Creating Sustainable Relationships
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The document discusses creating sustainable relationships through service level agreements (SLAs), key performance indicators (KPIs), and operating level agreements (OLAs) in outsourcing. It highlights common myths and facts regarding service management, emphasizing the importance of performance measurement and continuous improvement to foster client-provider relationships. Additionally, it outlines the decision cycle and principles for achieving high-level business outcomes.
Creating Sustainable Relationships
- 1. SLAs - Carrot or Stick? Creating Sustainable Relationships SIG Regionals 2007 Europe North America 22-24 Ely Place 3535 Travis Street, Suite 105 London, EC1N 6TE Dallas, TX 75204 United Kingdom Tel: +1 214-696-6410 Tel: +44 (0)207-242-0666 Fax: +1 214-239-0698 Fax: +44 (0)207-242-0667 Email: EnquiryUSA@Alsbridge.com Email: EnquiryUK@Alsbridge.com © Alsbridge 2005 Confidential and Proprietary www.alsbridge.com
- 2. Agenda • Myths, Facts and Thesis • Core Concepts • The Decision Cycle • What are We Trying to Achieve? • Common SLA Outcome • The Foundation • SLA definition • KPI definition “Alsbridge brings experience and independent challenge to • OLA definition the strategic decision and business case development • Managing the Outsourced Service process that is invaluable to • SLA, KPI, OLA Identification any senior leadership team.” • SLA, KPI, OLA Description Guy Cowan, Former CFO • Service Levels: What Works… • Sticks – Current thinking on pillars • Carrots – An Example to Consider • The Way Forward • Principles to Consider • Sustainable Value Management © Alsbridge 2005 Confidential and 1 Proprietary
- 3. Myths, Facts and Thesis Myths • Metrics and best practice comparisons for price and service levels are key • Penalties systems will make the provider pay attention to me • Never pay the provider extra for doing their job • If I collect enough data the service will be good • Faster, better and cheaper • Details give the illusion of control • The Danish effect (hands off or simplistic metrics) Facts • Margins of on-shore providers are currently at an all time low • Significant dissatisfaction is expressed by many clients besides aggressive bid and negotiation tactics Thesis • Behaviors need to change in the way relationships are managed from start to finish © Alsbridge 2005 Confidential and 2 Proprietary
- 4. Core Concepts - The decision cycle OODA Loop Observe Orient Decide Act Implicit Implicit Unfolding Guidance Cultural Guidance Circumstances & Control Traditions & Control Genetic Heritage Analyses & Observations Feed Forward Synthesis Feed Decision Feed Action Forward Forward (Hypothesis) (Test) New Information Previous Outside Experience Unfolding Information Interaction With Unfolding Environment Interaction Feedback With Environment Feedback Note how orientation shapes observation, shapes decision, shapes action, and in turn is shaped by the feedback and other phenomena coming into our sensing or observing window. Also note how the entire “loop” (not just orientation) is an ongoing many-sided implicit cross-referencing process of projection, empathy, correlation, and rejection. From “The Essence of Winning and Losing,” John R. Boyd, January 1996. © Alsbridge 2005 Confidential and 3 Proprietary
- 5. Core Concepts - What are we trying to Achieve? Customer Satisfaction Dysfunction Function 6 sigma Kano quality categories Customer Dissatisfaction © Alsbridge 2005 Confidential and 4 Proprietary
- 6. Core Concepts - Common SLA Outcome © Alsbridge 2005 Confidential and 5 Proprietary
- 7. The Foundation - SLA Definition • An agreement between a provider of services (can be internal or external) and a customer/client • Relates to the services to be provided by the Service Provider (both internal or external) to „Client‟ • Identifies the inputs that are required from „Client‟ to allow SP to provide its services (dependencies – Operating Level Agreements (OLAs) • Allocates responsibilities for service delivery between SP and „Client‟ • Defines the appropriate level of service to meet „Client‟s‟ needs • Provides a framework for performance measurement and continuous improvement © Alsbridge 2005 Confidential and 6 Proprietary
- 8. The Foundation - KPI Definition • KPI are quantifiable measurements for evaluating progress towards an organization‟s goals. • KPIs allow an organization to: • Analyze aspects of its past • Challenge its present • Plan its future • KPIs should primarily be used to determine the efficiency and effectiveness of the services provided by the SSC. • KPIs should focus on a manageable number of the most important measures – often have “Service Credits” attached • Key four components: KPI Measurement Goals Accountability Service Credits The Target The Assignment Failure by SP to The Chosen Performance of the Goal Meet Agreed KPI’s Focus Associated with to a Specific will result in a Area For the Measure Individual or discount known as Management Team Service Credits © Alsbridge 2005 Confidential and 7 Proprietary
