Outcome Based, Shared Risk, Managed Support Service – Model For The Future?

With the advent of cloud computing and wide adoption of outsourced and offshore service models, many organizations are relying on partners to provide managed services, more than ever. While this will help transfer capital expenditure to operational expenditure and allow organizations to focus on “Core Competencies”, the challenge remains on how efficient the service model is and how satisfied the customers are? These also increase the risks for organizations as the impact of failure is felt the most by the sourcing organizations compared to the managed service providers.

On the flip side, it is reasonable for the partner to expect incentives for not only delivering outstanding services but also continually improving them. In this context it becomes very relevant to establish a relationship that constantly measures the outcomes and provides an opportunity for both parties to share the risk. Such models will provide incentives to all stakeholders for defining a business service better, identifying outcomes that are objective and also operate the process of periodic review and improvement of the services.

Let’s briefly look at each of the aspects mentioned in the title of the post.

“Managed Support Service”:

The fundamental principle that drives this aspect of a service model is the fact that the customer is not micro-managing the personnel of the partner by assigning specific tasks, rather measure the quality of service delivered and drive towards continuous improvement. The the quality of service is to be defined in terms of specific outcomes.

“Outcomes”:

In my opinion the outcomes should be defined in business terms. While it is possible to define the business outcomes, it will be very hard to get the partners agree to specific outcomes and the associated incentives/penalties for (non) performance in delivering these outcomes. However, from an IT perspective, it will be lot more easier to leverage on the commitments made to the business i.e. the service levels to ensure they run their operations uninterrupted.

“Shared Risk”

When the customer and the partner agrees to a managed service, based on the agreed upon outcomes, then there should be an incentive/penalty model that would drive the overall engagement to continual improvement. Thus, the partner gets penalized for non-performance but gets incentives for better performance.

These elements will ensure that the business gets what they want for the money they spend, the customer IT organization will manage the quality of service rather than partner’s personnel and the partner gets the incentives to deliver on commitments and continuously improve as well. This would be a “win-win” proposition for all the parties involved, in my opinion.

All in all, as noted in this article titled “What matters most in Outsourcing: Outcomes vs.Tasks“, by the CIO magazine, while the outcomes based managed service is a holy grail, I personally have driven multiple contracts in this direction and even managed programs in this model. Given the direction we are all headed in terms of Cloud based services, I think this is a model that would work and should be used more often.

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About Venu Mallarapu

I am currently working as Associate Director at Cognizant Technology Services in their Life Sciences division. I have over 15 years of experience in developing IT Solutions and Services, specifically for Life Sciences industry for about 9 years. I have worked with small to large pharma customers to address various business requirements in R&D, Sales and Marketing areas. IT Service Management is one of my other passions. I blog and write about technology frequently and have also presented at various conferences and workshops on wide variety of topics in technology.

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