Thursday, March 13, 2014

The Lost Art of Economic Game Planning

As I speak with outsourcing service providers and their Clients, I tend to look for points of similarity and difference.  That’s one way that I try to deduce the trends and find the nuances worthy of greater inspection.  I am finding that there are more points of similarity than uniqueness across the ITO and BPO provider community.
One particular characteristic that I’ve found to be prevalent is the lack of “economic game plans” for existing outsourcing arrangements.

It wasn’t too long ago that this art was central to the Account Planning techniques of most of the major service providers.  In the best of situations, the Economic Game Plan was a document that was openly shared with the Client.
The elements of the EGP aren’t especially complicated or obscure.  They include:

Ø  Volume forecasts for contracted services
Ø  Cost transformation projections to yield efficiencies
Ø  New service projections – timing, pricing, and volumes
By reviewing these metrics between and among the provider and Client, both parties were able to minimize surprises and align expectations.  It was also the forum for candidly discussing changes to volumes for future periods – enabling better cost and revenue forecasting by both parties.

Lacking these open conversations, a Client might be left wondering why the service provider is taking certain actions … whether those action are to reduce costs or promote new sources of revenue.

Conversely, if the service provider is planning and acting without the benefit of alignment with the Client, the guesswork may yield disappointing results.
I’m not quite sure why this technique has faded from the management toolkit.  There once was a day when Clients insisted on the transparency and, quite frankly, the providers rejoiced in the opportunity to receive feedback on their plans.

Without bilateral EGPs, each party is left to surmise what the other is intending.  That’s not a healthy situation, and rarely does it come to pass that both are correct.
To be fair, a few service providers tell me that this discipline is central to their management models.  But, I’m not convinced that their Clients see the situation in the same light.


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 …