The maturity of the OPD segment is seen in the kind of SLAs signed these days. Compared to the ways in which SLAs used to drawn up five years ago, the industry has come a long way. But there are many challenges, some of them specific to OPD, still to be met.
Karthik Ananth, Director-Market Expansion, Zinnov, says, "SLAs have evolved as the maturity of offshoring relationships have changed, and have moved onto having new engagement models between vendors and clients, which include risk reward, revenue share, penalty etc."
With new engagement models in place, there are new challenges. Transparency is the key to any successful relationship; one of the key challenges in OPD contracts is the ambiguity in way in which project requirements and expectations are drawn up.
One of the experienced OPD services providers, Symphony Services' COO Amitava Roy shares his experience and says, "Contracts start with conceptual agreement and clarity evolves over a period of time. Hence, accuracy of estimation always remains a challenge. Close collaboration and confidence between the client and service provider are key to driving success mutually. The relationship is more of a partner / co-creator than the traditional client-vendor relationship."
Overcoming Ambiguity
Ambiguity could be around requirements, scope creep, lack of domain / product understanding, hiring the right skills etc. OPD Services Level Agreement always has risks associated with it and these need to be identified and managed.
On a similar note, another experienced OPD services providers GlobalLogic' Global Delivery Head Murali Nair also talks about the challenge and says that defining or benchmarking service levels and adhering to them over a period of time in that relationship is the most challenging part.
Customers fear losing the customer base, brand value, and potential prospects when expectations around building new products are not clarified. "The primary drivers for a customer to mitigate the risk are process maturity and best practices around tools and technologies along with the fundamental outsourcing advantage in terms of costs and access to larger talent pool, says Roy.
Industry expert Zinnov advises that the challenges and risks can be managed if both the teams set the right expectations. So, if vendor over-commits during a sale, the SLA would be hard for them to adhere to. Similarly, if a client does not clearly articulate the complexity of the task, it would be extremely difficult for a vendor to clearly assess the activity and commit to service levels.
Customers want to monitor and measure the service levels and ensure that the SLAs are maintained over a period of time--- quarterly or semi- annually..
Nair says, "There are certain parameters which define the measurement--quality, schedule, structure, alignment with the domain, value added processes to productivity. Where on the one hand, some companies want to standardize these SLAs, some on the other don't even sign SLAs as they see comfort level with their partners."
Best Practices
Following established best practices reduces the risk. An SLA-based engagement model requires competence to manage the business risk. Managing business risks starts with clear understanding and review of common goals well before signing an agreement. Some of the salient features that a service provider should pro-actively look for are capacity and competence to execute the project; internal system support; rigorous project management; risk management and change management process alignment and buy-in with the client before signing the agreement.
Roy says, project milestones need to be designed in a risk manageable way where delays of intermediate milestones do not affect the common goal. This also helps prevent associated penalties. Most desired commercial construct is to have the payment schedule reasonably front-loaded to manage business risks of non-payment due to uncontrollable factors like change in management or not meeting the dependencies committed by the client.
Nair says, "There should be a good level of understanding between the two partners. The data, which is collected by the provider for methodology, should not be questionable. It is important to baseline SLAs at the current performance level. Historical data can help base lining SLAs. It should not be defined at the time of the crisis. It should be defined right at the start."
Managing SLAs
SLAs are made primarily around meeting clients' business objectives/goals and aligning people, processes and technology to meet the end goal with least cost and time. Roy says, "SLA should include breaking down high level SLAs into lower level SLAs to define thresholds for each one of these. Once this is done, tasks are associated with lower levels SLAs and these tasks can be tracked and monitored closely throughout the duration of the program."
Measuring relationship quarterly or half-yearly is also a good practice.
Unlike customers in the past who were looking for cost arbitrage, present customers not only want improved bottom line but also want increase in their top-line. Nair suggests, "To increase the top-line, the provider could provide new features in the product and architecture design so that the product becomes more efficient. Providers will have to find differentiators they could bring to their customers and subsequently grow their businesses."
A service provider must work on a well-contained scope of the project. Project scope change is unavoidable and needs to be managed through a controlled change management process involving client stakeholders who control the budget. Managing the scope change is significant for both service provider and the client to ensure that product/solution envisaged for deployment happens with fewer roadblocks.
"It is a matter of building confidence in the client that service provider understands the scope of the engagement well, so that the relationship is well managed when scope changes happen. Hence, containment of scope is very important at the initial stage of the project or before the agreement is signed. To do so, the service provider must demonstrate strong project management and technology/domain understanding capability," explains Roy.
Making it Stick
Setting, tracking and managing parts of SLA are also complex and therefore challenging. With experience and proper processes, management of SLAs can be institutionalized and made simpler to manage. Ananth says, "Setting, tracking and management part of SLA' s are to a great degree dependant on the relationship between the vendor and the client. At most times the SLA's are set based on comfort level and expectations between the both. Tracking of SLA's is done by the respective project teams and one generally has an escalation matrix in place. Managing SLA's as with everything else is about communication. The success of a client vendor relationship is driven by the degree of communication between the two teams and this applies to SLA's too."
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