There’s been a steady evolution in the management of third-party service providers in the Information Communication Technology (ICT) arena, and the way in which their services are integrated within the client’s environment.
Alan Turnley-Jones, Director of Managed Services Development and Operations at Dimension Data believes this can influence the decision on the type of principal service provider that organisations may want to partner with for the long term. Global ICT service providers are no longer what they used to be.
Today, the way in which long-term services contracts are structured, businesses are increasingly outsourcing particular services that they’re unable to deliver themselves to qualified third parties.
But the responsibility for managing and integrating these services – and reducing on behalf of the client what’s sometimes called ‘supplier sprawl’ – still rests with the principal partner… and the leading players in the services field are getting good at it.
According to Turnley-Jones entering into a long-term services partnership is not a quick decision for any organisation. “Clients usually complete all due diligence processes thoroughly beforehand. In addition, they already have a long-standing relationship with their principal service provider. In this way, the relationship is forged with an eye on a long-term commitment, and they’re very rarely nullified,” he says that all the important questions about the basis of the partnership should therefore be clarified before a master service agreement (MSA) is signed.
Turnley-Jones believes success is more about the match of partners, than what goes into the contract. However, in the due diligence processes, there are seven key questions that should be covered.
Seven key questions that should be covered by due diligence processes
1. How stable is the service provider’s financial position?
2. Are there any relevant parent company guarantees for liabilities arising from the contract?
3. How flexible is the service provider’s relationship with key vendors and third-party service providers? In other words, would there be room to mix and match according to the client’s specifications, or would the contract lock the client into specific organisations?
4. Which governance structures does the service provider have in place and are they adequate?
5. Which sourcing models can the service provider offer and do they fit the client’s needs?
6. Is the service provider able to benchmark itself, as well as the market, within this vertical to ensure the appropriate pricing?
7. How high on the service provider’s agenda is innovation? Does it have the teams and skills in place to create the best possible outcome for the client, whether through commercial architecting, solution architecting or service architecting?
Commenting on the partner match, Turnley-Jones says size and geographical footprint should be considered, but the biggest service provider is not necessarily the best. “It’s more important to establish, during the due diligence phase, whether there are other client organisations of similar size and geographic spread – and within the same vertical industry – already in the service provider’s stable. These references might be invaluable when deciding on the provider’s ability to serve the client’s needs effectively.”
Shift in responsibility
Over many years’ experience with entering into MSAs with clients, service providers gain valuable experience in a number of areas. In fact, the greatest element of change has come from client organisations wanting service providers to take even greater responsibility than before for priming contracts, and sourcing, vetting, managing and measuring third parties on their performance.
Increasingly, principal service partners take less responsibility for service delivery, and may even outsource all of the required services to subcontractors. The result is the emergence of a new type of player in the services arena, which Gartner has called “third-party multisourcing service integrators” that “manage work streams, ensure execution and measure value.”
Adds Turnley-Jones: “It’s in these areas where large service providers are starting to distinguish themselves, because this is where they’ve built up the most valuable and unique skills and experience: not in the actual service delivery so much, but more in ensuring that subcontractors deliver at a standard that meets the clients’ needs, and match industry benchmarks and best practices.”
With the speed of doing business increasing exponentially around the world, clients are finding that their time to contract cannot keep pace. “In the IT outsourcing arena specifically, we often see organisations completely bypass their own internal IT departments and go directly to competent multinational service providers to manage their benchmarking, brokering and sourcing. Service providers have simply become better and faster at doing so.”
Turnley-Jones points out that MSAs themselves are not new, and it’s in the way these contracts are being managed more effectively at the service integration layer where true innovation lies. “That’s why it’s become ever-more important to ask which service providers have the best service integration and management skills and resources, along with the ability to deliver certain services themselves.”
Alan Turnley-Jones, Director of Managed Services Development and Operations at Dimension Data