Concentrated on “doing things right”, is your Service “doing the right things”?

Managed Services have long used Key Performance Indicators (KPI) to measure operational suppliers’ performances. These KPI are usually built to quantitatively evaluate the success of specific activities, progress toward a target, or repeated achievements of operational tasks (e.g. percentage of incidents resolved according to a target resolution time). Yet, focused on performance and “doing things right”, traditional KPI may not address the emerging need of agility, flexibility, and customer focus required today.

As a consequence, with the aim of evolving from “doing things right” into “doing the right things”, in the last years we witnessed (and often lead) a transformation of traditional “Performance” KPI into collaborative “Partnership Indicators”, meant to maximize business value (instead of pure operational excellence). For reaching this goal, in addition to implementing all traditional KPI and SLA best-practices, we do suggest considering the following recommendations:

Move away from traditional Win-Lose KPIs, entering a Win-Win scenario!

It is common for Managed Services to include a set of KPI for dimensioning the service. Sometimes called “Service Capacity KPI”, these indicators are meant to track volumes over time and define the economics of the service. The risk posed by these KPI, often detailed in large and complex contracts, is the win-lose paradigm which may be implicit behind them. As a matter of fact, the higher these indicators, the higher the service volumes, which implies higher revenues for the supplier (i.e. Win), but also higher costs and higher issues for the client of the service (i.e. Lose).

Therefore, to address this win-lose mindset, we suggest where applicable to link service pricing directly to clients’ Business targets, instead of operational volumes. Examples we have used in recent contracts include considering a number of end-users and associated revenues among service KPIs, as well as awarding service bonuses for reduction of average issues per customer. All of this for ensuring a Win-Win set-up, where both supplier and receiver of the managed services benefit from shared targets. This monetizes the business impact of the managed service, instead of the sheer volumes of activities.

Embed Customer Experience and Business Impact in SLA

The move away from operational indicators to business-related indicators extends into the need to measure real customer experience. Traditional KPI and Service Level Agreements (SLAs) are often inappropriate for measuring quality perceived by the end user. For this reason, we find it of high value to also include in Service SLA indicators focused on qualitative dimensions, obviously coupled with “standard” KPI, quantitative in their own nature. Examples of ”Key Quality Indicators (KQI)” may include communication effectiveness, proactivity, partnership approach, and any metric impacting end users.

These KQI must be simple to understand and expressed in terms meaningful to end-users, avoiding any technical jargon. Also, while KQIs may also draw input from “informal” and qualitative sources, they ought to be well defined, commercially negotiated, and fully agreed between parties. In our experience, usage of these indicators can secure alignment and shared view on the service quality, enabling management to extend a win-win set-up in the medium and long term.

Keep your focus on what matters most for the final customers!

For embedding a partnership mindset in a managed service, it is also effective to include in performance management all of the KPIs which matter most for the final customers. This means including in the SLA also those KPI which do not fully reside within the responsibility of the managed service supplier. The simple fact of reporting them into the Managed Service dashboards, in fact, positively influences both parties to focus on the end results and foster a collaborative approach.

In addition, with the approach outlined above, the supplier may be incentivized to take proactive actions also outside the initial contractual scope of the service, with the goal of expanding its collaboration in a Win-Win approach. Clearly, these end-to-end KPIs cannot be linked with any negative service economics for the supplier, in case other entities (apart from the Managed Service itself) have a key influence on these e2e results.

Make the contract work for you, not you for the contract!

When Managed Services apply to very innovative domains (e.g. Machine-to-Machine, Next generation Mobility services, and similar) it is usually very complex, if not impossible, to define in advance how the scope of a Managed Service may evolve, both in terms of volumes, service scope, and customer features.

A traditional approach to such unpredictable contexts may be the creation of a huge contract, including all possible scenarios, full of complex algorithms, long lists of thresholds, and massive KPI schema. In such cases, it is unfortunately often the case both for the contractor and for the managed service to “work for the contract” and not for the real business needs, eventually preventing any open collaboration mindset. As a matter of fact, situations may even arise where more time is spent arguing over contract terms & conditions than is actually dedicated to operating the service.

Therefore, our experience suggests adoption of a win-win contractual schema, embedding the needed KPI and SLA completeness, but also the agility to adapt them based on business trends. A practical example, in this direction, is represented by usage of several “dimensioning corridors” with an economics formula able to weight among them, e.g. netting the pricing of an higher KPI vs a different lower one. In very dynamic business context, it may even be effective to anticipate the possibility to review and modify these “dimensioning drivers”, based on actual trends.

Never settle for great KPI results!

Applying an effective KPI and SLA schema can have a great impact on a Managed Service, a Client Business, and therefore a client-supplier partnership. Reporting great KPI results is a success not only for the supplier but also for the managed service client. At the same time, a Managed Service should never settle for actual KPI results, whatever excellent they may be. While celebrating the results achieved together with the customer, it is vital to continuously look forward to achieving further improvements over time.

This approach, characteristic of various Continuous Improvement frameworks, as well as a foundation of any Lean Operations paradigm, must be achieved by coupling contractual challenges over time with strong people and culture interventions. In many cases, a real Change Management program is needed to prepare an organization not used to consistently apply this mindset.

A final reminder

Choosing right KPIs and SLA is of paramount importance for obtaining proper Managed Service results, linked to what is truly important for the business. While operational contracts are still relevant also in modern partnerships, they are no longer sufficient on their own. Future Contracts and SLAs should focus on the key points outlined above, moving forward from “doing things right” to “doing the right things”! This is urgent today, for the managed service business of tomorrow!

To sum-up, these are the key points to remember for “doing the right things”

• Move away from traditional Win-Lose KPIs, entering a Win-Win scenario
• Embed Customer Experience and Business Impact in SLA
• Keep your focus on what matters most for the final customers
• Make the contract work for you, not you for the contract!
• Never settle for great KPI

…and a final reminder