Tony Price

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Experience Points: Level Up With Experience Level Agreements

We habitually use metrics, even when they are not relevant. Our instincts are based on deeply ingrained responses to situations and inherent investment biases (time & cost).

This annoys many a modern business, as these metrics have nothing to do with the quality experienced by the customer or end-user in real life, giving them the impression that our IT teams are not relevant. This problem is further exasperated within Sourcing & Vendor Management (SVM) realms as:

  • SVM professionals often over-engineer metrics because they don’t trust their suppliers
  • Measurements are not aligned with the overall strategic objectives, distancing themselves further from the business and their customers.

Allow us to elaborate.

In a recent client discussion, the client was frustrated that one of their key suppliers was not proactively suggesting ways to automate, nor were they bringing innovative ideas to them that could in turn improve customer experience. Once we looked under the hood, we identified that the service level agreements (SLAs) that were in place were activity focused and not outcome focused. Example of such SLAs were around ticket volumes and incident restoration time – the supplier was only getting paid if something went wrong!!! Furthermore, on top of the supplier managing to academic, pre-determined volumes, there were no incentives in the contractual agreement to reward them for improvements.

Metrics are counterproductive when they become targets rather than indicators and this approach to metrics does not work in today’s customer-obsessed world. Business models are changing as digital technologies enable companies to engage with their customers faster to deliver the outcomes they desire.

How do we change this behaviour and ensure that we are measuring what our customers and end-users care about?

It’s time to level up with experience level agreements

We need to shift the mindset and measurements from metrics that IT and SVM think the business and their customers care about to metrics that reflect customer value.

Metrics drive behaviour and we want to ensure that we avoid the classic “watermelon effect” where metrics are being reported as green but once you cut below the surface, you find that the customers and end users are really dissatisfied with the service, and the real-world experience is actually red.

Experience level agreements focus on the customer’s and end user’s experience when consuming your products and services and should be used to complement existing, meaningful metrics.

What could this shift look like and what should we be measuring?

Graph1

Experience level agreements take an outside-in view from customer and end-user perspectives, looking at how to improve products and services and the delivery of these.

What does this mean for SVM professionals? To build effective experience level agreements, SVM professionals need to look at the desired end state or optimal customer/business outcome and work their way back to a set of accompanying and relevant agreements. Focusing on metrics that show early, measurable success in business terms, instead of activity-based metrics, will showcase the value of the SVM function and their alignment to their business partners and customers.

What might these revised metrics include?

  • The 3 “Es” – How easy and effective is it for customers to engage with products, services or touchpoints provided by your partners and do they have a positive emotional experience during these interactions?
  • Time to market – Measures business agility and how quickly new products, services or touchpoints can be launched by partners.
  • Customer adoption and satisfaction with products/services created or co-created with partners.
  • Customer lifetime value (CLV).
  • Business and IT stakeholder engagement/satisfaction with SVM.
  • Business and IT stakeholder engagement/satisfaction with partners.
  • Percentage of partners considered to be strategic (along pre-defined, customer focused areas).

How do they do this?

  • Align SVM metrics with overall strategic business objectives and customer focus
  • Engage the partner management organization in both strategy development and metrics implementation
  • Stop measuring activities and start measuring outcomes
  • Embrace subjective measures of perception
  • Eliminate “gamed” metrics and reduce metrics that are no longer important or do not focus on the customer experience
  • Monitor for unintended consequences after metrics implementation to ensure that well-intentioned measurements are capturing the customer and business value in the way that was envisaged

Remember, metrics should be designed to motivate and assist your strategic partners to improve their performance and not be used as a vehicle to impose penalties.

This article was co-authored by Elaine Hutton, principal consultant at Forrester. She has over 20 years' experience in a variety of industry sectors covering telecommunications, financial services, oil and gas, retail, and defense.

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