- 9. The Foundation - OLA Definition • Presents a clear, concise and measurable description of 'Client' and SP relationship • Defines the interdependent relationships among 'Client' and SP • Describes the responsibilities of 'Client' toward SP, including the process and timeframe for delivery of their services • New dynamic: SP cannot be held to account unless 'Client' does what it has to do © Alsbridge 2005 Confidential and 8 Proprietary
- 10. The Foundation - Managing the Outsourced Service • Key word is Service • You are buying a service, not an F&A team or a process • Focus on the output you need, not the step by step process • Focus on how you want to receive the service, not the route in between • How do you know what are you going to get what you are paying for: • Service Description • SLAs, OLAs, Key Performance Indicators • „Client‟s‟ obligations in the Operating Level Agreement • But how will I know SP are „doing it right‟? • Operational Reviews • Service Governance • Contract Management © Alsbridge 2005 Confidential and 9 Proprietary
- 11. The Foundation - SLA, KPI and OLA Identification Accounts Payable Overview Service Provider – AP Process Invoices to be FTP invoices to Mail Processing – Invoice Parking / either sent for DIPS, open Does Vendor Receive Doc‟s at Yes PO Matching / Invoice Posting Invoice Payment scanning or back untouched Exist in SAP? Service Provider Other invoices to Vendor invoices Flow No CLIENT (OLA) Approve invoices, Set up Vendor in solve PO System mismatches Action all invoices Forward all invoices for All invoices which are received by SP (i.e. select Vendors not set up to the approved and free for for scanning or reject) client within 1 Business payment to be paid by later within 1 Business Day of Day of receiving scanned of invoice due date or next SLAs receipt invoice payment run % of invoices not % of invoices paid by actioned within 1 % of Vendors later due date or next Business Day of Created in a month payment run receipt in a month KPIs * Get back to Vendors * Pay approved invoices quickly if invoices are not * Let the client know of on time in order new vendors © Alsbridge 2005 Confidential and 10 Proprietary
- 12. The Foundation - SLA, KPI and OLA Description SLA Sets out Trigger for Service Line Allocation of Baseline Description definition of service Sets out what identifies SLA Definition of activity describes KPI and credits, ‘Client’ has to grouping of Description KPI and level individual current or suspension of do to enable service levels within service current or which may service target service SP to reach within ‘Client’ credit regime target underpin offered by SP performance charge, etc the service process… performance pricing level Service Service Level KPI and Minimum Service Operating Defined Key activity Line Agreement current service credit Level OLA level Description (target) SLA level category Agreement perfor- (volumetrics) performance Description mance Pay Pay invoices which 100% invoices in any 95% of B2 Raise accurate, Raise % of invoices for invoices match with Purchase month which match invoices in properly approved, Purchase inventory items with Order (and Goods with PO and/or GRN any month properly coded Orders PO Received Note where paid by invoice due and properly wherever required) by invoice due date, if invoice priced Purchase required date, if invoice received received one day Orders as required by by SP one day before previously corporate due date. policy © Alsbridge 2005 Confidential and 11 Proprietary
- 13. The Foundation - Service Levels: What Works… • Ensure you can monitor your service providers performance and the service measures are those over which the SP has total influence • Determine what is important to 'Client' • Determine measures that will invoke appropriate behaviours • Maintain full visibility, if you can‟t measure it, find a measure you can! • Be „specific’ - loose wording can be misinterpreted and lead to dissatisfaction • „Time‟ - use working days, to published timetable • „Accurate‟ - define what this means to you, and how it can be measured • Build in quality and approval at source (your OLA) • Eliminate double-handling and hand-offs • Understand the service model • Service from 08:30 to 17:30 means your call will be answered between those hours, not that everyone is sitting at their desks © Alsbridge 2005 Confidential and 12 Proprietary
- 14. Sticks - Current thinking on pillars • Call Center • Virtually unlimited data available about every action take by provider from readily available systems • Cost of cut over to new providers is relatively low and short term contracts are the norm • Per-minute, seat, talk time, 1st call resolution, etc are used to incentivize the provider to generate results • Applications Management • Large amount of data available to manage the provider • Very price sensitive with implied pricing by FTE/year • Burden is on the provider to keep cost under control and maintain application availability • Cost of moving to a new provider is manageable © Alsbridge 2005 Confidential and 13 Proprietary
