Align Vendor SLAs with Long Term Value


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In this webinar, Steve Hall, author of "Managing Global Development Risk,” discusses the challenge of aligning vendor SLAs with long term business value. Steve discusses how you can build healthier and transparent relationships between vendors and customers by incorporating application structural quality measurement and practical, meaningful metrics to mitigate risk. You’ll learn how you can avoid vendor lock-in, improve production support activities and align metrics between vendors and project managers.

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Align Vendor SLAs with Long Term Value

  1. 1. A g Vno SA ln edr Ls iWt Ln Tr Vl i og e a e h m u
  2. 2. Align Vendor SLAs with Long Term Value Steven Hall Partner & Managing Director, ISG
  3. 3. Steven Hall, Partner & Managing Director Mr. Steven Hall is a Partner with ISG (formerly TPI) and leads the Manufacturing/Telecom Vertical, Cloud Computing Business Unit and the ADM Service Line. TPI is the global leader in sourcing advisory. Steve brings extensive experience in strategic outsourcing to ISG’s clients. Steve’s experiences include all aspects of the outsourcing advisory space, including IT Sourcing Strategy, Application Development Maintenance (ADM), Service Level Agreements (SLAs), IT Governance, offshore delivery, project management and implementation of various software development methodologies. His knowledge derives from practical experience implementing global models and advising large multi-national corporations in their sourcing strategies. Steve co-authored Managing Global Development Risk, A Guide to Managing Global Software Development. Mr. Hall has extensive experience leading strategy engagements, implementing software projects using a global team and establishing global sourcing models, such as Build-Operate-Transfer (BOT) agreements and dedicated development centers. He regularly helps clients assess their outsourcing capabilities and advises them on best practices. Steve’s advisory career has included support for industry leaders in the telecom, airline, financial, energy, and software sectors. During his career with ISG he has developed multi-supplier sourcing strategies, identified and developed SLAs for multiple clients, negotiated multiple large-scale outsourcing agreements, designed and implemented IT Governance structures, and analyzed a wide-variety of financial and operational sourcing scenarios.Copyright © 2012 Information Services Group, Inc. All Rights Reserved 2
  4. 4. The Power of One ISG brings together three market leaders to create an unrivalled technology insights, market intelligence and advisory services company. The world’s leading sourcing data and advisory firm. the powerA premier independent of One technology advisory serving the The premier independent public sector provider of business and IT benchmarking, performance improvement, data and analytics services. Copyright © 2012 Information Services Group, Inc. All Rights Reserved 3
  5. 5. Business Optimization Solutions for Every FunctionWith comprehensive expertise across service areas, our consultants bring anextensive set of tools and methodologies to bear for your optimization efforts. IT Service areas Infrastructure Cloud Solutions Applications ERP Solutions Desktop Services Global Delivery Network Services IT Security Business support Service areas Finance & Accounting Facilities Management Human Resources Document Management Procurement Mergers & Acquisitions Contact Centers Insurance Operations Shared Services Banking OperationsCopyright © 2012 Information Services Group, Inc. All Rights Reserved 4
  6. 6. Copyright © 2011, Technology Partners International, Inc.
