Many IT outsourcing arrangements fail, especially for the small/mid-sized businesses (SMB). Analysts cite poorly designed service level agreements (SLA) as one of the major sources of disillusionment.
"What we find shocking is that around 50 percent of companies entering outsourcing agreements do so without any service level guarantees," says Rick Sturm, president of Enterprise Management Associates, a technology research firm headquartered in Boulder, Colorado. Fortunately, buyers are getting the picture. He reports that this number is slowly declining.
Having an SLA is a good start. But they have to be appropriate SLAs. Debra Curtis, research director IT network systems management for Gartner, a research and advisory firm headquartered in Stamford, Connecticut, blames flawed SLAs for the high percentage of unsatisfactory service performance. She says the root issue is many IT outsourcing contracts may not have the right kind of business-related service level objectives. For example, Sturm says metrics should focus on service, not technology.
A 2002 Gartner report, Selective Outsourcing and Networked Systems Management, states: "Through 2003, 85 percent of the SLAs with selective outsourcers will fail to define actual enterprise service-level requirements."
Joshua Beil, vice president research and development for Tier1 Research in Plymouth, Minnesota, says an outsourcing consultant is one way to ensure proper SLAs are in the outsourcing contract, especially when the buyer "doesn't have the resources or the right skills to make those decisions." Consultants also have the expertise to determine the type of monitoring that best meets the buyer's needs.
The Importance of Monitoring
Even if the outsourcing contract clearly defines an SLA, the buyer must have the means to independently verify the performance of its IT service provider. While the service provider may provide performance reports, that's like the fox guarding the hen house. "When money is on the line, people are prone to cheat. It can even happen internally where bonuses are tied to service level objectives being met and reports being falsified," Sturm observes.
For that reason Sturm feels "it is wise" to get an objective performance assessment from a third party. "Then you get away from the question of honesty and objectivity," he explains.
Unsatisfactory performance is frequently the cause of a failed outsourcing alliance, these analysts say. Without independent IT compliance monitoring, the buyer can be trapped in a doomed relationship with little recourse as customers and dollars fade away.
Curtis points out that, "Doing it yourself is not generally the most reasonable choice. For small to medium businesses, the do-it-yourself option is often not possible or something they want to entertain. The reason that they outsourced to begin with is that they don't have the skills, staff, or the time to focus on it." Outsourcing service level performance monitoring may be a far better strategy.
Beil sees a change on the part of the service providers. "Buyers can now start to demand tools that will enable them to track the performance and not just be hung out to dry. Service level management is not something that can just be brushed aside anymore."
The Voodoo of the Internet and IT Measurement
What Sir Winston Churchill said about the Soviet Union can also be said about IT measurement: "It is a riddle wrapped in a mystery inside an enigma." To date, there are no consensual industry benchmarks for IT performance. Sturm says industry associations are trying to put something together "but they aren't ready yet."
The complexity of measurement involves three distinct areas. Tier1 Research developed a model (see Figure 1) to explain the overlapping areas. "The IT spectrum was networking systems management. The Internet has created an evolution in what IT infrastructure needs to be," Says Beil.
Different service providers may offer expertise in one of the three primary areas with some overlap in the others. Beil states that the client should determine "the mission-critical IT areas. Each case is probably going to be unique."
Performance, reporting and analytics include historical reporting for trend analysis, real-time performance reporting, interactive resource management, analysis of multiple and disparate data sources, and third-party violations.
Policy/threshold management involves setting and managing IT resource priorities, defining acceptable levels of service, and automating the monitoring of these thresholds.
Event/operations management concerns resolving service disruptions once an event has occurred, tying into a trouble-ticketing package, defining processes to resolve IT problems, identifying affected users and pinpointing sources or problems, and automating responses and escalation flaws.
Different service providers offer different degrees of involvement and expertise in these areas. The offerings of the providers, according to Beil, depend upon their history in these areas.
The Gartner report offers another sobering thought. "Through 2003, enterprises that do not consider upfront the replacement of service providers as part of the contract will incur 100 percent greater transition costs and significant operational disruption than those that do."
Lessons from the Outsourcing Journal:
- Every outsourcing contract must have well thought out and clear service level agreements.
- Hire a consultant to help you if you don't have the skill or resources to craft appropriate SLAs yourself.
- Independent SLA monitoring may be necessary to ensure the service provider is doing the job you've specified.