By Sara Cullen

Your outsourcing contract is in place and things are moving along. But how do you assess how well your provider is doing?

Organizations that are veterans at the outsourcing game know that the success of a deal is not one-dimensional. They know that outsourcing is not an end goal in itself, but rather a way to achieve any number of goals. They also know that it is unwise to assume that goals are achieved inherently upon signing an agreement; progress needs to be measured and tracked. Since outsourcing is rarely a reversible option and can consume a large part of the budget, management’s ability to drive and demonstrate success has become a basic expectation. One successful outsourcing measuring tool is the contract scorecard. The scorecard establishes not only the quality of the service, but also the financial outcomes, how the relationship is functioning and if the deal is achieving its strategic aims – in sum, assessing the overall success of the deal from a holistic view. The four components used to assess a successful outsourcing deal are service quality, financial, relationship and strategic.

Service Quality

Service-quality key performance indicators (KPIs) are the operational metrics representing the basic outcomes of service delivery. It is rare to find a deal without these metrics. Elements to assess include the following:

• Accuracy – Whether information is correct.
• Reliability/availability – Whether service is accessible (for example, uptime/downtime, abandon rates, outages).
• Completeness – Whether activities are done in full (ie. data entry, processing, documentation).
• Efficiency – Whether work is done fast.
• Response Rate – Whether reactions are fast (initiation, turnaround, resolution).
• Timeliness – Whether deadlines are met.
• Satisfaction – Whether users/customers are pleased.

Financial

Financial KPIs are monetary metrics comparing current costs with different fiscal points. These fiscal points can be past data, costs under previous service delivery regimes, current market rates, and the effect on overall costs. Historical cost is the most popular fiscal point as it is often the easiest to measure.

THE FOUR COMPONENTS USED TO ASSESS A SUCCESSFUL OUTSOURCING DEAL ARE SERVICE QUALITY, FINANCIAL, RELATIONSHIP AND STRATEGIC

Examples of current cost comparisons include:

• Historical – Compared with previous periods.
• Baseline – Compared with an agreed baseline (when the services were insourced or when they were performed by a different service provider).
• Competitiveness – Compared with market rates (assessed through benchmarking).
• TCO (total cost of ownership) – Contribution towards reducing (or, conversely, escalating) the entire supply chain, total asset cost or total technology costs.

Relationship

Relationship KPIs are perception metrics assessing behaviors exhibited by both parties. These are ‘soft’ metrics in that they represent the parties’ opinions and are thus not open to ‘disputes of fact’. If one party’s perception is not what the other party believes is appropriate, often what is required is better communication in order to change the perception. These metrics are becoming more popular as organizations learn that a dysfunctional relationship is often a leading indicator of cost or service suffering.

Examples include the following:

• Communication – Frequent and honest.
• Meeting Needs – Proactive and reactive.
• Creative Solutions – Better ways of doing things.
• Conflict Resolution – Focus on solving problems.
• Management Time – Provide time and focus.
• External Relations Cohesion – Project a united front and don’t discuss issues outside.
• Industry Model – How others see the relationship.
• Positive Interaction – Enjoy working together.
• Integration – The supply chain appears seamless.

Strategic Metrics

Strategic KPIs are high-level metrics that demonstrate results beyond the letter of the agreement. These metrics apply if there is a bigger picture to the deal than merely the exchange of cash for services.

They include the following:

• Objective Achievement – The degree to which the reasons for outsourcing are being met (eg. core focus, innovation, standardisation).
• Innovation – The introduction of better practices, enabling applications (purpose-built intranet, online services) and business improvement ideas.
• Business Contribution – Goals beyond just the exchange of cash for services (e.g. joint product offerings, R&D initiatives, knowledge transfer).
• Corporate Alignment – the extent to which the service provider conducts business in line with the client’s wider goals.

The Dashboard

Results tend to be published on a high-level ‘dash- board’, supported by a report covering the detailed metrics, root causes and actions required. Once the deal is bedded down, it is easy to just let it run. An organization’s choice to use a scorecard approach will depend upon how actively it wants to ensure that the desired outcomes are achieved.

Reprinted with permission from ABIE Source