  7. 7. Number of ADM Contracts Awarded by Contract Type and YearFor the last three years ADM Only engagements have exceeded the number of Bundled ADMawards by a 2 to 1 ratio, but through the first half of 2011 this gap has narrowed. ADM Only Bundled ADM 215 177 137 113 84 83 66 67 2008 2009 2010 1H2011 Source: TPI Research Multi-Supplier strategies are new norm. Most clients will typically have 2 to 3 ADM Service Providers.Copyright © 2012 Information Services Group, Inc. All Rights Reserved 6
  8. 8. Average ACV of ADM Contracts Awarded by Contract Type and Year (US$M)Average ACV of ADM Only contracts continued a trend of rising ACV through 2010 andsurpassed the recent historical range of $19 million to $21 million. The average through thefirst half of 2011 is below the 2010 high point, but it remains above 2008 – 2009 levels. ADM Only $24.0 $21.0 $21.7 $19.0 2008 2009 2010 1H2011 Source: TPI ResearchCopyright © 2012 Information Services Group, Inc. All Rights Reserved 7
  9. 9. Number of ADM Only Contracts Awarded by Forbes® Rank and YearNon-G2000 companies were responsible for the bulk of activity during 2010, followed by thetop 500 companies. There was a decrease in the number of contracts in 2010 for both thesecategories, and non-G2000 companies continued to account for about 60 percent of allstand-alone ADM awards in 2010. 2008 2009 2010 1H2011 123 103 ADM outsourcing adopted globally and impacting mid- markets at increased levels. 69 67 50 48 45 16 19 14 16 14 5 4 5 4 5 3 1 1 G1-500 G501-1000 G1001-1500 G1501-2000 Non-G2000 Source: TPI ResearchCopyright © 2012 Information Services Group, Inc. All Rights Reserved 8
  10. 10. Number of ADM Only Contracts by Service Provider Type and Region, 2008-1H2011The India heritage firms have won more ADM Only contracts than any other class of serviceprovider, outdistancing the Big 5 Americas by approximately 70 percent. Big 5 Americas Big 5 Europe India Heritage Niche/Tier 2 267 Indian Heritage firms dominate the Application outsourcing space 157 129 112 102 80 59 53 57 59 50 47 27 11 13 1 Americas Asia-Pacific EMEA Market Total Source: TPI ResearchCopyright © 2012 Information Services Group, Inc. All Rights Reserved 9
  11. 11. Average ACV of ADM Only Contracts by Service Provider Type and Year (US$M) There were a couple of large transactions facilitated by Big 5 Americas firms that influencedthe rise in average ACV in the first half of 2011. 2008 2009 2010 1H2011 $51 $29 $30 $24 $23 $24 $22 $21 $22 $19 $19 $19 $21 $17 $16 $12 $13 $13 $11 $12 Big 5 Big 5 India Niche/ Market Americas Europe Heritage Tier 2 Average Source: TPI Research Bigger deals still tend to go to the Big 5 Americas’ firmsCopyright © 2012 Information Services Group, Inc. All Rights Reserved 10
  12. 12. POLL QUESTION 1How many ADM vendors does your organizationor your client work with? 1-3 vendors More than 6 vendors 27% 29% I dont know 4-6 vendors 12% 32%
  13. 13. Shifting $s to New Development is Top PriorityCost savings remains the #1 Goal for moving to a global delivery model – butorganizations are really trying to shift costs from Run the Business (RtB) to Changethe Business (CtB)Copyright © 2012 Information Services Group, Inc. All Rights Reserved 12
  14. 14. There are challenges shifting to a Change the Business Model► High defect rates and poorly constructed code results in higher maintenance costs (Technical Debt)► Poor documentation results in extended knowledge transition periods► Lack of standards and ITIL processes result in poorly defined scope for maintenance activities► Lack of clear measurements to determine size of portfolio (e.g. Function Points or Use Case Points) results in over-estimating maintenance effortThe goal is to increase Productivity and Improve Software Quality… Broader adoption of software tools to provide automated function points counts, provide technical insights, and increase software quality are critical to successfully moving to CtB model.Copyright © 2012 Information Services Group, Inc. All Rights Reserved 13
  15. 15. Four Levers to Improve Application Productivity Resource Levers Reduced Headcount / Managed Attrition / Increased Skills / Increased Longevity Financial Levers Operational Levers Improved SLA Driven Managed Rate Card Improvement Application Services Spend is the Reduction of Rework / Rate Card Conformance Goal Increase in Quality Reduced Vendor Supplier Role & Cost Utilization Optimization Increased Location $$ Supplier / Contract Economies Rationalization Increased Delivery Time Improved Operating Model Efficiency Processes Application Levers Application Rationalization / Increased Quality / Improved Maintenance EfficienciesCopyright © 2012 Information Services Group, Inc. All Rights Reserved 14
  16. 16. POLL QUESTION 2Do your outsourcing/customer SLAs include metricson the technical quality of code being delivered? Never 9% Ad hoc I don’t know 11% 35% At the end of a release 27% At every build 18%
