Much of the monitoring of an outsourcing deal is based on specific metrics. There are good reasons for this approach — after all, metrics are “hard numbers” and are relatively easy to measure. No doubt, meeting metrics is also a very important part of any quality outsourcing deal. But are metrics everything? I don’t believe so, nor do I believe that a single-minded focus on metrics is the best way to manage an outsourcing deal.

The Problem With Metrics

The concept of using metrics as THE management tool has several significant faults. The biggest of these is that metrics are, by their nature, an ex post measurement. The customer managing to metrics possess little insight into the day-to-day operations of their outsourcer, and may only be learning about problems — potentially significant problems — 30-60 days after they occur. By that time, the problem has extended into the next reporting period and remediation, if necessary, is at its early stages. By the time remediation is in place, significant damage may have been done already — and the cost of remediation — in time, effort and money — has risen exponentially.

Metrics also present an incomplete picture of the services being rendered. Aggregated over 30 day periods, they often fail to measure the performance during important peaks and valleys in the business cycle, but instead average it over the entire thirty day period. In addition, since they are hard, measurement-based numbers, they fail to capture many important factors that are subsumed within the high-level measurement points.

Finally, metrics are often set arbitrarily, either too low if set by the vendor, or too high if set by the customer. For example, vendors often offer uptime metrics of between 90 and 95 percent, when server uptime in a well managed environment generally reaches 99% or better. With metrics like these, only a force majeure event (which is generally otherwise excused) would cause a Service Level failure. Similarly, customers often set transaction processing metrics at a level far exceeding any level they were able to reach with internal staff, putting vendors in a near constant state of breach all under the guise of “continuous improvement.”

Certainly, customers are faced with regulatory and business commitments that tie to performance metrics — and these must be both reported and met. Beyond that, however, metrics should be viewed as one of, but neither the only nor primary, tools to manage an outsourcing agreement.

Other Management Tools

Perhaps the best management tool is sophisticated, comprehensive and cooperative communication between the customer and vendor. Not just single-point communication — where individual personalities can affect communications, but team communications that are regular and non-adversarial.

Too many conversations between customer and vendor become either (a) drubbing contests, where the customer reads a laundry list of what is wrong with the vendor and their performance under the agreement, or (b) finger-pointing exercises by the vendor meant to ensure that they face no blame for their poor performance. Neither type of conversation is particularly useful.

Instead, the conversations should be “how can we make this better for both of us.” After all, many issues can be addressed easily and at low cost. Looking for areas of synergy — where both parties benefit from a change — can really help move the process along and create an environment that encourages quality and innovation. Furthermore, with the right environment, problems can be brought forth early and solutions developed quickly, without fear of the “hammer” coming down on either party.

Transparency

In addition to communication, transparency is essential for both parties. Insights into each others’ businesses can create opportunities to, once again, expand the pie for both companies. Of course, each company must maintain its certain business priorities and secrets, but the “Kimono” can be opened quite a bit more than it generally is without giving away crown-jewel secrets.

Customers, for example, often distrust vendor pricing — particularly during the term of the deal. Without any reasonable insight into costs, and often without the ability to use the competitive bidding process to build integrity into pricing, customers are left feeling, most of the time, like they are being overcharged for many items.

Vendors, on the other hand, look suspiciously at customer performance edicts, knowing full well that service levels demanded by customers are, at best, aspirational, and at worst, a scheme intended to keep a Sword of Damocles over their heads.

Simple transparency helps alleviate these fears — and puts some integrity into each party’s position. After all, an outsourcing deal is a long-term, high-touch arrangement — not a “one night stand” — and should be treated accordingly.

Flexibility

Another important aspect is some reasonable flexibility in management. Vendors will miss properly set service levels from time to time, customers will need last-minute changes to meet business, legal or regulatory demands. Instead of using these situations as opportunities to gain additional concessions or revenue, being understanding and flexible can go a long way toward building a good relationship.

Does that mean that a company shouldn’t collect service credits? That a vendor shouldn’t exercise its rights under change control? No. Proper management calls for businesses to properly exercise and protect their rights. However, the approach to protecting these rights can vary — and an approach that includes compassion and forgiveness, rather than anger and threats, is generally beneficial to the relationship.

Marriage Counseling?

A lot of what I’ve said in this article sounds like marriage counseling — and that is intentional. Marriages that measure their success not by metrics, but by the overall quality of the relationship, are far more likely to succeed as long-term, satisfying partnerships. The same is true of outsourcing agreements.

After all, the critical factors for outsourcing success are not a laundry list of metrics — nor endless meetings full of table pounding about them. Instead, instead are trust, respect and communication form the basis of these good business relationships. It is time for customers and vendors alike to put renewed energy into developing these “soft” skills — energy that will move them forward as successful business partners.