Tuesday, March 4, 2014

Are Your Outsourcing Relationships "Fit for Purpose" in the Age of "As a Service"?

Continuing my theme of bridging from one blog post to the next … and being a fan of “top ten lists” … I thought that I would offer my perception on the most important questions that Supply Chain executives should be asking of their outsourcing providers.
I direct this towards Supply Chain because of the central role these executives serve in connecting business units, corporate functions, and IT when it comes to contracting for outside services. That said, the questions I offer here can be equally asked by the CIO, CHRO, CFO, or business unit executives. 

In all cases, I am addressing the central question of whether or not incumbent service providers, or prospective service providers, are conforming to the principles of “As a Service” business operations.  In my experience, a candid assessment against these criteria will challenge the incumbent ITO/BPO provider community to show well.

  1. Is capacity provisioned dynamically? Does the provider detect and respond to incremental/decremented demand through automation and in accordance with pre-determined rule sets?  If the SLAs deflect accountability due to the Client not having answered a question not yet asked … that’s not “As a Service.”
  2. Are the services multi-tenant? Is the provider serving different customers from a shared hardware/ software/staffing instance?  Hint: if you’re paying based on effort, the answer is no.
  3. Is scalability truly elastic?  Is the provider’s functionality sustained regardless of transaction volumes?  If the Client is asked to pay in advance for added capacity … including the capital assets on which the work is reliant … that’s a red flag. 
  4. Are the services modular?  Does the provider deliver the ability to scale different components based on the nature of requests each component receives?  And, can the Client substitute providers with ease (perhaps even at the level of transactional demand)?
  5. Is Meta Data – intelligence about the services delivered – part of the value to the Client? Information regarding the usage/performance of the service should enable the Client to make informed decisions about their business.  The Provider should not hold this information hostage.
  6. Are the services secure – at the level of transaction, and operating resilience?  Assurance should be proven that all transactions are kept proprietary to each designated customer.  Superficial answers around encryption should be explored thoroughly.
  7. Are there defined and automated workflow interfaces?  Defined interfaces, often referred to as APIs, should exist for interoperability with other enterprise business systems/processes.  Ideally, these APIs will be “open” to the Client’s development community (including other third-party providers).
  8. Are the services readily customizable? The Client’s business planning experts should be equipped and empowered for data modeling, UI workflows, integration with legacy systems, etc.
  9. Are there objective Service Quality commitments? Contracted services should be defined by objective measures of accuracy, performance, and effectiveness. Interoperable measures of service quality (between adjacent processes) should be actively enabled.
  10. Is the pricing based on consumption that conforms to contracted levels of quality? Customers pay for units of service consumed, but only as those meet agreed levels of quality/accuracy (ideally measured in real time).  It’s the obligation of the service provider to track this and proactively report.

As one considers the roster of incumbent service providers, I find that it’s common for many of these questions to yield a “No” answer – and lead to a decision around what to do about these facts.  Any contracts for “commodity” IT services or staff-augmentation BPO or applications support are particularly attractive for review.
A common filter that is implied through this list is:  are all of the assets related to the provision of the contracted service under the purview of the service provider?  I find that most companies fail this test, having retained capital assets or licenses for tools, thus giving the relationship a decidedly non-Service profile.

Contracting best practices are applying these criteria to progressive strategies for engaging “As a Service” partners.  Alternatively, the next stage for some incumbent relationship may be to implement a platform-based “As a Service” network of best-in-class platforms, exiting long-standing relationships that have not evolved to the point of being truly “As a Service.”
More on that approach to come …


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