78% of facility managers agree that getting the correct level of service is the biggest challenge in their outsourcing initiative, according to IFMA’s Research Report #27
This statistic suggests significant gaps in outsourcing implementation. The most likely reasons for this problem include poorly defined service levels in the outsourcing contract, a performance issue with the service provider or ineffective management of the outsourced relationship.
Regardless of the root cause, the challenge identified by 78% of facility managers can be solved by defining service levels, implementing performance management and establishing effective contract management.
These three elements should be put in place before implementing an outsourcing relationship, but you can still implement them with your current service provider or plan them for the next renewal or re-tender. In fact, these techniques can even be applied to subcontracted and in-house services.
Defining Service Levels
Most organizations had not defined the level of service they provided before outsourcing. They simply deliver it, whether good or bad. When you manage the services and are accountable for the costs, you can balance and adapt the service levels on-the-fly.
Implementing an outsourcing contract without defining service levels is risky. You may get less than expected or more than necessary along with a higher cost. It’s also harder to determine whether you are getting what you paid for and the service provider doesn’t have clear service targets and objectives to achieve.
It’s important to recognize the link between service and price. The service level, cost and scope are balanced and when any one increases or decreases somehting else must increase or decrease to balance it. Changes to the service levels will often impact the costs if scope doesn’t change.
Outsourcing without accurately defining service levels will leave the service provider guessing and you may not get what you need to be successful.
Identify all services your provider will be responsible for and develop specifications that indicate the actual level of service using well-developed description and measurements where possible. Some services lend themselves well to objective measurable levels while others will require a more subjective approach.
Your goal should be objective, measurable Service Levels. Some services will be prescriptive in nature – where you will list specific work activities, for instance – while the majority should be performance based, allowing the service provider to use their experience and resources to meet your performance requirements.
To define the services, use information from existing service contracts, assess current delivery levels or use industry standards. Make them easy to read, consistent, short and descriptive. Combine them with your business objectives and measurements to focus performance.
Implement Performance Management
Effective performance management is a critical part of an outsourcing relationship, but it is also closely related to the Service Levels you define.
Wherever possible, Service Levels should be defined with objective performance measurements. Service levels should be tied to performance management, so when developing service levels, establish how that service supports your core business and how important it is. This focuses the service provider’s behaviour, practices and processes on achieving the business objectives you established as part of the Service Level Definitions.
Performance measurements are often associated with penalties, however the real objective of performance measurements is to ensure the desired results are achieved. If you have to penalizing your service provider, it means the services that are important to your company’s core business didn’t meet their objectives.
It’s better to implement a process that manages performance and helps your service provider meet their performance objectives.
This often means a combination of incentives and penalties as well as performance measures that provide management information the service provider can use to proactively adjust performance and avoid missing performance targets.
If you are already measured internally or by your clients, mirroring those measurements with your service provider will help them optimize r performance and deliver the service you need to be successful.
Effective performance measurements include many measures, however they don’t dilute the ones that are key to your core business.
This is done through a three-level structure that includes the following types of measurements:
Key Performance Indicators (KPI)
These may trigger penalties or incentives to drive behaviour and are linked to the needs of your core business. There shouldn’t be more than a handful of KPI’s. With such high-level measurements in place, your service provider will clearly recognize what your priorities are, and by setting targets to reach, the results you need will be clear.
Performance Indicators (PI)
Performance indicators are primarily management tools, however some PI’s aggregate into KPI’s as cumulative or regional results. The nature of your core business will influence this. Measuring at this level provides an early warning to identify performance issues that impact the KPI’s and enable corrective action.
Trends are managed like PI’s, however they usually compare results over time, providing trend information and enabling continuous improvement and corrective action.
To develop your measurements, start with KPI’s by identifying the key deliverables that impact your company’s success. Once you narrow them down, look closely at the deliverables and determine how you can measure them. This may be quality, timeliness, customer satisfaction, uptime or a number of other attributes. If these measures impact the service provider financially, make sure they are as objective as possible.
With KPI’s developed, look at sub-measures that support the KPI’s. These become the PI’s or trends you use as management tools. Where possible, include measures related to the services you have defined.
As a management tool, you can tie PI’s and Trends into management action plans. If a PI fails to meet the target or a Trend is tracking negatively, the service provider provides an action plan describing how they will correct the issue.
Once you decide on the measures, establish the mechanism to measure and report performance results. Where possible, build them into the processes and automation used to deliver the service.
Set the format and frequency of the reporting so that the information is timely and useful.
Use clear and concise reports for performance management that provide forward-looking management information. Dashboards are useful to represent performance management information, however they are often used to provide static information that isn’t much use for managing the services.
Your dashboard reporting format should include useful management information that is represented using easy to read formats with both trend and snapshot information that enables effective decision making.
Managing results is as important as measuring them. Establish regular meetings to review the performance results and discuss action plans where necessary to improve results that are not being met or where trends are pointing in the wrong direction.
Establishing effective contract management
When developing an outsourcing solution, effective contract management is the cornerstone to success.
Outsourcing is a major change for existing staff. They are often used to managing or even doing the work themselves and have a difficult time turning the responsibility for day-to-day activity over to a service provider.
The change requires your staff to manage a complex outsourcing contract and a new high-level relationship with a service provider. It’s important to manage the change and equip your new contract management team with the tools and the skills they need to be successful.
The tools include a solid contract management process with an effective and flexible contract that has service levels, a performance management framework, reporting and interfaces defined and a change management and conflict resolution process built-in.
The change management process is needed since it is impossible to consider every situation that could arise as well as the simple reality that over the course of a long term outsourcing contract, your business needs will change. This addresses the most important aspect of the service triangle described above – cost. A change management process enables you to manage changes scope or service levels using a pre-defined mechanism to set a fair and reasonable price.
Putting a contract management team in place is more challenging. Since the contract management role is often a significant shift your staff’s current roles within the organization, it requires a careful matching of skill sets and even culture. Your contract manager must change from managing resources to managing results and focus on the strategic issues that add value to your company.
Develop new job descriptions that outline the change in roles and responsibilities. Provide them with guidance on the intent of the outsourcing relationship and the workings of the contract, service levels and performance management framework and give them training or coaching on contract management principles.
The role is essentially managing and administering the contractual relationship between your corporation and your service provider to achieve the results you require.
With a combination of well defined service levels, structured performance measurements and effective contract management, your outsourcing initiative will deliver the benefits you expected, including getting the correct level of service and successfully supporting your company’s core business.