IT Services S uccess Through Visibility and Viability

1. IT ServicesSuccess Through Visibility and Viability Peters Vecrumba

2. Abstract • Outsourcing works against success when it pits client and provider against each other on an adversarial cost basis. A stable successful outsourcing relationship promotes both client and provider viability. • The current generation of managed services is a pricing model for traditional commodity services. Critically, by restricting client visibility into provider activities, this delivery model inhibits proper governance and increases risk. • Successful outsourcing relationships are built on a foundation of governance and partnership. Transparency between parties fosters trust. Aligned client and provider success metrics drive rewards and behavior while measures relevant to business viability highlight and track positive outcomes. Empowered governance preemptively resolves problems, increases client satisfaction, and improves service.

3. Stereotypical Outsourcing Success • To succeed, the client needs to Reduce operational expenses Eliminate bespoke inefficiencies and employee-related overhead • To succeed, the provider needs to Generate margin through predictability and standardization Decompose services into simple reusable repeatable domain tasks Limit service delivery to the minimum common across all domain clients Reduce skills required Minimize staff salary and ramp-up costs “Outsourcing to a best-in-class provider will drive business efficiency and agility.” “This is our standard MSA. Changing it will trigger customized services pricing.”

4. Today’s Value = Tomorrow’s Commodity Process + Skill + Action  “Label”Commodity Client’s cost reduction expectation Provider margin Gap Client’s implicit service expectation Provider’s standard services agreement

5. Challenge of Service Metrics High relevance to business viability Precise, easy to define, quantify and measure Value of measures as manifestations of business viability Decomposed,repeatable tasks:well understood, easilymeasured Approximate Services most readily outsourced Low relevanceto business viability

6. Measurements Define the Relationship Successful outsourcing links client and provider viability Clientviability Providerviability Positiveoutcomes Synergy Throughput Latency Dimensions of business viability * * Jamshid Gharajedaghi, Systems Thinking: Managing Chaos and Complexity: A Platform for Designing Business Architecture (Burlington: Elsevier, 2011), 205.

7. Managed Services Model Client pays Provider saves • “Output- and outcome-based service delivery and commercial models are likely to work well when a majority of the following conditions are • satisfied:* • “The proposed work is standardized and can be offered by the service provider in a repeatable manner on a sustained basis. • “The scope of work can be decomposed into smaller units of work/consumption (e.g., tickets, applications, devices). • “The proposed work is sufficiently large to allow economies of scale. • “The buyer is willing to transfer some control to the service provider. • “The service provider will have adequate rights to proactively optimize processes, technology and people.” $ $ KPI SLA Provider services agreement Service delivery activities observed and measured SLO KPI SLA Provider takes control for a share of the pie Moves services pricing debate away from pure cost but eliminates visibility into service delivery internals, inhibiting governance thereby increasing risk # # Commodityin & out * Cognizant whitepaper, Output- and Outcome-Based Service Delivery and Commercial Models, April, 2014.

8. Active Governance Model • Client-provider partnerships at all organizational levels build common purpose and understanding. • Client governance is an empowered ombudsman representing the interests of both client and provider, acting to ensure success. • Due diligence prevents unviable initiatives. • Co-branding and regular delivery site visits foster shared identity and staff commitment. • Coupling client and provider personnel recognition and rewards to business viability measurements promotes teamwork and ongoing service improvement. Governance enforces Drive & influence Aligned & linked

9. Lessons Learned • Outsourcing is stereotyped as a cost competition between client and provider—we still conduct most negotiations as a zero-sum game. • Outcomes-based managed services pricing shifts negotiations away from the zero-sum meme. However, this delivery model largely removes the governance essential to sustain viability. • To foster long-term outsourcing success, strive to: • Measure outcomes by indicators relevant to business viability; • Align client and provider success metrics, goals, and rewards to ensure cohesive individual and organizational behavior; • Formally tie client and provider compensation and recognition programs to viability indicators to drive service focus; and • Create contracts which incorporate specific processes, measurements, and structures essential to nurturing viable relationships—and less on what is easy to count and associated legal remedies when those counts fall short.

10. Postscript: The Partnership Challenge Comparing how often Sun Tzu (The Art of War) and Dale Carnegie (How To Win Friends and Influence People) have been mentioned in books since 1900 reflects therise of conquer over partner as a strategy for—and definition of—success. Our greatest challenge is cultural, not technological. Peak coincides with the Cuban missile crisis.At least one U.S. military commander described Soviet leadership as “slavish followers” ofSun Tzu’s doctrines.* Challenge Carnegie publishedHow to Win Friends and Influence People in 1936. * Michael Dobbs, One Minute to Midnight: Kennedy, Khrushchev, and Castro on the Brink of Nuclear War (New York: Knopf, 2008), 266; Statistics via Google Labs NGRAMS