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Managing Service Providers for Today’s Digital Business

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Outcome-Based Pricing, Business Process as a Service, and their effect on Service Level Methodology

Published in: Leadership & Management

Managing Service Providers for Today’s Digital Business

  1. 1. © 2015 Information Services Group, Inc. All Rights Reserved. Proprietary and Confidential. No part of this document may be reproduced in any form or by any electronic or mechanical means, including information storage and retrieval devices or systems, without prior written permission from Information Services Group, Inc. Bob Krohn, Partner, ISG Outcome-Based Pricing, Business Process as a Service, and their effect on Service Level Methodology Managing Service Providers for Today’s Digital Business
  2. 2. © 2015 Information Services Group, Inc. All Rights Reserved 2 Challenges that we are seeing in the market Where are you in your contract lifecycle? And what are your questions? Contract Year 1 Contract Year 2 Contract Year 3 Contract Year 4 Contract Year 5 Transition, relationship, change management Services and service levels Pricing Service integration, governance and asset management Renewal/Termination Service levels were OK before but we need better now . . . How do I obtain flexibility in scale that matches my business requirements? How do we effectively migrate to outcome-based pricing ? How do SLAs change with outcome-based pricing?
  3. 3. © 2015 Information Services Group, Inc. All Rights Reserved 3 Poll question Which one of these question relates to you? Feel free to choose more than one response! 1. How do I obtain flexibility in scale that matches my business requirements? 2. Service levels were OK before but we need better now . . . 3. How do SLAs change with outcome-based pricing? 4. How do we effectively migrate to outcome-based pricing?
  4. 4. © 2015 Information Services Group, Inc. All Rights Reserved 4 The Evolution of Outcome-Based Pricing S F C Requires end-to-end control Output-based pricing Outcome- based pricing Seldom in Application Management Only in projects AND . . . The model is still rare!
  5. 5. © 2015 Information Services Group, Inc. All Rights Reserved 5 Pricing Constructs Prevalence of Outcome-Based Pricing Models Service line Current pricing model Prevalence of outcome-based pricing Other emerging pricing models Application Development Fixed Fees and Time and Material Negligible for ADM only contracts Insignificant, overwhelmingly fixed fees and Time & Material Application Maintenance Fixed Fees A small percentage of contracts have a gain-sharing component Ticket-based (rare); application based maintenance is rising but prevalence is still in low single digits ADM + BPO Combination of Conventional Models – Fixed fees, Time & Material and FTE-based A very small percentage of contracts have gain- sharing component linked to business outcomes Transaction-based pricing with the service provider managing most of the underlying apps and business processes
  6. 6. © 2015 Information Services Group, Inc. All Rights Reserved 6 BPaaS Service Level Methodology With the introduction of BPaaS pricing constructs, the associated Service Level Methodology will evolve, too. BPaaS Service Level Agreements: Service Level Agreement used to define the business’s performance and reliability expectations for the end-to-end processes used to operate and manage core business functions. These SLAs are expressed in business terms and measured in business outcomes. Example: Percentage of health care claims processed without error in predefined time period
  7. 7. © 2015 Information Services Group, Inc. All Rights Reserved 7 Key Success & Inhibiting Factors for BPaaS Service Levels Factors Supporting BPaaS Service Levels  Strong service integration function  Obligations shared among providers  Clear measurements  Achievable  Financially reasonable Factors Inhibiting BPaaS Service Levels  Ineffective service integration function  Disproportional obligations among providers  Unclear/subjective measurements  Not achievable  Unreasonable financial credits
