Out-Law / Your Daily Need-To-Know

IT buyers wrong to evaluate supplier performance solely on service levels, says expert

Out-Law News | 28 Jan 2014 | 11:45 am | 2 min. read

Businesses that buy IT services from suppliers should not assess those suppliers' performance based entirely on their adherence with service levels stipulated in the outsourcing contract, an expert has said.

IT and sourcing specialist Clare Murray of Pinsent Masons, the law firm behind Out-Law.com, said that a service level regime alone is unlikely to be sufficient to drive the right supplier behaviours and, for example, to deliver a major transformation programme.

"A trusted customer supplier relationship is key to the success of a major IT programme," Murray said. "To achieve this, it is important to have strong governance and good communication between the parties. If there is a mismatch between the customer's expectations and what the supplier is delivering, relations become strained and projects begin to unravel when the relationship deteriorates."

Murray was commenting after a new survey (16-page / 1.16MB PDF) revealed that most senior executives responsible for outsourcing at large UK companies consider supplier service levels to be indicative of their performance.

Software provider MooD International commissioned a September 2013 survey of 201 senior managers and directors responsible for outsourcing at large UK companies. According to its survey report, 72% of respondents said they evaluate the quality of their relationship with suppliers "entirely or mainly on service levels".

The survey also found that securing cost savings is no longer the main reason businesses turn to outsourcing. Close to a quarter of the respondents said that the main drivers for outsourcing are for either "strategic alignment" purposes (26%) or to achieve "business transformation" (24%). Most respondents (65%) said that cost-cutting was the "original motivation for choosing outsourcing", according to MooD's report.

Murray said that suppliers can have a role to play in helping businesses change the way they do things, such as making the transformation from legacy systems to take advantage of digital innovations.

"There are merits in involving suppliers in strategic decision making as they can gain a better understanding of what businesses are seeking to achieve through a transformational IT project and design services accordingly," she said. "A recent survey by Gartner also highlighted concerns that about half of CIOs have about keeping up with digital innovations. Getting suppliers on board can help ease this burden from CIOs and ensure businesses are at least aware of innovations that could benefit their business, even if they cannot always afford to take advantage of them."

The report also said that 60% of those surveyed said that suppliers should be able to make decisions to drive innovation in their business. However, just a third said that their companies permit supplier decision making. Even where suppliers do have such authorisation just 26% of them actually make decisions affecting their customer, the report said.

The majority of respondents (63%) said there would be additional "commercial benefits" if controls on decision-making with IT customer businesses were relaxed.

Murray said that there is a "balance to be struck" to ensure IT customers "incentivise suppliers to deliver innovation" whilst retaining control over changes to the services provided.

"It is important that buyers give an element of freedom to suppliers to innovate so as businesses can benefit from technology upgrades or better ways of doing things, but because of the costs involved it is also vital that IT customers have robust governance structures in place to ensure such changes are conducive to what businesses are trying to achieve and that changes are affordable," Murray said.