Enterprises Must Look at More Than Costs to Improve Sourcing Deals
Press release from the issuing company
Gartner Analysts to Discuss Sourcing Industry Trends at Upcoming Gartner IT Services and Sourcing Summit
STAMFORD, Conn., March 29, 2002 - Companies are putting more of an emphasis on return on investment, but when examining external services providers (ESPs), enterprises must consider more than just the impact of price, according to Gartner, Inc. (NYSE: IT and ITB).
Enterprises should also examine four key elements of a sourcing deal: service levels and pricing, contract and relationship, customer satisfaction, and alignment and vision.
"By looking at the strengths and weaknesses in each area, and the deal as a whole, an enterprise gains a better understanding of the deal's pressure points," said Lorrie Scardino, research director for Gartner. "The enterprise can then focus on tactics to relieve the pressure points, thus increasing the value delivered via its service contracts."
Service levels and pricing receive the most focus in sourcing deals as enterprises want to be sure that the services delivered meet their business and technical requirements, and that they are being delivered at a reasonable price. Over time, the work and service levels may fail to meet the enterprise's needs, which leads to a determination that the enterprise is paying too much for services and not getting the intended value. Gartner recommends adjusting the scope of work and service levels to meet current business needs, an action that will almost always require a price adjustment.
Most enterprises have a fairly good handle on managing contract terms, but few do well with ESP relationship management. Contract and relationship management must work hand-in-hand to produce and maintain a good, mutually beneficial deal.
"The contract provides the foundation to manage performance and specifies the way in which the enterprise and ESP will officially conduct business, but it will take regular communication to keep the relationship productive, plan for change and deliver value," said Scardino.
Enterprises and ESPs make many miscalculations when it comes to customer satisfaction. Surveys are important to determine how customers view the services being delivered, however they are often overlooked. Gartner finds that most services are not linked to defined customer bases, so enterprises and ESPs often survey the wrong customers to assess satisfaction. The weighting of customer viewpoints is often overlooked as well. Not every customer group should carry equal weight, nor should senior management always carry the most weight. Customers and their weighting must be aligned to the services being delivered to get a handle on how well the ESP is doing.
Gartner analysts say there must be better alignment between an enterprise's needs and the services delivered by an ESP. Enterprises must take a more proactive role with their ESPs to communicate the strategic objectives of the enterprise and relate these goals to the services the ESP is delivering. Likewise, ESPs must be more upfront about what they plan to get from the deal and where their expectations are, and are not, being met.
"When alignment and vision are off between the enterprise and the ESP, the deal can deteriorate rapidly," said Scardino. "When one side is not getting what it needs, it looks to the other side as the reason for the trouble, which breaks down trust and respect."
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