Demonstrating IT services’ value-for-money is now firmly on everyone’s agenda. I attended an excellent session at this year’s Housing Technology conference where the finance director of a London housing association provided great insight into what is important at an executive level; one of the key points he made was, “How will IT, and the suppliers we use, help me achieve my business objectives?”.
All housing providers rely on third-parties, therefore getting the best from key suppliers is a critical ingredient in meeting that challenge. Our experience of helping clients develop and improve supplier relationships shows that simply relying on a contract rarely produces the desired outcomes. This article offers some ideas that can be applied as needed to fit the size and scale of your IT estate and supplier contracts.
Defining your expectations
IT suppliers segment their customers so why not segment your suppliers? Start by ranking relationships into groups such as ‘strategic’, ‘key’, and ‘important’. Don’t assume that all high-revenue contracts are strategic; instead build a simple scoring matrix with additional criteria such as linkage to core business processes or plans, business or financial impact of non-performance, and ease of substitution. A ‘strategic supplier’ is one that your business could not survive without or is crucial to achieving the business strategy, and applies to a limited number of suppliers. Also, be impartial – don’t let a great relationship influence your assessment of a supplier’s ranking.
The rankings will identify where an enhanced relationship model is required and this should have a degree of formality as it demands commitment from both parties. Document what you expect from the relationship: who needs to be involved from executive to operational levels; the sharing of business and account plans; supplier capability beyond technical expertise; how the teams will work together; how both parties will manage risk; resolution of relationship issues; and, lastly, regular relationship reviews outside the operational review structure.
Once the model has been established for strategic or key relationships, the next step is to articulate the outputs and measures that will demonstrate whether performance is improving business efficiency. Alignment to business outcomes means going beyond technical or service performance measures, although these are important and in some instances all that is available or appropriate.
Business measures to add to technical metrics might include: improving customer satisfaction ratings from internal and external users of your systems or services; financial performance improvement such as revenue per employee or a reduction in arrears; shorter call centre resolution times; and, continuous improvements such as a reduction in costs over the contract life-time or incremental improvements in service levels.
Once these are agreed, contracts or sourcing processes can be structured to suit, to include the commercial and service level requirements as well as the ability to change the measures as the business need evolves. Potential suppliers will respond better to being measured, and paid, on business outcomes if the revenue triggers are clear and the benefits and risks shared. These commercial structures need agreement within the business as they could lead to paying more for the benefits delivered or improved service.
Changing existing IT contracts may not be possible but that shouldn’t prevent you engaging your top suppliers in a conversation about applying some of the relationship principles and focus on achieving business outcomes.
Questions to ask
Aside from technical capability, a major influence on performance is the account manager and their team. Find out how the account teams and managers are incentivised and align those measures to your needs – use the relationship model to define the account manager role and have the final say on who is appointed, and do likewise for critical account team roles. Share the relationship model during appropriate sourcing projects and ask the supplier to commit to the permanent account team being part of the ITT process and continue all the way through to operational service. The benefits can be initial joint team development, an ability to fix issues, and early performance ownership to those responsible for delivering the ‘live’ service.
In addition to requesting certificates and accreditations, ask to be shown how they apply internal quality controls. Maintaining high performance is a function of an embedded approach to continuous improvement of processes and services. Ask them to share the measures that they apply to themselves with example reports, and to provide evidence of how their internal controls have identified problems and then verified that changes have created and maintained improvement. Remember too that suppliers face similar business challenges to their customers, opportunities that could lead to mutual benefit.
Defining the acceptance criteria follows on from setting the performance measures and metrics, with the additional step of agreeing the trigger points for payments. The trigger points will usually be milestones (the end of a project stage or x% complete) or governed by a quantitative (a certain number of users, sites or customers) or qualitative (systems or services operating at specified performance or throughput), and making them simple and unambiguous will help foster trust and easy agreement.
The trigger points can also be used to build penalties into the agreement, for example non-achievement of the trigger point by a certain date. In this case, suppliers will want to ensure that risk is shared if they are dependent on the customer completing activities and there will also be a need to consider tiered payments for interim or variable achievement of the metrics. Rather like performance-related pay, suppliers will often agree to link a proportion of their revenues to the measures.
As mentioned above, successful relationships and performance require commitment from both sides – once the contract is in place, many organisations underestimate the effort involved in proactively managing their top suppliers. The effort required is reduced by doing the work up-front in terms of the relationship model and the metrics, both of which can be used to track performance at regular intervals.
There will also be a need to stand back from the day-to-day perspective and review the status of the overall relationship. Some suppliers call this stewardship, others ‘total account management’ or governance – whatever it is called, it is the mechanism to review the wider picture and confirm that the relationship remains aligned to its original purpose, that the right people and capabilities are engaged, and an opportunity exists to modify the model as appropriate.
Neville Brown is managing director of Itica.