Gartner predicts that by 2028, sourcing, procurement, and vendor management leaders who take a business outcomes approach to critical services will create 25 percent more value for their companies vs those who maintain the status quo. This forecast has significant implications for how organizations measure the value derived from their managed services provider (MSP).
Shifting the Focus to Business Outcomes
The expertise and bandwidth of a managed services partner is essential for businesses undergoing digital transformation and migrating applications and services to the cloud. Gartner believes that by 2027, 95 percent of organizations using legacy applications in the cloud will engage an outsourced provider to help manage and support these solutions.
Traditional MSP contracts are structured to ensure the provider complies with service level agreements (SLAs) such as incident resolution and response times. However, this approach fails to deliver the value most organizations require, for two reasons:
1. It creates a transactional relationship that incentivizes the provider to take a short-term, reactive approach as opposed to working proactively to deliver long-term value. Service levels are likely to degrade, and continuous improvement opportunities will be left untapped.
2. It doesn’t align IT activities with business objectives. When the MSP only focuses on traditional service level agreements (SLAs), their efforts don’t always map to the overarching business goals and priorities.A New Way to Define and Measure Managed Services Value
To optimize the return on investment in a managed services engagement, leading organizations are viewing the value of an MSP arrangement differently—redefining what a successful MSP engagement looks like and rethinking how they measure the provider’s value.
The first step in this shift is to augment traditional SLAs by adopting two additional types of metrics that are strong indicators of value: business outcome-based key performance indicators (KPIs) and experience-level agreements (XLAs).
Business outcome KPIs keep the services partner aligned with the organization’s goals and priorities. For instance, many companies seek to grow faster, improve time to market with new products and services, increase profitability, and drive efficiencies. A modern MSP arrangement ladders up to those goals through KPIs that emphasize business outcomes. While each organization’s objectives will vary, the most common business outcome KPIs relate to cost reductions, productivity improvements, new software release velocity, technology debt reductions, success vs failure of critical business processes, and continuous improvement activities.
XLAs ensure the MSP focuses on improving the end user experience, which can improve employee productivity and satisfaction, reduce turnover, and enhance customer service. Typical XLAs include first-time issue resolution, first-contact resolution, and net promoter score.
Using Tools and Analytics to Accelerate Business Value
Once the appropriate business outcome KPIs and XLAs are established, it’s essential to define how the provider will measure success.
Service Desk tools are well established to log and track incidents and service requests and considered a prerequisite for an effective managed services engagement, along with integrated monitoring and management tools that automatically alert the team when problems occur. In addition, predictive maintenance tools can help prevent issues, while automation improves time to resolve repetitive tasks without manual intervention.
Modern MSP arrangements also look to employ robust data analytics and reporting tools that deliver insights to measure performance and identify areas to continuously improve service. Tools like Mastek’s Value-Based Analytics enable real-time analysis of business processes while reporting tools like PowerBI empower the organization to provide service reports customized to different end-user needs.
Bringing these approaches together is key to delivering a successful partnership. An experienced partner will use its integrated platform of tools and reporting to track and report on progress in achieving the agreed-upon metrics and accelerate business value.
Setting the Right Foundation
Establishing the right partnership with a provider that will improve business outcomes and the end user experience requires more than just introducing different success metrics. Several foundational elements are critical to this endeavor.
A sound governance model ensures the provider’s resources and approach align to the engagement objectives, typically through a multi-layered team that provides specialized support. A service operations team handles requests and responds to issues 24/7, technology subject matter experts (SMEs) lend their expertise in specific functional or technology areas, and a service management layer ensures delivery against contractual commitments as well as providing regular engagement with business owners.
Building strong relationships with stakeholders across the organization is equally vital to an outcomes-based engagement since success in driving business outcomes demands that the partner and client work together effectively, each focusing on efforts within its domain. To establish the most relevant KPIs and XLAs, and focus on delivering continuous improvements, the services partner needs a deep understanding of how the business operates and what is most important to the organization.
Most sourcing, procurement, and vendor management leaders are under more pressure than ever to improve the value and return on the organization’s investments. By taking a business outcomes-based approach to the managed services contract, they can vet MSPs more effectively and choose a partner that will help the organization achieve its most critical business goals.
