With media sources reporting that online retail is continuing to increase and more people engaging with retail and fashion in a multi-channel way (e.g., via mobiles and tablets), we are seeing even greater business scrutiny of the availability and performance of core information technology services. Retailers are looking at their IT, trying to identify ways to work more efficiently and effectively with their internal and external delivery teams, in order to support changing business needs.
How can retailers work with their suppliers during their contract discussions to drive improvements in availability and service robustness, while at the same time, creating contracts that flex with retail business requirements?
Making Service Levels Work
When preparing any service level regime its generally helpful to bear the old adage “quality over quantity” in mind.
The service level metrics need to be easy to work with, so we would typically recommend focusing on a small number of key service levels. They should seek to identify issues which will create a pinch for retail businesses, but, similarly, ensure that any service level regime is inherently flexible (so as to allow for the promotion and/or demotion of services levels, service credit points or percentage pool allocations to reflect changing business need). From a supplier perspective, however, this may need to be subject to a cap on the aggregate number of service levels, or the extent of changes which can be imposed rather than mutually agreed.
It is important to identify what the service requirement actually is. For example, maintenance windows for a core application in the early hours of a Monday morning may be acceptable to a retail business during most of the year, but the sales cost of downtime for the same period in December may well lead to adverse scrutiny of the IT department and its suppliers alike.
In the same vein, it may be that most of the year, on a 24/7 measurement basis, 99.9 percent availability (which equates to roughly 10 minutes of down time a week) for a given IT service/application is sufficient. In peak periods, however, when customers may go elsewhere if they can’t make their purchases, the lost sales cost of the same 10 minutes may be significantly more. While a business may not require “gold plated” availability (with a corresponding price tag) for most of the year, one should accordingly consider whether, like other parts of retail businesses, IT service delivery arrangements can be structured around peak trading periods.
Building Flexibility into Motivational Models
At its simplest, this can mean having a higher service level at different times of the year (e.g., so fewer – or no – Priority 1 incidents are not resolved within the given fixed time), or changing the requirement altogether (e.g., so the fix time for the same Priority 1 incident becomes shorter). Equally, one can look at reducing down time by placing a freeze on all non-essential maintenance unless signed off by both parties’ IT change board.
Another means of achieving this, may involve looking at the consequences of failing to meet the service level, rather than the service level itself. Often, we see customers seeking to apply a multiplier to any service credit points, percentage allocations or flat rates, with the effect of increasing the service credit accruing as a result of any service level failure, if that the failure occurs during a defined peak period.
Also consider the “response and updating requirements that sit alongside, for example, Priority 1 and Priority 2 incidents if issues are escalated to senior levels, more quickly, during peak times, then the spectre of executive involvement can drive both supplier and customer to work together to quickly implement workarounds and ultimately, full fixes.
It doesn’t have to be all stick as opposed to carrot though. In some cases, it can work to agree on a positive motivational scheme which applies during peak periods , provided that the scheme is clearly structured and easy to administer. Taking the example of the 24/7 availability service level described above, it may be that 10 minutes of weekly downtime is tolerable for most of the year, but during seasonal sales periods there is a tangible (and possibly even quantifiable) business benefit of a service being delivered to 99.99 percent availability (so only just over 1 minute of downtime over the week), with a resulting increase in online trade.
Rather than pegging the service level at the higher level and paying for a quadruple-nine service all year round, one may accordingly want to consider whether the service level could be pegged at the lower level, with the ability for a supplier to earn a bonus payment, if it can deliver to the higher level during the customer’s busiest period. Alternatively, if the platform or application is simply not able to function at these levels, retail businesses could consider rewarding suppliers via gain share, if a supplier is able to identify and successfully implement initiatives that improve the level of operation.
Creating a model which flexes and adapts can be a useful means of ensuring that IT systems meet commercial expectations and trade requirements. Service motivation, at its best, encourages both retail businesses and their suppliers to work together, and the means of achieving this described above, are just examples of the levers and dials to consider.