Quantitative measures of supplier performance in the form of service levels are critical in any outsourcing relationship. However, they provide an incomplete picture of how well the supplier is performing and meeting the client's business and IT objectives. A common complaint is that the service levels are green each month, but the client is dissatisfied with the supplier's performance - typically due to the supplier failing in areas that are difficult to measure quantitatively.
To fill this gap, we recommend to our clients that a quarterly "key stakeholder satisfaction survey" be included in the outsourcing contract as a service level. This service level is a subjective determination by the client of its level of satisfaction with the supplier's performance. A meaningful service level credit applies if the supplier fails to achieve an acceptable rating.
Here's how it works. A small group of key client stakeholders - typically senior representatives within IT and the business who are impacted by the outsourcing - meet on a quarterly basis to review and rate the supplier's performance during the previous quarter. Together, they complete a "survey" that evaluates the supplier in key areas, such as account management, operational management, financial management, knowledge management, business enablement and innovation, value of services and overall customer experience. The completed survey will include specific comments, observations, concerns and recommendations for improvement, together with the key stakeholders' overall rating of the supplier for the quarter. The results of the survey are then shared with the supplier's account management team and discussed as part of a quarterly performance review meeting.
The overall rating is on a scale of 1 - 5 based on the key stakeholders' collective determination of how well the supplier is meeting expectations and perceived to be adding value and contributing to client success. A service level credit may be assessed if the supplier is failing to meet expectations on a consistent basis. The amount of the credit is scaled based on the degree to which the supplier is failing to do so. Like other service levels, credits are typically based on a percentage of the supplier's fees for the measurement period.
As might be expected, many suppliers initially resist a credit-bearing subjective measure of their performance. However, our experience has been that most suppliers will ultimately accept this service level. A key element in gaining supplier acceptance of this service level is allaying fears that the client will use this service level as simply a means to trim some money off the supplier's charges each quarter. This often comes through a realization that the client needs to provide honest appraisals of the supplier's performance in order for this service level to be an effective tool for the client to drive improved performance and that performance improvements are far more valuable to the client's business than the amount of any financial credit the client could collect under this service level.
Experience has shown us that a key stakeholder satisfaction service level is a powerful tool for clients to focus the supplier's attention on the areas that matter most to the client and fill the gaps in what can be captured through traditional "objective" service level measures. As a result, we think this SLA should be on every client's "top 10" list of most important outsourcing provisions and is well worth the time and effort spent on negotiations with suppliers to make it part of the contract.