A recipe for the perfect outsourcing relationship

In our recent columns, Mark Ehr and I have been looking at the value of providing services and have discussed the clear advantages to both service providers and customers. However, as with any service provider relationship, there are pitfalls to avoid. An example of those challenges showed up recently in the news.

Earlier this month, Isic 21, a consortium led by Computer Sciences Corp’s German subsidiary CSC Ploenzke, announced that it had failed to agree on a final price for an outsourcing project with the German Defense Ministry. Isic 21’s response to the negotiations with the German military is an example of how disciplined outsourcing organizations recognized their inability to please a customer even before they begin the project.

In a story by the IDG News Service (see links below) Michael Meissner, a spokesman with the European Aeronautic Defence and Space Co., an Isic 21 consortium member, said: “We concluded that we weren’t able to supply the Bundeswehr [Germany’s armed forces] with all the equipment and services it sought within its proposed budget.” He added: “We were definitely interested in the contract but not prepared to subsidize it.” To which I respond, “Bravo!”

Far too often service providers are willing to sweep the dirty truth under the carpet in the hopes of perfect execution protecting the provider. Alternatively, some organizations are blind to the real costs of providing a service requested by the customer and so enter into a relationship that they cannot make profitable. Over time, that situation is good for no one.

Those of you who have followed my focus on the requirement for service providers and customers to focus on the value of the services and the resulting impact on service-level agreement negotiations know that I am the first one to encourage organizations to work out their differences by mutually beneficial negotiations. However, you also know that I encourage service providers to walk away from situations in which they either cannot win or are betting their future on nothing ever going wrong.

It continues to amaze me how rarely they walk away. Are there really so few service providers that have created clear models for service delivery that most do not actually know what it costs to provide a service? Do most providers simply rely on anecdotal history and “gut feel” for making project decisions?

Similarly, I continue to be surprised at the number of customers that focus on effectively trying to get something for nothing or “put one over” on their prospective service provider.

In a healthy relationship between service providers and their customers, each partner realizes that they both need to win to make the relationship successful and to achieve the best long-term benefit. It just so happens that such an approach takes substantially more focus and effort than simply negotiating for the “best deal” that you can get.

So how does one create an approach for developing the relationship? It’s actually quite straightforward:

As a customer you should:

1) Determine what it is you really need from the provider. What are the parameters of the service, including hours of operation, hours of support necessary, on-site vs. remote assistance, customization vs. standard offerings, and so on.

2) Decide the key metrics that determine successful delivery of those services. These will become the service-level objectives (SLO).

3) Calculate current costs for procuring the services and map them to current SLOs.

4) Understand how and when you need reports of the service delivery.

As a service provider you should:

1) Determine the services that you can offer and your cost for delivering the services at various typical service levels.

2) Decide the metrics that are meaningful and that you are willing to have customers use to understand the level of service they are receiving.

3) Outline typical ROI when customers use your service instead of having it provided internally.

4) Propose solid service-level management and reporting of these items.

These are great starting points for either procuring or delivering services. What other ideas have you had for these?