A ‘Top-Down’ Look In Challenging Times

By Joe Auer

As the daily media drumbeat of “economic downturn” picks up volume, we’ll no doubt be challenged to optimize IT costs and value as we move into possibly tough financial times. So doing better deals and managing vendors better will become much more important for IT organizations this year.

Traditionally, most IT organizations view their technology deals from the bottom up. That is, they tend to have a project-oriented perspective rather than a big picture-oriented overview. While there’s nothing wrong with this approach – especially if it’s coupled with a disciplined procurement process – you may miss opportunities to leverage major negotiating power.

Of course, focusing on a specific deal is important and can add value to the organization. But if you pay attention to only one deal at a time in uncertain economic times, huge cost and risk issues may go unaddressed. It’s the age-old “not seeing the forest for the trees” thing.

If you have to cut costs significantly, you should look at IT spending from the top down, identifying each major spending area. An excellent way to do this is to look at your annual IT budget. The major budget categories – hardware, personnel, software, communications, services and the like – provide a high-level indication of where the big money is going.

Armed with this information, you may be able to find opportunities to cut significant costs and risks and maximize your vendor’s attention. Remember, technology vendors are also under financial pressure and need all the business they can get. They may be willing to cut you a break in order to keep your business.

An analysis of each spending category should include adding up what you spend globally with each of your largest suppliers. You may be shocked at how much bargaining power you have but aren’t using.

Then, review the existing contractual relationships with those suppliers since you may have contractual restrictions such as cancellation fees that have to be included in your analysis. When you’re done, you’ll find opportunities to consolidate spending, leverage your negotiating power, reduce costs and improve contract protections.

After the spending categories have been identified and totaled, they should be prioritized. There are many approaches to prioritization. A simple method involves rating each category according to four criteria: cost, complexity, risk and business need. You can weight each criteria using a 10-point scale to generate a numerical score that can be used to prioritize the opportunities. A 1 would be the lowest rating and a 10 the highest. A category with very high cost, complexity, risk and business need would rate four 10s for a total score of 40.

Let’s look at each factor:

• Cost is obvious. Areas of significant spending should receive more attention than the nickel-and-dime stuff.

• Complexity is important because spending areas involving sophisticated, new or unproven technology, or complex business processes should receive scrutiny.

• Risk goes hand-in-hand with complexity because the higher the complexity, generally the greater the potential risk. But risk should be evaluated separately. A category with a low complexity rating could carry a high potential risk. In any event, and in every deal, have your suppliers at least be contractually accountable for nonperformance through clear warranties and sufficient remedies. That’s a great start.

• Business need establishes a relative value of importance of the category’s overall contribution to the business – and the bottom line.

With the categories having been identified, totaled, analyzed and prioritized, the real work can begin. Start with the categories that score the closest to 40 (highest priorities) and work your way down as far as time and reasonableness allow. Focusing on the highest priorities will ensure that your efforts are directed at achieving maximum benefit.

Developing the discipline to objectively scrutinize major spending categories and vendors creates opportunities that would otherwise go unnoticed.

A tough-times strategy to leverage purchasing power, reduce costs and maximize vendor performance goes a long way to answering an economic wake-up call.

 JOE AUER is president of International Computer Negotiations, Inc. (www.dobetterdeals.com), a Winter Park, Fla., consultancy that educates Professionals on IT Procurement, Sourcing, and Vendor Management. ICN sponsors CAUCUS: The Association of Technology Procurement Professionals. Contact him at joea@dobetterdeals.com.

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Supplier Measurement Programs – Measurement Series

by Patrick Campbell, CPCU, CLU, FLMI

Introduction:

While serving on an assignment as a director of quality (implementing a quality improvement program), I had the opportunity to develop, edit and mentor many team members on building service levels and the supporting measurement programs. Later, working in a center of excellence concept, I conducted quality reviews and audits of several IT and non-IT measurement programs. Finally, I had to execute measurement programs as director of a major operations center. During those periods, and even today, I have seen some measurement programs struggle and others flourish. Both the failures and successes seem to follow predictable patterns. In this article I would share with you what I have found to be some major reasons for less than satisfactory measurements and their associated risks.

First, let me mention some fundamental principles. It is common axiom that the path to improved performance is through measurement. You cannot improve what you cannot measure. From a supplier performance perspective, suppliers are improving, declining or staying the same. It is vital to know this, especially with your most important suppliers. Each condition calls upon specific action plans.

