding the measures, understanding the charging model and finally constructing a contract that motivates the partner in line with the business objectives. 12

13 Application Outsourcing the way we see it Works cited 1. Allee, Verna. The Future of Knowledge: Increasing Prosperity through Value Networks: Increasing Prosperity Through Value Networks. s.l. : Butterworth-Heinemann, Jones, Steve. Enterprise SOA Adoption Strategies. London : Infoq, Capgemini. From IT cost to Business Value: Focusing Investment for Competitive Advantage. Capgemini.com, [Online] May Business Level Agreements. Committing IT to business success. 13

14 About Capgemini and the Collaborative Business Experience Capgemini, one of the world s foremost providers of Consulting, Technology and Outsourcing services, has a unique way of working with its clients, called the Collaborative Business Experience. Backed by over three decades of industry and service experience, the Collaborative Business Experience is designed to help our clients achieve better, faster, more sustainable results through seamless access to our network of world-leading technology partners and collaboration-focused methods and tools. Through commitment to mutual success and the achievement of tangible value, we help businesses implement growth strategies, leverage technology, and thrive through the power of collaboration. Capgemini employs approximately 82,000 people worldwide and reported 2007 global revenues of 8.7 billion euros. More information about our services, offices and research is available at SJ ST AO WP 2 Copyright 2008 Capgemini. All rights reserved.

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16 For further information please contact: Steve Jones Head of SOA, Global Outsourcing Tel: +44 (0) Glenn Adams Global Product Director, Application Outsourcing Tel: +44 (0) For details of Capgemini s Application Outsourcing solutions, visit: