Establishing a productive partnership

Managing Service Delivery Relationships is a Challenge

(This article was kindly contributed by my friend Peter Hind who runs Hindsight Forum in Sydney and Melbourne. It is a vendor free forum where technology managers come together and share their experiences. )

Increasingly the task for many information and technology departments is to evolve their activities from being the doers to becoming the managers of the doers. This evolution has been driven by both the steady use of outsourcing and the burgeoning popularity of Cloud computing. With many organisations now in their third iteration of outsourcing and with the service delivery model for applications and infrastructure gaining traction the challenge is to ensure that the agreements that govern these relationships are effective.


This was the impetus behind a recent request to the HindSight Helpline. A senior IT executive was seeking the thoughts and ideas of his peers as to what to include in a renegotiated managed service agreement. He obviously knew that he needed to establish some key performance metrics, (KPIs), by which the arrangement could be managed. However, he was particularly interested in hearing of some of the left-field approaches that others had taken to make the partnership more effective.

Focus on things that matter

What mattersThe HindSight Forum was able to interview five senior IT executives to get their thoughts on these matters. There were a number of common threads that ran through these discussions. In particular, it was stressed that the aim of any managed service agreement should be to realise desired business outcomes. This requires the client to focus on the few things that really matter rather than constructing a broad agreement to try to address every possible eventuality. The advice was that if you were monitoring a lot of activities satisfactory service delivery in a minor area diverts attention from problems in more critical aspects.

Seeing the Service from a Client View

perspectivesThis approach also requires the service provider to see that service through the eyes of a client who uses it. For example a service might be up and available but if the response times are dreadful it is clear that something needs to be done as that business outcome is unsatisfactory. This requires an agreement to be structured in such a way that a vendor can be proactive in addressing these circumstances. However, it clearly is not easy inculcating this mind-set in vendors. Many of their staff who oversee these arrangements on a day-to-day basis tend to see their contribution is terms of their technical proficiency. This means they can have a ‘break-fix’ mentality. They are excellent at responding to a problems but not to when it looks like a problem might occur. One of those interviewed suggested that clients should use incidents that eventuate as “case studies” where a review between the client and supplier can provide insights to help show the vendor support staff how they could have better responded in terms of helping facilitate an enhanced business outcome.

Penalties or Incentives?

The other area where there were strong views was in the area of penalties. How do you impress on a supplier that they need to improve their game? It was seen that penalties, typically a reduction in the agreed monthly service fee, inflict some pain and that suppliers will respond to ensure this does not happen again. However, these instances are seldom straightforward. Suppliers could be impacted by things outside their control, (e.g. the performance of a third-party), and often the full impact of any change can only be fully understood in a production environment. Moreover, there was a strong sentiment through the discussions that two heavy a focus on penalties could be counter-productive. They might create an ‘us’ and ‘them’ mentality that jeopardises the spirit of co-operation which is required for an effective working relationship.

How to use penalties effectively?

As such, there were a number of suggestions made about how to better apply penalties. It was recommended holding back on them in the early days of a new agreement to enable the supplier to find their feet and any wrinkles in the specifications to be ironed out. Another suggestion was to ensure that penalty revenues go in to a holding account. The client can then decide where the monies are spent. For example the client may feel that problems are occurring because of a lack of experience with service management disciplines like ITIL among the vendor support staff. As such, they may stipulate that these monies are to be invested in training these employees in these areas.

Mix of penalties and incentives

Another creative appCarrot & stickroach was to mix both penalties and incentives. Incentives represent an additional percentage of a regular monthly fee and are awarded for fulfilling a desired action within a stipulated timeframe. Examples given were: undertaking post-incident reviews within two days of the incident; delivering quotations within three days and the on-time delivery of a specific work request. The CIO said that his IT department worked in tandem with the supplier to deliver an effective ICT service to the business. The areas where the incentives were earned were those where, in the past, business had expressed frustration about IT’s responsiveness. This CIO was very positive about his experiences with incentives as a way of influencing desired behaviour in a supplier. They offer the vendor a chance to earn revenue ‘cream’ that stands their staff in a good light with their management while they avoid confrontation that is evident when a penalty is imposed.

Effective Agreements Take Time

It was clear from the dialogue that creating structuring managed service agreement with a key supplier takes time. The agreement needs to be seen as an evolving document whose intent is to ensure the IT department and its partners deliver what the business needs. This entails a series of small steps that better refine the working arrangements to help achieve these goals. In addition, it was stressed that the document needs to be negotiated in a spirit of good faith. It requires a sense of collaboration and co-operation between both parties. The aim is to structure an effective working relationship that enables the IT department and the service provider to deliver a robust working service for the benefit of the business.

One Reply to “Establishing a productive partnership”

  1. Hi Hemanth,

    very nice article and i really see the benefits of mixing Penalties and Incentives to get better service from suppliers. I often see a bit complacency and less motivation to offer superior service to the clients. One of the reasons i see the SLAs are not clearly outlines or not appropriately governed from the client side

    Thanks for the insights and hope to see more in spite of your busy role at Cuscal

    Best Regards,

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