  17. 17. Balancing Functional and Structural Quality Lowers Mx Costs Functional Testing ensures Structural Quality ensures the the Business Requirements resiliency and long-term and core functionality works maintainability of the code as expected (improves overall TCO)• Defect Injection • Technical Debt• Defect Detection • Code Quality Index• Test Coverage • Structural Quality lowers the Built on Base of Quality long-term maintenance costs processes (CMMi) of applications In a multi-supplier environment, all parties must be incented to lower long-term application support costs!Copyright © 2012 Information Services Group, Inc. All Rights Reserved 16
  18. 18. The key SLAs are driven through Primitive Metrics Primitive Metric Description Sample SLA Describes the conformance to internal quality standards and ISO 9126, SEI, CISQ, standards, Quality KPIs set by the customer organization. best practices Defect Injection Rates Defects Describes a non-conformance to a baseline requirement Defect Detection Rates Structural Quality Describes the total development time from start of a task to the Milestones on time Schedule end of the task based on a standard unit of measure Schedule Performance Index Describes the amount of effort expended to complete a specific Productivity Metrics Effort task or work product using a standard unit of measure (FPs/Developer, Complexity Matrix, +/- 10% of estimate) FP Counting – IFPUG 4.1 Describes how big the application or work product is using a Size standard unit of measure SLOC Counting – IEEE Use Case Points Describes the cost associated with a project, application, +/- 10% of Budget Cost development phase or category of work Cost Performance Index Describes the number of resources, skills, and experience levels Retention rates Staff assigned to an engagement activity. Experience and Skills Describes the volatility of an item during a software Work Order Effectiveness Change development phase or period of time.  Degree of ChangeCopyright © 2012 Information Services Group, Inc. All Rights Reserved 17
  19. 19. POLL QUESTION 3Do your outsourcing/customer SLAs include metricson the technical quality of code being delivered? I dont know Yes 10% 26% No 36% Sometimes 28%
  20. 20. There are also multiple disruptive trends impacting outsourcing Disruptive Trends Business SaaS Intelligence/ Cloud Analytics Computing BaaS Social Media Mobility Web 2.0 Computing Pace of Executive U.S. Policies Commoditization Changes Global Global Political Talent Economics Ramifications Demographics Mobile / Cloud Computing will change the notion of sourcing locales … Virtual Sourcing Models will evolve over time and change how we interact.Copyright © 2012 Information Services Group, Inc. All Rights Reserved 19
  21. 21. Implement a Managed Service Model There are multiple operating models used when implementing a managed service in the ADM environment. Though the operating models are important to the overall strategy, each contain three (3) basic components that support the managed service model. Attributes of an ADM Managed Service Agreement • Defined Services (SOWs) and SLAs – Statements of Work specify the “What” not the “How”. Defined Service Levels with measured performance goals aligned to the Services • Defined Pricing - Fixed Price models w/variable component that allows ramp-up and ramp-down of costs based on volume and need • Defined Risk Model - Manage overall sourcing risks via Product Quality risks (is it supportable in a production environment), Contract terms, Skill mix, Onsite/offshore ratios, geographical locations, etc.Copyright © 2012 Information Services Group, Inc. All Rights Reserved 20
  22. 22. Top 5 ADM Success Factors – P1 1. Clearly define the ADM Services into three (3) main categories and, from a cost perspective, manage these categories separately • Maintenance • Minor Enhancement • Project Based work 2. Define a retained organization that is aligned with the strategy • Business liaisons – coordinate between business and IT leaders • Program/Project Managers –retain to manage large programs • Architecture - client driven • Business Analysis – understands business and requirements • Service Delivery Managers - manages the sourced relationship • Developers & Testers – support retained applications and some subject matter expertsCopyright © 2012 Information Services Group, Inc. All Rights Reserved 21
  23. 23. Top 5 ADM Success Factors – P2 3. Define end-to-end Service Level Agreements to incent suppliers to work with each other in a multi-supplier environment 4. Embrace CMMi – process makes a difference • Service Levels and Quality goals are often aligned with process maturity – the more mature organizations can be contractually obligated to deliver higher quality code • Process adherence drives repeatability and productivity improvements – incent Service Providers to operate at CMMi Level 3 or higher with committed productivity improvements • Conduct on-going operational assessments to ensure process adherence 5. Use Key Performance Indicators (KPIs) and dashboards • Earned Value Analysis (EVA) using Schedule and Cost performance index • Defect injection and probability statistics for software quality • Structural Quality, regression testing, defect detection, and test coverage ratiosCopyright © 2012 Information Services Group, Inc. All Rights Reserved 22
