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Computerworld - Successful outsourcing efforts require metrics that are clearly specified, effectively monitored and consistently correlated to the needs of the business. Good metrics support your cost and service goals and are consistent
with your culture. Examples include unit costs of a service (such as cost per minute, cost per help desk call) or response time per event (such as two hours to respond to a PC failure). Unfortunately, many outsourcing contracts contain metrics that are ineffective and insufficient
But even a contract that specifies excellent metrics is no guarantee of success. Metrics must be gathered, monitored and reviewed before they can be used to improve service. In many cases, the performance data is never collected, and no one even notices.
Some organizations have downsized so much over the past several years that they don't have enough people to execute the measurement processes specified in their contracts. Both parties are frequently guilty of not fulfilling their sides of metrics management.
Unless service levels become intolerable, many organizations believe that the efforts required to collect and manage the performance data are unwarranted. This can be a costly mistake. One company outsourced desktop procurement and management for 30,000 desktops. The multiyear contract stated that as the PC manufacturer lowered prices, the outsourcer would pass those reductions on to the company. But the customer never checked, and the outsourcer kept the difference. The company's failure to monitor its outsourcer cost it over $1 million per year. Monitor your metrics effectively by taking the following steps:

• Assign responsibility. In a surprising number of cases, the outsourcer's adherence to the terms of the contract goes unnoticed and unchecked simply because nobody is ever assigned to monitor it. The neglected vendor gets a free ride until there's a major problem.


• Establish consistent metrics. Make sure your organization and your outsourcer are on the same page. One company outsourced one of its four help desks. It had a proprietary system to measure help desk staff productivity. The company wanted to continue to compare productivity across all four help desks, but the outsourcer used different software. Since the data was not comparable, more time was spent arguing about which numbers were correct than evaluating productivity.


• Trust, but verify. Don't rely exclusively on the metrics provided by your outsourcer. Even if it produces voluminous reports, your organization needs to be close enough to the metrics to accurately assess their validity.


• Review metrics jointly. The outsourcer will be more motivated to collect performance data if it knows it will be held accountable. This data forms the basis for enforcing contract penalties and paying incentives. Conduct regular review meetings with your outsourcer, and use this forum to create a joint plan to improve your outsourcer's service levels.


• Reward excellent performance. Before you put incentive clauses into a contract, carefully consider whether the benefits of better service outweigh the additional costs. But if you put incentives in the contract, honor them without fail. Excellent performance that goes unrecognized isn't likely to recur. Even if the contract doesn't require incentive payments, reward the outsourcer in some manner. Offer to serve as a reference or tell the outsourcer's president how pleased you are with its performance.


• Listen to your customers. If you've outsourced a customer-visible function (such as the help desk), the outsourcer's performance is often the only performance your customers will see. A customer's perception of acceptable performance is as valuable as any other metric. If your metrics aren't accurately reflecting the needs of your customers, re-examine your metrics.


• Create a metrics management process. It's crucial to re-evaluate metrics periodically to determine if they're meeting the changing needs of your business, especially in long-term contracts. No contract can anticipate every contingency, so make sure it specifies a process enabling you to change metrics as your business evolves.

Metrics are an important key to leveraging better performance from your outsourcer. But to be effective, they must be an integral part of both the contract and the ongoing management of your outsourcer. If you don't use the metrics you designed and negotiated, you'll get the performance you deserve.
Bart Perkins is a managing partner at Leverage Partners Inc. in Louisville, Ky., which helps CIOs manage their IT suppliers. He was CIO at Tricon Global Restaurants Inc. and Dole Food Co. Contact him at BartPerkins@LeveragePartners.com.
See more columns by Bart Perkins.

Read more about Outsourcing in Computerworld's Outsourcing Topic Center.