- 15. Carrots - An example to consider Wireless Carrier • Issue: • Core business costs for wireless carrier is customer churn, customer acquisition cost and billing customer contact costs • Solution • Sustainable Value Management based contract that allows the provider to manage to meet carrot metrics. • Contract emphasizes two pricing dimensions: - Core pricing tied to a series of volume indicators such as number of calls, customers of record, or talk minutes - Value pricing tied to and driven by the core underlying business principle that a long term client is far more profitable than a new customer. For example: Price/mo/C Acquisition / Retention $1.12 12 months or less $2.18 13 -24 months $3.21 25 or more © Alsbridge 2005 Confidential and 14 Proprietary
- 16. The Way Forward - Principles to consider • Focus on High Level Business Outcome • Think about value management • Use business requirements to drive performance requirements • Use templates to document commodity indicators (but do not think they are an outcome) • Pick metrics that give control over outcomes • Set realistic goals • Strive for alignment • Plan for proactive management © Alsbridge 2005 Confidential and 15 Proprietary
- 17. The Way Forward - Sustainable value management • Value Creation Management •Service Level Management • Contract Management Performance • Continuous Improvement • Operational Oversight • Change Control • Continuity Planning Process • Relationship Management • Organizational Structure • Communications People Program • Project & Transition Management Assurance • Corporate Standards • Tools “Sustainable Value Management” © Alsbridge 2005 Confidential and 16 Proprietary
- 18. The Way Forward - Sustainable value management (2) • Value Creation Management • Service Level Management • Contract Management • Continuous Improvement Performance Program • Operational Oversight Assurance • Organizational Structure • Change Control • Relationship Management • Continuity Planning • Communications Process People “Sustainable Value Realization” Sustainable Value Realization requires enabling all aspects of People, Process and Performance to work together throughout the Outsourcing Lifecycle © Alsbridge 2005 Confidential and 17 Proprietary
- 19. Alsbridge Testimonials Nestlé – “We could not have achieved what we did in the timescale without Alsbridge. Their vast experience of international outsourcing enabled us to work quickly and effectively with our chose supplier and with our legal team to complete a robust contract in near-record time. They were hands-on and pragmatic, and provided us with both financial and commercial know-how. Alsbridge is continuing to help Nestlé to evaluate strategic business process outsourcing opportunities.” Michael Clark, FitNes Program Director Royal Dutch Shell US – “Alsbridge brings experience and independent challenge to the strategic decision, business case development and process that is invaluable to any senior leadership team.” Guy Cowan, Former CFO US MyTravel – “The team did an excellent job in negotiating and managing our outsourcing contract and were an integral part of the process; their advice and expertise were invaluable in helping us navigate the outsourcing route and we are very happy to be working in partnership with Xansa as a result.” Aidan Connolly, Deputy Group FD AirGate PCS – “The ability of the Alsbridge team to focus on a larger strategic goal has been exceptional.” Will Seippel, Former CFO RoadChef – "Alsbridge played a vital part in helping us get a robust and sustainable contract with IBM, within four months from their appointment. They acted as a one-stop-shop in managing the process as well as the suppliers throughout the whole initiative, and allowed us to stay focused on managing business as usual and maximizing return on investment. We would not have been able to achieve our goals in such short time without them.“ Colin Brammall, CFO Kimberly-Clark – "Alsbridge added real value in two areas: 1) knowing the outsourcing market, what works and what doesn't; and, 2) knowing the offshore landscape and how to benefit from it. In both areas their experience and knowledge helped us make the right decisions quickly and rigorously.“ Simon Newton, VP of North Atlantic Finance and Shared Services © Alsbridge 2005 Confidential and 18 Proprietary
- 20. North America Europe Ben Trowbridge Tim Lloyd Managing Partner Managing Partner Email: Ben.Trowbridge@Alsbridge.com Email: Tim.Lloyd@Alsbridge.com Tel: +1 214-696-6410 Tel: +44 (0)207-242-0666 Alsbridge North America Alsbridge Europe North America 22-24 Ely Place 3535 Travis Street, Suite 105 London, EC1N 6TE Dallas, TX 75204 United Kingdom Tel: +1 214-696-6410 Tel: +44 (0)207-242-0666 Fax: +1 214-239-0698 Fax: +44 (0)207-242-0667 Email: EnquiryUSA@Alsbridge.com Email: EnquiryUK@Alsbridge.com www.Alsbridge.com © Alsbridge 2005 Confidential and 19 Proprietary