Thursday, March 17, 2016

Managing Service Risks in the “As A Service” Economy

The rule of thumb for services contracting, proven over the past 20+ years, was that companies tended to spend 3-5% of their services contract value on “governance.” 
When a company awarded a $100M services contract for outsourced IT or Business Process operations, they typically spent $3-5M on the people and processes focused on service management and governance.

What did these expenses provide?

  • Financial Management – handling the authorizations and verifications of the financial obligations of the parties;
    • Invoice Management
    • Performance Credits, Earnbacks, & Critical Milestones
    • Financial Analysis & Planning
    • Contract Pricing Adjustments
    • Chargeback
  • Performance Management – reviewing service level and other reporting artifacts that track attainment of committed qualitative performance;
    • Performance Analysis & Service Delivery Management
    • Service Requests and Authorization
    • Change Management
  • Relationship Management – ensuring tight alignment among the buy-side and provider-side expectations
    • Forecasting and Demand Management
    • Project Spend Pool Manager
    • Service Catalog Management
    • Customer Satisfaction Measurement
  • Commercial Management – accountable for the formal terms among the parties
    • Contract Administration
    • Contract Change Management
    • Contract Issue Management
    • Dispute Resolution
    • Service Provider Audit
    • Governance Library

Invariably, this level of expense and organizational construction resulted in debate on the value returned for such investment, the buy-versus-build alternatives, and the tendency to meddle in the delivery of the contracted services.

I am being asked more frequently about the effect that “As A Service” contracting places on the Service Management & Governance competencies of companies.  In my experience, the level of investment is holding steady, but there is a shift among the functions embodied in the progressive “vendor management” function of companies looking to subscribe to market-defined offerings as a preferred alternative to directing the build of solutions that are specific to the buyer.

The most visible new competency being promoted in this context is Vendor Risk Management (VRM).  Many companies are deploying organizations and processes for continually monitoring the viability of their supply base through the lens of “what if” analyses.  If you think about the “As A Service” fabric of internal and external service participants, the modularity features of “plug replaceable” services is an essential feature that requires active monitoring.

Regulated industries, such as Financial Services and Healthcare, in particular, are experiencing dramatic increases in the requirement to monitor and manage 3rd-party risks.  These disciplines are analogous to the rigor that other industries, such as manufacturing, have applied commonly to their supply chain for tangible materials. 

Now, these inspections are being applied to information-based services with greater rigor.

The increased investment in VRM within the Service Management framework is being offset, to a degree, by adoption of more automation in the conduct of performance management, financial management, and commercial management.  The functions identified are still required, but the implementation alternatives are more varied under a subscription-oriented arrangement.

As we see companies shift their services strategies to take advantage of the growing portfolio of market-based “As A Service” offerings, I think we will see an accelerated maturity in the professional disciplines around vendor risks, including adoption of automation, analytics, and friction-less switching among service participants.


Peter Allen applies many years of operating experience as a top executive and strategic advisor for companies of all shapes and sizes, with focus on technology-enabled business services. He is now Chief Evangelist at Peter Allen & Partners and Senior Advisor for Alvarez & Marsal.







Monday, March 14, 2016

Diligent Diligence

As companies step-up their consideration of new forms of Services contracting, with providers that are touting their “As A Service” offerings, I am seeing a revolution in the art of Due Diligence – the process whereby the parties verify that they are entering into a relationship that is aligned in its goals.

The age-old approach towards Diligence in the consummation of a commercial services agreement entails an Inbound element through which the Service Provider reviews and validates the operating environment of the Client into which its Services are meant to apply.  The Outbound element refers to the Client’s inspection of the readiness of the Service Provider to take on the scope of service being proposed.

As the market moves towards adoption of propositions built to conform to “As A Service” operating characteristics of industrial-grade, multi-tenant, subscription-oriented, and mutualized operations, the processes for both Inbound and Outbound Due Diligence are changing, and introducing new challenges.

Service Providers who are truly bringing “As A Service” offerings to a Client opportunity will use an Inbound Diligence process that is exceptionally focused on the enterprise services architecture and the flow of work between and among a myriad of internal and external service participants.  The emphasis will be in how the Provider’s built-for-purpose service solution will fit within the operating landscape. It is decidedly future-oriented in its perspective.

In the past – largely via outsourcing considerations – the Inbound process sought to verify and validate legacy technical factors, and counts of assets.  In essence, this was all about verifying information provided by the Client.  Today, it’s less about inspecting the current state, and more about ensuring that the roadmap to the future state is achievable.

As for Outbound Diligence, the burden on the prospective Service Provider is much greater today than it has been in the past.  Previously, Outbound Diligence comprised site visits, procedural reviews, and interviews with other Clients. 

Today’s buyers of “As A Service” offerings are insisting on new evidence of readiness, competence, and worthiness. 

If you’re a Provider of “As A Service” offerings – regardless of the application – you can expect to be asked to produce new forms of evidence that you’re truly bringing solutions to a market of Clients, not merely offering to solve a challenge for the next Client. 

Some of the most compelling and essential evidence includes:

1)      A Service Catalog which enumerates the service gradients and market pricing for your spectrum of offerings
2)      A Services Life-Cycle Management process that conveys your market-based understanding of demand for service features and functions, and the stages of development, deployment, and decommissioning that you apply to your offerings
3)      An Investment Model that articulates the practices you apply towards developing and deploying new capabilities to subscribers of your Services, with clarity on what’s “in the price” versus supplementary
4)      A “User Group” or similar forum for subscriber engagement that demonstrates the reach of your services across the market and which commits to continual communication around service evolution.  This commonly includes transparency around the numbers of subscribers, and changes to those figures over time, and
5)      A Business Continuity Plan that acknowledges the inherent risks to service continuity, and your plans for responding.

There are others, but I find that these five tend to be particular challenges for the Service Provider community to address when a Clients team starts its Outbound Diligence process.

Both of these dimensions – Inbound and Outbound – introduce enhanced expectations of the Service Provider to produce evidence of commitment to purposely-built Service offerings that reflect a deep understanding of target markets, competitive positioning, and readiness for scaled adoption.

Prospective Service Providers would be well-served to invest in a strong and positive Diligence experience as part of their sales process.

Peter Allen applies many years of operating experience as a top executive and strategic advisor for companies of all shapes and sizes, with focus on technology-enabled business services. He is now Chief Evangelist at Peter Allen & Partners and Senior Advisor for Alvarez & Marsal.