This leads to a second principle. Measurements are about continuous improvement. Measurements should not be viewed as an event, but as incidences within a pattern of trends. Performance measurements are about tracking trends. Programs need to be built for longevity with elements of repeatability, regular monitoring and feedback.

The third principle, for this discussion, is measurement programs need to be client (business units) usable. They need to be developed to support and assist clients to perform better and ultimately contribute to improved corporate performance. The question to ask is can the measurement be tied (directly or indirectly) to corporate performance?

Unfortunately, many measurements and measurement programs are not successful. There are several reasons for this which include lack of training, inadequate attention and insufficient planning. For example, I had a discussion with one supplier of a major bank, who told me that one of their clients installed a fairly impressive and comprehensive measurement program. However, since the inception of the program the client has, yet, to meet with the suppliers to have a mutual conversation on what is going well and what is not going well. This particular supplier wanted an opportunity to collaborate and improve, but the feedback mechanism was not there. A feedback process is essential and needs to be continually followed. What you make important becomes important

Let me share five issues that I have found to be common causes measurement programs to fail.

Inconsistent executive support

Performance programs fail, when there is dissimilarity between what management wants and the support design. Building a program takes time, money and talent. Additionally, executives need to provide consistent direction, both during the development and execution. They need to agree to the program goals and support those goals. When support does not occur, the program loses creditability and can flounder.

One of the most glaring examples occurred in the case where a supplier was chronically missing their targets. They were in jeopardy of being removed, according to the service agreement. Being concerned, they sought counsel with a senior executive. Upon hearing the supplier’s dilemma and explanations, the executive gave the supplier forgiveness and requested the measurement targets to be reduced. The rippling effect of that decision caused irreparable damage.

Lack of confidence in results

When there is a discrepancy in the results, there is an obvious creation of uncertainty and doubt. I have seen this, most often, in two situations: (1) the published measurements did not match the actual experiences of the client and (2) the computations contained errors.

In the first case, when the customer’s actual experience did not correlate to the published measurements, doubt was caste on the measurement. The most notorious situation occurs with availability and response time. A specific supplier may have a reported 100% availability, but the customer reports a different experience. One reason for this is that many suppliers (such as telecom) may be involved in the chain events providing availability, but not all in the chain are being monitored. Thus, an individual supplier could be performing well, but others in the chain are not doing well. The customer is experiencing substandard performance. The entire chain needs monitoring.

How could there be computation errors? In the second situation published data contained erroneous summations and computations. Why could this even occur? It is usually carelessness created when there is a rush or time driven requirement to produce a report. In a particular case at a large health insurer, the measurement developers did not conduct a quality walk-thru or test runs prior to information distribution.

Lack of clarity

Don’t speak “geek.” This is heard often, especially in the technology world. The language of the measurements must be understandable by the end-consumer. MIPS, MTTR, GIGABYTES, might be familiar terminology to the data creators. However, such abbreviations and technical terminology has little meaning to the customer. The Information Technology culture is saturated with “TLAs” (three letter acronyms). We need to use customer language, not the language of the technologists.

Sometimes, calculations can also be so complicated it takes an advanced accounting skill to interpret them. It can take many hours reconciling and validating. There needs to be simplicity to computations

Too many objectives

What is important? Suppliers do want to be successful and please their customer by satisfying their expectations. How many objectives are enough? Caution should be taken to avoid generating too many objectives. With too many objectives the supplier’s efforts become too diluted and there can be confusion on what is important. It is better to have a few objectives with high focus. Obviously, they can and will be modified and changed over time.

Silo thinking can lead to an inordinate list of objectives. Objectives grow, because every client has their special interests on what to measure. For example, if 5 clients are interviewed and they each identify 5 objectives, the count can quickly grow. Without a prioritization process, the objective portfolio can become too overloaded.

There needs to be a purging process for obsolete objectives. Otherwise, a measurement portfolio can grow and become uncontrollable. As measurement programs mature, new and improved measurement objectives will be created and older measures become less important. Those that are no longer as important need pruning. A lack of pruning can waste valued resources and provide information that no longer relevant, has little value and can confuse importance.

Inadequate Staff Continuity

Lack of staff training and experience are certainly important concerns with any program. However, I have observed inattention to staff continuity can be a major problem for measurement programs. Clear responsibility and accountability need to be identified.

