A company’s added value is established by the execution of a set of processes.  It follows that “performance” measurement ought to be seen as process performance measurement and that competitive differentiation results not only from product and service excellence, but also from excellence of process execution.  IT outsourcing has successfully delivered IT improvements and cost reductions.  As a result, the focus of ITO contracts has been on cost.  Business Process Outsourcing focuses on process performance and, as a result, BPO contracts must focus on process performance in addition to cost reduction.

Most company’s today do not have a process inventory and do not know how their execution of each process measures up to that of their direct competitors, let alone the wider global marketplace.  Yet it is at the process level that true competitive performance is determined – and should be measured.  This leads unwaveringly to the conclusion that outsourcing contracts must now aim higher than mere cost reduction and best serve the client company when they are based on the delivery of a specified performance improvement of one or more processes.  The translation of all of this is Vendor Management Organization or VMO.

A successful ITO engagement starts with the selection of the metric(s) that define the performance of the targeted process.  The system for measuring the on-going performance of that metric then needs to be selected, agreed upon and assigned to a mutually agreeable party, who may be neither the process owner nor the vendor.  In fact, it is better that an independent 3rd party be used for this critical role, so that both parties feel that there can be no manipulation of the results.

Each metric needs its own measurement system and, in the case of multiple metrics for a single process, a performance weighting of all metrics is needed to determine how process improvement is gauged and how the service supplier is compensated.  The idea is to create a win/win situation and one where both parties are on the same side of the ledger (which is not true for contracts aimed at cost reduction).

 

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