11 Reasons Outsourcing Relationships Fail – Continuous Improvement is Ill Defined or Not Included in the Contract

In the first article in this series, I outlined the 11 most common failure modes for IT outsourcing relationships.  These are summarized below for your reference:

• The vendor over-promises, and fails to deliver on their commitments
• The client fails to exercise proper governance over the vendor contract
• The vendor underprices the contract and fails to earn a profit
• The contract fails to align vendor with client goals and objectives
• Vendor reports contain raw data, but rarely include proper diagnosis
• The client does not understand the metrics included in vendor reports
• Both client and vendor view the contract as a zero-sum game
• Vendors spin data and reports to cast themselves in the most favorable light
• Continuous improvement is ill defined or not included in the contract
• Vendors experience extremely high turnover on a client project
• Vendors and/or the client do not adequately train personnel

In this tenth installment of the series, I will address the challenge of Continuous Improvement in managed service contracts.

Continuous Improvement

Continuous Improvement is a catchall phrase that everyone seems to understand. In theory it’s a great idea.  A managed service provider wins a contract and steadily improves their performance over time.  In practice, however, most service providers fail to deliver on the promise of continuous improvement.

Continuous improvement in IT service and support can manifest itself in numerous ways.  For example, a sustainable and steady uptick in customer satisfaction represents continuous improvement.  Likewise, a steady uptick in first contact resolution rate is another measure of continuous improvement.  But there are less obvious ways that a service provider can deliver continuous improvement.  For example, what about continuous improvement in price, where the vendor reduces their price by 10% each year for four years?  An increasing number of managed service contracts contain such a provision.  Most contracts also contain provisions for maturing specific ITIL practices, such as problem, incident, and knowledge management.

So, why do so few providers of IT services actually deliver on the promise of continuous improvement?  There are three primary reasons: 1) Lack of specificity in the contract about continuous improvement, 2) Failure of the client to enforce the continuous improvement provisions in the contract, and 3) Lack of metrics to monitor continuous improvement.  Let’s address each of these common pitfalls.

Every outsourcing contract should contain a section on Continuous Improvement.  This section will include where the client can expect to see improvements, how the improvements will be measured, and the vendor debits (penalties) for failing to achieve the specified continuous improvement targets.

For easily quantifiable metrics such as CSAT and FCR, specifying continuous improvement is straightforward. The table below has been excerpted from a recent service desk outsourcing contract, and illustrates the expected improvements in key metrics over the life of a four-year contract.

Not all continuous improvement is as straightforward as this example implies. Improvements in shift left and key ITIL practices, for example, may seem harder to quantify and implement, but that’s only because the metrics used to measure shift left and ITIL are not well known.  Nevertheless, there are diagnostic metrics for shift left, and problem, incident, and knowledge management that enable us to measure improvements in these areas.

Shift left can be measured by several metrics such as First Level Resolution Rate, Total Ticket Volume at each level of support, and Total Cost of Ownership.  Likewise, problem management can be measured by the reduction in Ticket Volume per User per Month and the reduction in Total Cost of Ownership.  The table below, excerpted from the same contract as the table above, illustrates how managed service providers can be held accountable for continuous improvement in shift left and problem management.

Finally, none of this matters if you are unwilling to enforce the terms of the contract.  So, to reiterate a point I made about governance in the third installment of this series, it requires strict governance and a willingness to hold your vendor accountable if you expect to see continuous improvement in key processes such as shift left and problem management

Some Final Thoughts on Continuous Improvement

Continuous improvement in IT service and support is not just wishful thinking.  Nor is it theoretical or aspirational.  It is something that is very real, and something that you should not only expect, but demand from your service provider.

The key to realizing continuous improvement in your managed service contract is to be very specific about what you expect from your service provider vis-à-vis continuous improvement, quantify the improvement targets, and then enforce the terms of the contract.  It’s really that simple.

Here are two additional resources that may be helpful as you seek to drive continuous improvement in shift left and problem management:

• • Shift Left
  • Problem Management