Five factors to be considered while defining Outsourcing KPIs
No doubt-KPIs are a must to monitor the effectiveness of service delivery in outsourcing/ Offshoring contracts.
The definition of KPIs is an involved exercise, primarily driven by the key business drivers of outsourcing and the strengths & weaknesses of the suppliers selected. A task force constituted by experts from customer and the supplier(s) should brainstorm and arrive at the direct and indirect measures. If the contracts are long, these KPIs have to be reviewed on a regular basis and make suitable tuning based on the changes in the environment.
There could be multiple factors that decide the destiny of an outsourcing program. It could be cost, content, quality, schedule, SLA adherence, business value etc. Though, all are good to be controlled, sometimes more control may result in more damages. Hence the levers to be pressed have to be carefully prioritised and corresponding KPIs have to be defined, monitored and controlled.
Based on my experience with many outsourced programs, following are some of the factors to be considered while defining KPIs.
- Customer’s Business Objectives – What are the key business objectives behind the outsourcing drive? For e.g. it could be enhancing customer experience and increase customer lock-ins or enhance customer acquisitions. There could be many such. Based on these key objectives, KPIs need to be defined. These KPIs will be usually reported to the senior management who are more bothered about the business outcome irrespective of outsourcing or off shoring.
- Key levers based on business objectives – Now, in order to realise the business objectives identified as above, what are the top levers to be pressed – E.g. it could be cost, schedule, content, quality etc. KPIs based on them will aggregate to the business KPIs.
- Processes to be measured – It is also essential to monitor the process quality that is used to develop and deliver the services. It could be supplier specific or customer specific or standard. E.g., if you are following agile based models, it would make sense to monitor the robustness of agile implementation by defining certain key KPIs. E.g. it could be no of successful product builds in a day b) % of test automations done overall c) Bugs trend in each sprint d) feature velocity etc
- Competency landscape of the team – All of the KPIs would make sense if the whole program is executed by the right competent team. Hence it is essential to define KPIs related to the individual competencies or team competencies and review them on a regular basis.
- Team stability – Everyone knows that all defined objectives might be met if the work force behind is stable. Hence it is absolutely essential to define KPIs to indicate the stability in team, infrastructure etc.So, in short, defining KPIs is an art and it has to be done by keeping the business objectives of the customer and the strengths & weaknesses of the suppliers in mind. If done diligently and tweaked intermittently, the KPIs would give a clear view of the health and quality of the outsourced program.