Business metrics grow in importance for IT outsourcing

Service-level management (SLM) is an important concept for IT management whether services are outsourced or kept in-house. EMA has been tracking the acceptance of SLM in an annual survey since 2003. You will be invited to participate in the 2005 survey at the end of this newsletter. 

The use of service-level agreements (SLA) has been on the rise. In 2003, 56% of the 24 organizations surveyed had deployed SLAs, with 83% of the 48 survey respondents in 2004 having deployed them. For formal commitment on both sides of the equation, there must be dialog in which users are expressing needs, IT is communicating cost and capabilities, and compromise is being met. A champion within any enterprise is important to SLM’s overall success. EMA has always seen anecdotally that business line managers and executives are heavily involved in driving the need for service commitments from the top of the organization downward. We have not necessarily seen this reflected in earlier research.

The 2004 survey showed that while IT remains dominant in driving these initiatives, the frequency of business managers taking on this role is increasing. In 2003, 71% of SLM programs were championed by a CIO or IT director. In 2004, that number dropped to 61%, with the remaining championed by executive management and business line managers. EMA sees this as reflective of the trend toward business services management (BSM), in which IT services are becoming much more closely aligned with business goals, priorities and measurements.

The EMA findings are consistent with recent projections by Unisys, in which it predicts the decline of the SLA as a prime outsourcing-success metric. Note that Unisys isn’t saying SLAs are passé, but that they will not be the primary measure of success. Instead, Unisys predicts business-value metrics will drive global outsourcing and become the measurement of success.

The 2004 EMA survey also asked about IT priorities. Those who responded can be characterized in this way: 38% are focused on mapping IT to business processes, 27% are looking to manage service levels, and 15% are still quite oriented around operational fix-level issues. The movement toward focusing more on business metrics was clearly underway in 2004 and has continued in 2005. EMA research from these and other surveys supports the Unisys projection of increased focus on business metrics in 2006. 

There has also been a little bit of a change in the use of best practices. Interest and usage of the IT Infrastructure Library (ITIL) as a service reference model is growing significantly in the United States. Our survey showed that 52% of participants in 2003 were using ITIL in some way. In 2004, 71% of the participants had begun to use ITIL. Six Sigma, on the other hand, has dropped off slightly except for those very large, quality process-driven enterprises that remain committed to Six Sigma.

EMA’s assessment based on this and other research is that the SLM market is continuing to ramp up steadily, but it is still far from a mature market. This has perhaps been complicated with a shift in focus to BSM, a subject that can further confuse consideration for committing to and improving service quality.  There are clearly some organizations that have made great progress in implementing a service-based model of doing business. However, most are still looking for more education, particularly practical education that can be used to take baby steps in the direction of service management. This education ideally would help IT demonstrate its value along the way before it asks for funding and support for a complete service-oriented paradigm shift.

EMA is conducting its third-annual survey on the subject of SLM acceptance. This survey assesses trends in the level of adoption of SLM and related best practices. It is an important mechanism for tracking trends in the adoption of service-based management for IT. Please take a few minutes to participate here. Results will be shared in an upcoming column.