But, what happens when that person in-charge moves to another assignment? It has been my observation the measurement process can “fall into the cracks” Either no clear successor is available, or there is a lag time finding a replacement. Regardless of the reason, measurement programs falter when they are allowed to wander and go unattended.

Summary

Supplier performance is either improving or declining. How do you know unless you measure that performance? Lack of an effective measurement programs can become highly emotional and frustrating. They can have detrimental effect on the business.

We can learn from other’s mistakes. If we do not learn from the past we are likely to repeat it.

 

Bibliography
Cope, James. “12 Ways to a Better SLA,” Computerworld, November 12, 2001.

Erickson-Harris, Lisa, Multi-tiered SLAs: Juggling Layers of Commitments, Research Director, Enterprise Management Associates, May 2002

Kass, Elliott, Director of Marketing, The Do’s and Don’ts of SLAs: When they’re executed correctly, service-level agreements help enhance IT’s credibility with the rest of the business by iCan SP, Inc., a Computer Associates Company, May 2003

Kuhn, Janet, ITSM: A Customer-Focused, Process-Oriented, Cost-Justified Approach to Success, ITSM Product Manager, InteQ Corporation Mauer, W., R. Matlus and N. Frey, “Guide to SLA Development,” Strategic Analysis Report, R-11-3353, Gartner Group, October 16, 2000.

Peterson, Brad. Partner, Mayer, Brown, Rowe & Maw, Ten Key Questions for Developing Effective Service Level Agreements, – Everest Partners, L.P.

Stanley, Shally Bansal. “Strengthen service-level agreements,” Network World, May 06, 2002

Strum, Rick. President and CEO, Enterprise Management Associates, Inc. “Are You Ready for SLAs?” Network World Fusion, February 2002

Underwood, Ryan. “10 essential ingredients for a solid service-level agreement,” 2003, DocumentIQ.com

Wickman, Robert, Director of Enterprise Monitoring Managing Service Level Agreements with C.A.R.E , Solutions, Empirix, 2003

Van Grembergen, Ph.D., Wim. “The Balanced Scorecard and IT Governance” Information Systems Control Center, Governance Institute, Rolling Meadows, Illinois.

Callaghan, Gary. “Project Dashboard,” DPI – Project Management Seminar, Public Works and Government Services, Canada, February, 2002.

Qaymumi, Mohammad. “Balanced Scorecard at CSU Northridge,” California State University, Northridge.

Neubert, Gilles, and Laure Pichot. “Performance Measurement for the Supply Chain – Mythology to define a supply chain dashboard”. University Lyon II – IUT Lumiere, Department O.G.P., Born, France, October 22, 2002.

Wang, Greg, PhD. “Value Learning: The Measurement Journey,” James Madison University, Educational Technology (2003), 43:1, 32-37.

Brown, Mark Graham, “Customer Satisfaction Measurement Mistakes,” Panorama Business Views, 2001

Performance Measurement & Dashboard Sampling

• Dashboards or Scorecards – What’s the Difference?
http://www.intelligententerprise.com/online_only/smith/010907.shtml

• Executive Dashboard – An interactive performance management & knowledge tool
http://www.anabasis-straub.com/dashboar.htm

• Digital Dashboard Business Process Assessment Guide from Microsoft and Spectria
http://www.spectria.com/docs/wp_bpag/BPAG.htm

• Snippets Active Dashboard
http://www.snippets.com/

• Defining e-Business Performance Management
http://www.cio.com/analyst/112000_hurwitz.html

• @McKinsey – ePerformance: Benchmarking global operating performance
http://www.atmckinsey.com/services/eperformance.html

• Keynote – The Internet Performance Authority
http://www.keynote.com/

The Procurement Assessment

Note:  This article originally appeared in a 2002  issue of ICN’s Tools & Tactics and has been updated for presentation here.

You’ve trained and coached your staff, coached key executives and IT project managers, made presentations, developed form agreements, created a deal repository . . .  But, are those involved in evaluating, buying and paying for technology acquisitions actually following your processes?  Have you changed your organization’s culture, making sure that the new procedures are “stick-ing”?  How much success are you having in negotiating those deals?

