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April 28, 2015

Is it time to ‘throw SLAs on the scrapheap’?

Too much being spent on cutting IT costs.

By Alexander Sword

The majority of IT directors’ spend with outsourcing companies is focused on reducing IT costs.

According to the survey from MooD International, 52 percent of spend goes on cutting IT spend rather than achieving business growth.

This is despite only 21 per cent of IT directors and their teams citing cost reduction as the most critical area for the outsourcing partner’s use. 48 percent claimed revenue generation and growth are the most important initiatives in the business.

Miscommunication was another problem; seventy-six per cent of respondents said that their internal clients’ expectations are not aligned with the outsourcing suppliers’ perception of what they are contracted to deliver.

The report suggested that a reliance on transaction-based service level agreements (SLAs) were creating some of these problems. While 77 percent of suppliers discussed business benefits to a great or fair extent when contracting, 64 percent of contracts are either entirely or mainly measured on transaction based SLAs.

The news comes amidst suggestions that IT directors are feeling increased pressure in their role. 58 percent claimed that it has become more difficult in the last year for suppliers to deliver within an agreed budget, while 30 per cent believe that internal clients’ satisfaction rates have declined over the last year. 57 percent said that their role has become harder over the past year or so.

46 percent also suggested that their satisfaction with their job has declined slightly or significantly.

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George Davies, CEO, MooD International, comments: "SLAs are outdated and should be thrown on the scrapheap; the outsourcing world has progressed. Suppliers need to move on from two-dimensional management of service performance to a third dimension – the ability to clearly understand the business impact and achievement of business outcomes.

"Automation and digitisation should be the driving force behind activity and transformation as they will improve processes, drive out cost and importantly, accelerate innovation and line-of-sight to business value."

Davies continues: "IT directors and managers are getting pressure from multiple directions when it comes to outsourcing. On one side they’re facing pressure from their internal clients to show clear business value, whilst driving out costs and demonstrating innovation. On the other side they have suppliers who are trying to make a fair profit in an increasingly complex role.

"Outsourcing can bring benefits that are felt at all levels of a business, from the data centre right up to the CIO, but if these benefits are not communicated properly then the improvements being made can be missed.

Davies adds: "There needs to be a common view which joins up all the parts of the supply chain and can identify gaps – and resource-wasting overlaps – ensuring there is transparency across the business and not inefficient silos. The move we’ve seen towards using multiple specialist suppliers looks like it’s having an impact on the role of IT directors and managers and making their jobs more complex.

"The more suppliers you have, the more important it is to have a clear view of what’s happening across the business in a joined up view. Whether your service integration and management is done in house or outsourced, both clients and suppliers need to be able to access the same information to give them the same view of the status of the business and the true end-to-end business performance."

The research, carried out by Illumia Research, spoke to 164 IT managers and directors responsible for the management and budget-holding of IT, applications or business process outsourcing projects.

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