Services Procurement

Minimum Performance is a Service Level to be Proud Of

My husband is a Goldratt trained “Theory of Constraints” expert. One of his favorite quotes is:  “If the minimum isn’t good enough, why is it the minimum?”

I wondered if that was something he made up or if it was a quote from someone famous – maybe a Euclid era mathematician, it seems like it should be in Latin: “Nisi sufficit minimum, minimum non est.” (Yes, I know Euclid is Greek but I don’t know any Greek!)

Alas, he is the wisdom behind the quote, but not the Latin.  And he is my inspiration for this series of posts about setting proper measurement to get the best from your service contract. And for all you over achievers out there, hang on- I am not suggesting you settle for mediocre. I am recommending you give serious thought to this subject as it has a very direct impact on price and customer satisfaction.

Here’s what I plan to share over the next several posts:

  • General theory and thinking on Service Levels and Metrics
  • Appropriate metrics depending on industry and maturity of relationship
  • How to set up a Scorecard, a Survey, an Audit Process and Fee at Risk or Incentive Schemes
  • Best in Class Governance Processes

This area of Service Level, Metrics and Service Provider Compensation is ever evolving. Remember my mantra – “Services are a People Business”.  With people, motivation is a key factor in performance. How we choose to measure and motivate people will produce results… and, on occasion, not the results we expect.

Once you’ve gotten clear on the work you want a Service Provider to perform, the Service Level Metrics section of the contract is always the hardest and the longest to negotiate. Even though we are all crunched for time in this productivity driven business world we live in, I encourage you to spend some quality time thinking about how you will measure and motivate your partner. Time spent now is an investment in better business results tomorrow.

Warning – Service Levels have a direct implication on pricing so don’t even begin to negotiate price if you have not spent time working with your Internal Business Partners and Supplier to align the work and the minimum performance expected.

How will you know that the supplier delivered what you agreed:

Service levels are your specification; they describe the look and feel, the dimensions, the reliability of your Service in a way that ensures both the buyer and the seller understand each other.  Pricing, service quality and customer experience are impacted by the design of Service levels and metrics. Here are some examples:

  • If services are performed in an industrial area, Safety is likely a key concern. And while the ultimate goal is that no one gets hurt, a Critical Performance Indicator might be the ‘not to exceed’ number of injuries allowable in a given time period also called the Total Incident Rate.
  • If delivering savings vs the budget is a performance expectation, a Key Performance Indicator might be a quarterly measure of the percent complete of savings for the year. This will give you an indication that the supplier is on-track (or not) to deliver the annual target.
  • A financial services provider may be responsible for invoice payment and dispute resolution. A KPI for this service might be invoice payment on time, average processing time and number of complaints.
  • Customer Satisfaction is an important deliverable in Travel Services so customer surveys offer an indication of whether the traveler was happy with the service or not. As a traveler, I am really happy when I am able to travel business class! But, the cost of this kind of travel might not match the budget expectations.

So, while an indicator of Service, it is only one way to measure the Service Partner’s performance. The design of your survey is important – gauging happiness or satisfaction requires asking questions in a way that give you meaningful feedback. For example, instead of asking me if I was happy with the seat assigned, you could ask me if I believed I received good value for the ticket price.

Here are some criteria to consider when developing your service levels and metrics:

Who is your stakeholder or your user and what do they need?

Stakeholders are those interested and concerned about in the services being delivered – the Service Manager, the Business Leader funding the Service. Users are those who experience the service first hand – the traveler, the accountant submitting the invoice, the employee eating in the Dining facility.

Put yourself in their shoes or better yet, interview them to clarify their expectations on experience, quality, price.

What is most important to them and why?

What are the critical deliverables and how will you know you’ve achieved them? Without the proper guidance and leadership, you may be setting your supplier up for failure.

Likely some areas are more important than others so give your supplier an indication of priority by weighting your KPI’s based on criticality. For example, if Service is your highest priority, and you plan to assess it via an annual customer satisfaction survey; give it a weight of 50%. This will guarantee that your Service Partner will place priority focus and attention to this area. But just like the unfortunate case of students only learning materials that are on the test, be sure to properly design your survey!

WATCHOUT – Be careful of too many measures – Suppliers will see this as too many opportunities to lose fees and your team may be spending more time collecting data to complete a scorecard than focusing on moving the business ahead.

How will you know you are on track?

The purpose of service metrics is to ensure the services are delivered to a level of satisfaction and to demonstrate business improvement. No supplier aims to deliver sub-standard performance and no client hires a supplier simply to take away fee due to under delivery of expected metrics. But, “Services are a People Business”.  Unless your relationship is based on trust, you may see some unhealthy behavior. Watchout for complaints of unfair scoring or too many green metrics. Recall my opening comment:

“If the minimum isn’t good enough, why is it the minimum?”

Smile IMG_6255If all you see on scorecards is a sea of green, you likely haven’t set your minimum expectations high enough!

A few yellow scores that are properly addressed indicate a healthy service environment.

So, how do you answer the question “if the minimum isn’t good enough, why is it the minimum”?

 

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