  8. 8. © 2015 Information Services Group, Inc. All Rights Reserved 8 BPaaS Service Levels – Key Points of Measure Map the Processes Identify the Dependencies Identify Failure Points Define SMART SLAs / KPIs / OLMs Link SLAs / KPIs / OLMs to E2E SLAs Business Outcome Billing Timeliness Process #1 Process #1 Application Database & Middleware Operating System Compute Storage Network OUTCOMES ► Success and accuracy PROCESSES & APPLICATIONS ► Straight Through Processing – Number of re- keying steps, queue pauses processes ► Availability (incl. Change Mgmt.) LOGICAL INFRASTRUCTURE ► Query and procedure call level response ► Service session response PHYSICAL INFRASTRUCTURE ► Availability (incl. Change Mgmt.) ► Utilization & Capacity ► Throughput (Input/Output)
  9. 9. © 2015 Information Services Group, Inc. All Rights Reserved 9 Introduction to CAST and its role in measuring Service Levels in a BPaaS Environment
  10. 10. CAST Confidential Software is Eating the Business Process 10 Map the Processes Identify the Dependencies Identify Failure Points DefineSMART SLAs / KPIs / OLMs Link SLAs / KPIs / OLMs to E2E SLAs Business Outcome Billing Timeliness Process #1 Process #1 Application Database & Middleware Operating System Compute Storage Network OUTCOMES ► Success and accuracy PROCESSES& APPLICATIONS ► Straight Through Processing – Number of re- keying steps, queue pauses processes ► Availability (incl. Change Mgmt.) LOGICAL INFRASTRUCTURE ► Query and procedure call level response ► Service session response PHYSICAL INFRASTRUCTURE ► Availability (incl. Change Mgmt.) ► Utilization & Capacity ► Throughput (Input/Output)  Bad software cripples Good processes, yet companies measure everything but the software. PRODUCT MEASURES PROCESS MEASURES Time & Duration Effort & Budget Function & Scope Quality Risk SECURITY RISK PERFORMANCE RISKS ROBUSTNESS – RISK OF OUTAGES MAINTAINABILITY INCIDENTS DEFECTRATES SYSTEMAVAILABILITY PROJECTTRACKING SCHEDULING TIME TRACKING BUDGET REPORTING EARNED VALUE FUNCTIONALTESTING USER ACCEPTANCE TESTS USABILITY
  11. 11. CAST Confidential Industry standard measures of good software 11 Description Prevent Transferability Determines how easily a new team or team member can be productive when assigned to work on the application SME Dependency, ramp up delays Delivery inefficiency, reduced output Time-to-market delays Changeability Determines how easily and quickly an application can be modified Correction and evolution delays Late delivery of new features Inability to resume services Robustness Determines the risk of failures or defects that could occur in production Operational downtime Application outage Inability to test source code updates Performance Efficiency Determines the risk of performance issues of an application Application Degradation Response time degradation Denial of Service, Logic issues Security Determines the risk of security breaches for an application Damaging Business & Operations Security failures Maintainability (SEI) Determines the cost and difficulty/ease to maintain an application Drifts on maintenance costs
  12. 12. CAST Confidential 1. Identify outcomes that are critical to the business / business process 2. Map to KPIs / Risk Indices 3. Measure to establish baseline / benchmark against industry 4. Monitor overtime – before software is released into production End User productivity Customers satisfaction Brand equity Uptime / Availability Cycle Time Time-to-market Business agility SECURITY Risk of Failures in Production Risk of Performance Issues Risk of Security Breaches Ease of Modifying and Learning RELIABILITY PERFORMANCE MAINTAINABILITY Constructing Outcome-Based Measures
  13. 13. CAST Confidential 13 Standard, objective measurement creates visibility Scorecard Service Providers Outsourcer TQI Robustness Performance Security Transferability Changeability TCS 2.59 3.16 2.34 3.01 1.99 2.44 CTS 2.81 2.78 2.78 3.12 2.34 3.03 Wipro 2.59 1.67 3.54 2.98 1.76 2.99 IBM 3.06 3.12 3.11 2.79 3.11 3.15 Amdocs 2.83 2.56 2.88 3.03 2.56 3.11 Infosys 2.90 3.76 2.89 2.97 2.55 2.33 VENDOR VENDOR VENDOR Monitor Performance Overtime VENDOR
  14. 14. CAST Confidential Product Measures Lead to Cost Reduction and Improved Agility 14  Study of maintenance effort across 20 customers shows tight correlation between maintenance fix tickets and CAST TQI Increase of CAST TQI by 0.24 = decrease in maintenance activity by 50% TechnicalQualityIndex(TQI) 2.2 2.4 2.6 2.8 3 3.2 3.4 3.6 0 50 100 150 200 Ticket Volume
  15. 15. CAST Confidential Contact Information Pete Pizzutillo p.pizzutillo@castsoftware.com www.castsoftware.com blog.castsoftware.com @OnQuality slideshare.net/castsoftware

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