11 Reasons Outsourcing Relationships Fail The Contract Fails to Align Vendor with Client Goals

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 fifth installment of the series, I will address the problem of vendor and client misalignment of goals and objectives

Misalignment of Goals and Objectives

We hear the terms alignment and misalignment so often that they have become a cliché.  But cliché or not, vendor contracts and vendor behaviors that are not aligned with client goals and objectives are a serious problem in this industry.  To be aligned simply means that the vendor and client are pursuing the same goals, and that there is no conflict of interest in pursuing these joint goals and objectives.  One need look no further than client satisfaction surveys to realize the extent of this problem.  Client dissatisfaction with their ITSM outsourcing vendors is at an all-time high!  Why is this, and what can be done about it?

First, let me be clear about where our client satisfaction data comes from.  I am not talking about the customer satisfaction surveys that are sent out by the ITSM system whenever a ticket is closed.  Those surveys measure user satisfaction. What I am talking about is client satisfaction, which measures the overall satisfaction of the client organization.  Typically, the contract manager, as described in Part III of this series, would complete such a survey.  Surprisingly, this metric is rarely measured by vendors, perhaps because the results tend to be so dismal.  Last year, end-user satisfaction with outsourced ITSM services was almost 80%, while client satisfaction was barely 60%.

If I were to summarize what every client hopes to achieve through outsourcing, the following would be at the top of the list:

• Comply with all goals, targets, and objectives specified in the contract.
• Reduce costs over time through problem management, self-help/self-service, automation, and shift left.
• Improve quality of service over time by improving First Contact Resolution Rate (FCR), and reducing Mean Time to Resolve (MTTR).
• Mature key processes, including problem, incident, and knowledge management.
• Implement automation technologies, including voice and chat bots, endpoint bots, and machine learning AI.

It sounds pretty simple; and it is!  Yet vendors in the ITSM space fail to fulfill all five of these objectives almost 95% of the time!  And herein lies the crux of the issue. When an outsourcer falls short on any of these five objectives, a misalignment has occurred.  Let’s unpack each of these five big goals, discuss why vendors so often fail to achieve them, and what can be done about it.

First, contract compliance was discussed at length in Part III of our outsourcing series.  This is the single biggest failure point for most vendors.  But it can be rectified through proper governance and oversight of the vendor.

Secondly, cost reduction that is driven by problem management, self-help/self-service, automation and shift left is written into virtually every contract.  Yet once a contract goes live these objectives tend to be ignored because they fall into the category of “soft goals”, which are unenforceable because they have no performance targets.  Once again, in Part III of our series I discussed the importance of assigning hard targets to soft goals.  Additionally, most vendors view cost reduction for the client as revenue and profit reduction for their own bottom line.  This fallacy is the result of zero-sum thinking, where the vendor assumes that any cost reduction for the client will be at the expense of their own profitability.  However, as you will see in Module VIII of our series, the industry is not zero sum, and it is not only possible, but highly desirable for vendors to reduce their costs over time and to pass those savings on to the client.  This can be achieved through appropriate pricing mechanisms that produce lower costs for the vendor, and hence lower prices for the client, while simultaneously maintaining the vendor’s absolute profitability.

Thirdly, virtually every contract in the industry contains a section on continuous improvement.  So, why do so few vendors actually improve once a contract goes live?  One key reason is that continuous improvement is rarely quantified.  There is a big difference, for example, between a contract that specifies a performance target of 76% for First Contact Resolution Rate, and one that specifies a year one target of 76%, a year two target of 80%, a year three target of 84%, and so on.  The second reason is lack of contract enforcement.  Here again, contract governance, as discussed in Part III of our series, is the antidote to vendors who fail to improve their performance over time.

Fourth, maturing key processes is generally low on the list of vendor priorities because they don’t get paid directly to do this.  But maturing processes can be thought of as a soft goal, just like automation and shift left.  So, if you really want your vendor to improve process maturity, quantify it!  What would that look like? For problem management, you can specify a performance target of reducing agent-assisted tickets per user by 1% per month.  For knowledge management, you could specify that a knowledge article be attached to every ticket, and that a certain number of new articles be created each month.  And for incident management, you could specify that ticket routing/escalation is accurate 95% of the time.

Finally, automation technologies are the Achilles heel of every vendor.  They all talk a surprisingly good game on automation, but there is a vast gap between their rhetoric and the reality.  Here again, most vendors view automation as a conflict of interest because it reduces their workload, and hence their revenue.  However, the discussions above contain the solution to this problem.  First, put a hard target on it.  For example, AI/machine learning will handle 7.5% of all customer tickets in year one of the contract, 15% in year two of the contract, and so on. Secondly, create a pricing mechanism that does not penalize the vendor for automating your support environment.  And Thirdly, enforce the contract!

Some Final Thoughts on Vendor Alignment

Vendor misalignment with client goals and objectives is a common malady in ITSM outsourcing.  But it is surprisingly easy to fix.  It requires good governance, a hard target for every performance objective, a pricing mechanism that does not penalize the vendor for reducing ticket volumes, and a willingness to enforce the contract.  By following these simple guidelines you can bring your vendor into alignment with your enterprise goals and objectives, and become part of the small but growing cohort of vendors and clients who enjoy a true win/win relationship.