  24. 24. Summary 1. ADM Outsourcing market continues to expand – wide adoption at G2000 and mid-market levels 2. Indian Heritage Service Providers are winning a large % of new business 3. Challenges shifting cost from RtB to CtB will continue to impact sourcing models and provide opportunities for software vendors 4. Mega-trends such as cloud computing, social networking, and data analytics will have broader impacts on ADM outsourcing 5. Implementing best-practices, including structural quality, provides roadmap to successful implementation of global modelsCopyright © 2012 Information Services Group, Inc. All Rights Reserved 23
  25. 25. CAST Application Intelligence Platform (AIP) Overview
  26. 26. Market Leader in Software Analysis & Measurement Ambitious Introduce fact-based transparency into application development and Mission sourcing to transform it into a management discipline  Broad market presence in Europe & North America Rock Solid  Strongly endorsed by software industry gurus and long term investors Foundation  $100 million of investment in R&D, driven by top talent in computer science and software engineering  Pioneer and recognized market leader in Software Analysis &Market Leader Measurement (SAM) since 1999 Cool Vendor in Application Services – 2011 “IT services providers need to care because they will soon see a growing number of their deliveries measured by CAST metrics.” - Helen Huntley, Research VP, Gartner
  27. 27. Analyzing, Measuring and Benchmarking IT Software AssetsKey Application Software Characteristics Software Analysis & Measurement ServicesRisk Drivers Software Quality Gate• Robustness • Parallel process to system testing• Performance • Pre-production structural analysis• Security of mission critical softwareCost Drivers• Transferability• Changeability Application Assessments• Maintainability • Investigation of troubled projects, persistent application issuesAlerts, trending, • Pre/post M&A due diligenceroot cause analysis • Deep analysis of cost/risk driversSizing Metrics for Productivity Tracking Benchmarking to Like Applications• Automated Function Point Changes Due to a Sequence of • Unique repository Function Change Requests of structural Points 40 1 35 2 3 4 5 quality metrics # Function Points• Technical 30 25 • Compare to 20 sizing 15 10 similar apps at• Effort 5 0 industry peers 0 50 100 150 200 estimation Cumulative Effort (Staff Hours)
  28. 28. CAST Inserts Actionable Visibility CAST Application Intelligence Center CxO & VP, … Dashboard, reports CAST Application Intelligence PlatformTM  AI Management Studio  Knowledge Base  Approx one thousand rules and best practices PM, QA, Architects…  Decade of software engineering  Std enforcement expertise  Early ID of violations CAST Application Analysis Engine  Drill down to root cause CAST Native CAST UA 3rd party Analyzers (28) scripts analyzersDelivered Source Code: Dev Teams, Suppliers CICS, IMS, COBOL, DB2 z/OS, PL/I  Arch. visibility / Quick wins J2EE, .NET and all Major RDBMS  Software engineering expertise Web Apps, BI, EAI, C/C++, VB, PB  Continuous training/coaching Siebel, SAP, PSFT, OBS, Amdocs
  29. 29. Tangible and Measured Value Mitigate business risks with improved structural quality  Better applications for higher business resiliency and continuity  Risk-proofed projects more likely to deliver business benefits on time Make IT and suppliers more productive  Eliminate waste in ADM  Prevent coding errors in development: 10x savings in rework per coding error  Keep technical debt from growing: up to 10% saving in maintenance cost  Benchmark then optimize resources: maintenance savings potential  Better reuse of frameworks and components: up to 10% of dev budget  Reduce waste in operations  Improve efficiency of large complex transactions & batch processes: up to 5% mips  Reduce troubleshooting and rollover costs: lower Ops staff overtime  Apply consistent measurement & KPIs for superior visibility  Up to 10% of ADM budget, esp. ADM outsourcing “Applying the principles of lean manufacturing to ADM can increase productivity by 20 to 40 percent while improving the quality and speed of execution.” - Ranjit Tinaikar, Principal, Head of NA IT Management Practice
  30. 30. Market Leader and Pioneer 250 Global Leaders Rely on CASTSIsUse & Promote CASTSIs Resell CAST Industry Groups Engage CAST Key Influencers Recognize CAST
  31. 31. Q&A
  32. 32. Contact Information Lev Lesokhin Steve Hall @OnQuality @isg_news
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