“What can firms do to ensure that they are appropriately compensated for lost time when their hosted CRM system goes down? Uptime guarantees and service-level agreements are standard with most traditional hosting providers, but some software-as-a-service (SaaS) specialists — like CRM SaaS leader Salesforce.com — have yet to standardize a service-level agreement (SLA) that reimburses customers for unplanned downtime. “Companies should review existing contracts to understand what guarantees exist and negotiate for additional clauses in new contracts that include compensation for unexpected downtime,” says Liz Herbert of Forrester Research.
As Herbert notes in the research report, “Salesforce.com: Time for a Standard SLA,” when it comes to outsourced IT services, SLAs with penalty clauses are the norm. In asurvey of nearly 400 large organizations conducted by Oblicore in August 2005, 88 percent of service provider SLAs included penalties for missing performance guarantees. Over 75 percent of respondents identifying themselves as service providers indicated they had paid penalties over the past 12 months.
Unfortunately, SLA penalty payments, even when substantial, seldom overcome the consequences of service delivery problems.
When outsourced CRM — or any outsourced IT service — fails to consistently meet service commitments, buyers will leave one provider for another — or take services in-house. In its “2005 Global IT Outsourcing Study,” research firm Diamond Cluster notes, “The number of buyers that have abnormally terminated an outsourcing relationship in the past twelve months has more than doubled to 51 percent today versus 21 percent a year ago.”
For many organizations, changing providers won’t solve the problem. Instead, what buyers of outsourced services and service providers need are meaningful performance metrics and a mechanism for continually monitoring and reporting on service delivery that drives “just-right” service.
Measuring What Matters Most
What Diamond Cluster and other analysts have learned is that few organizations enter into outsourcing arrangements with meaningful insight into their own service delivery metrics. Furthermore, very few organizations have evaluated the business impact of their services prior to outsourcing.
Negotiating service contracts without knowing what matters most drives the creation of SLAs or underpinning contracts (UCs) based on unrealistic, unmeasurable or meaningless performance indicators. This sets the stage for disappointing results for buyers and penalty payments for providers.
The process of measuring service performance and evaluating its business impact involves efficiently managing SLAs and, in some cases, complex service chains composed of many interdependent UCs. For example, a call center SLA may involve measures of response time for problem resolution. These could be tied to the performance of a CRM package, WAN, billing system and other related technologies. To achieve just-right service, all underlying systems and processes associated with each service commitment must function correctly.
Many businesses today recognize the need to measure, manage and communicate IT service levels more scientifically, a process commonly known as service level management (SLM) or sometimes business service management (BSM). However, more often than not, SLM is improperly automated or not automated at all — despite the fact that business performance, competitiveness and profitability increasingly depend on it. This creates a service-delivery gap that affects service providers/outsourcers and enterprises alike.
As a result of the service-delivery gap, outsourcers face shrinking margins. They lose money when penalties are imposed for missing service commitments. Their costs rise when they compensate for service-delivery problems — real or imagined — by over-delivering or over-provisioning services. Some will experience public embarrassment or litigation when high-profile customers cancel underperforming contracts.
The service-delivery gap also creates significant problems for the enterprise, which instead of saving money and becoming more agile may experience greater management and operational costs, lost productivity, degraded customer service and, ultimately, lost customers. Regulated firms may also face compliance headaches with associated legal and operational problems.
To close the service-delivery gap and meet their obligations, businesses need to be much more scientific about linking the service levels of IT-powered business processes to desired business outcomes, defining service-level targets and then meeting these targets predictably and cost-effectively. In short, businesses need to reach “guaranteed” service delivery. Being able to consistently meet service-level targets and prove it is a big part of sustaining competitive advantage.
The Next Wave for SLM
For the most part, SLM has not kept up with the business of outsourcing and, instead of driving better services, is often holding back progress. For outsourced service providers, one of the big issues has been the prolonged insistence by enterprise service management (ESM) vendors that their technology platforms are SLM solutions.
Large ESM vendors claim their products address the problem of managing outsourced service delivery, but they approach the problem from the wrong direction. For almost 10 years, they have been attempting to make their products less infrastructure-focused (bottom up) and more relevant to the business and business processes (top down).
The evolution of ESM tools has been hampered by the constraints of their bottom-up “element management”-based architectures (derivative of network management), which were developed in the client/server era of the early 90s. These tools lack the required business focus and are neither integrated nor complete in their approach to automating the service management process for call centers and other complex, mission-critical business processes that span multiple systems and applications. Furthermore, they lack the ease of use and best practices required for rapid deployment.
Fortunately, there is a new wave of innovation in SLM. Rather than starting with the technology platform, forward-looking organizations are starting the SLM process with the business commitments they have made. This business-focused approach is supported by a new generation of SLM solutions that take a top-down approach built around the actual terms of each outsourcing contract. The goal is to know what the company has committed to in terms of service levels for each customer and then actively monitor and manage the underlying IT systems, processes and people involved in service delivery.
Given the complexity of today’s IT systems and global operations, the key is to create a centralized repository of service performance data, pulled in real time from across the organization, and a dashboard for ongoing visibility into how performance compares to commitments. As service providers embrace this approach and deploy solutions that finally automate the SLM processes, they can see, on a daily or even hourly basis, whether they are getting the job done — and, if not, specifically where the problem lies.
As a result, they have the power to see trouble coming and head it off at the pass to protect themselves against the unexpected penalties and soured customer relationships that hamper outsourced services.
Jack Freker, is chief executive officer of Oblicore, a leading service level management software company.