There is no doubt that best-in-class technology procurement organizations have processes and tools in place, and their personnel are both trained in the methodologies and use the tools and re-sources available.  Their results demonstrate cost savings, vendor management, resource and fi-nancial control and short and long-term risk avoidance. 

A Procurement Maturity Model (PMM)  might take this form:

How do we measure the maturity of your procurement organization?  The Procurement Assess-ment is the most comprehensive way for an organization to audit its current utilization of the methods, tools and resources you’ve put in place.  A Procurement Assessment will measure your progress toward achieving best practices and will help you establish annual goals for your or-ganization.

Look at the following four areas:

Level 1 Level 2 Level 3
Initial Efforts Methodology Established Integrated Method-ology, Standards
Common  language   established

Cultural and management change initiatives

Integrated  methodology establishedCross-functional teams Cultural and management supportPolicies established
     
Issues addressed organization Focus on individual projects Intangible benefits made apparent
     
Training Level 1 Tangible benefits   made apparent Form Agreements
     
  Training Level 2 Deal repository
     
    Training Level 3
Level 4 Level 5
Comprehensive Continuous Improvement
Integration of resources, tools, culture Continuous learning, process improvements
   
Vendor policy     and management Lessons learned, knowledge transfer
   
Qualitative and quantitative measurement of results Strategic planning
   
  Mentorship
   

• Processes.  Robust processes based upon sound industry best practices provide the requi-site infrastructure to move a procurement organization forward. Processes provide consis-tency of approach and the organizational discipline that assure that best practices are syn-thesized within the organization.

• Resources. Appropriate, experienced, knowledgeable and professional resources must be available when required. An organization must commit to attracting top talent or out-source the IT procurement function to knowledgeable experts.

• Tools. Effective tools provide consistency of approach and also streamline the overall procurement process. Some of the more important tools include deal checklists, standard form contracts, templates for Requests for Proposals, Requests for Information, vendor evaluation matrices and so forth. These tools and others must be fully integrated into pro-curement processes.

• Organization. There must be organizational commitment that supports and nurtures the development and use of an IT procurement function.
Determine the effectiveness of your organization

The Procurement Assessment works as follows:

Develop the Survey Tool. The procurement management team develops a survey that will elicit responses from the organization on current practices and knowledge in the four categories:  proc-esses, resources, tools and organization. The survey asks a series of questions to ensure compli-ance with the required processes and procedures or to evaluate current practices as they relate to industry best practices. Although the internal procurement organization may perform this audit in some companies, having an outside party perform the audits gives the process a measure of inde-pendence, avoids “turf wars,” and may provide more focus for senior management.

Determine Survey Population.  The size of your organization will determine the number of par-ticipants.  Generally, a sample of ten to fifteen individuals from a variety of functional roles should be included.  A representative cross-section of people from the CIO office, procurement, vendor management, IT project managers who are involved in procurement activities, finance, end-user deal makers and legal should comprise the survey population.

Conduct Kick-off Meeting.  An initial meeting with the survey population to explain the proc-ess and answer questions is an important step in preparing them for their participation.

Conduct Interviews.  Using the customized Procurement Survey described above, interviews of the survey population are conducted.  Interviewing in-person on a one-on-one basis enables par-ticipants to be more candid in their responses. (Complete candor may be achieved when a third-party conducts the survey.) 

Summarize the results and prepare the findings.  Following completion of the interview phase of the survey, the obvious next step is to analyze the results and prepare a report that sum-marizes the current status of the company’s processes, resources, tools and organization. The outcome of the analysis should be a reliable indication of your company’s progress towards achieving a best-in-class technology procurement organization.  Based on the levels of the find-ings, the team can determine the maturity of the procurement process and create (or update) the plan to reach the next level. 

Conduct Executive Briefing.  The results of the Procurement Assessment, next action items, strategies and recommendations should be discussed in a briefing with appropriate personnel.  Because executive buy-in is critical to a successful implementation of best-practices procurement processes, the results should also be summarized and sent to the technology procurement stake-holders including the CIO, the procurement management, legal and key senior business manag-ers.

By performing a number of assessments over time, you can gain a sense of whether processes, tools and resources are being successfully integrated into your procurement organization and take appropriate corrective action if necessary.

Our experience has proven that most businesses can benefit – financially and functionally – when they evaluate the quality of their existing procurement programs.  By implementing the right procurement methodology, you can realize considerable savings with minimal impact on your core business.