In today's business environment, corporations are turning to, and relying to an ever-increasing extent on, their technology departments' capabilities to "give the corporation an edge," both in the quality of the products and services that it delivers and in reducing its overall cost to market. This in turn places tremendous pressure on the Technology Procurement Organization or "TPO," the corporation's lawyers, contracts managers and buyers who purchase the company's technology products and services. The TPO, including the corporation's technology lawyers, must not only improve its support of internal clients and stakeholders and the fundamental management of its day-to-day responsibilities, but needs to push the corporation's infrastructure and its own internal services to the leading edge with respect to both technology and business. In other words, it's important for the TPO and technology lawyers to come to grips with their changing roles in the corporation, and the growing demand to not merely support the corporation and manage technology procurement costs wisely, but to also create business value for the corporation.
Unfortunately, many TPOs have evolved in a manner that impedes their ability to do this. They originated as cost centers so their funding models are utility-centric and rigid. Their legacy organizational structures, systems, processes and tools prevent them from responding to increasingly sophisticated and time-sensitive business demands. So how does the TPO remove the "just overhead" label and instead create business value for the corporation? I believe that there is an external component to this transformation, as well as an internal component.
The external component requires upending the customary service performance specifications and required service levels found in technology contracts with the corporation's many vendors and suppliers. The premise of this external component is that traditional service performance specifications and required service levels found in most technology contracts - metrics such as availability, response time, utilization or time to restore or repair - merely help manage technology operations, and do nothing to create business value for the corporation. Such performance specifications and required service levels are presented, measured, monitored and reported in "technology terms." Satisfaction of these measures results in the corporation not incurring additional costs to the respective vendor and supplier contracts. The vendors' and suppliers' failure to fulfill their contractual obligations may result in the corporation getting a nominal break on its bill - so the poorly performed contract just doesn't cost the corporation quite as much money. From the perspective of the TPO's internal clients, however, is that a significant material benefit to them or the corporation?
For technology contracts to create business value for the corporation - rather than just "cost less" - the agreed-upon performance specifications and required service levels must be expressed not just in technology terms, but in "business terms." This means that the language needs to be constructed from the perspective of the TPO's internal clients and stakeholders. The corporation is ultimately interested in improving the quality and effectiveness of its products and services for its customers, and its own productivity and efficiency in providing those products and services. Performance specifications and required service levels in technology contracts should, ideally then, focus on business results gained - expense reduction, increased revenue and return on investment - rather than technology-centric measures.
Take a typical technology contract service level such as response time, a common metric for a software system. Response time is a measurement of how long it takes the software system to respond to a user command and execute the requested action. However, eliminating an entire screen display from the software routine may in fact decrease overall order entry time and improve productivity far more than that gained by quicker software system response times. This reduced order entry time relates far more directly to the work performed by order entry clerks than system response time. It's also far more meaningful because it contributes to customers' satisfaction with the corporation's delivery of its products and services. Increased customer satisfaction should then result in increased revenue for the corporation, both in the short term and in the long term.
Performance specifications and service levels, found in the corporation's contracts with its technology vendors and suppliers, should be monitored, measured and reported to the corporation's TPO and the principal internal "customers" for the contracted products and services on a monthly basis. However, these service levels, rather than being measured and reported in traditional "technology-centric" terms, should instead be measured and reported in business terms, focusing in the following areas:
Efficiency: Efficiency is critical to capacity planning, technology tool utilization and load balancing. Greater predictability in the usage of technology will generally improve the overall productivity of the corporation;
Effectiveness: From the perspective of the corporation's management and its technology users, the alignment of performance specifications and service levels should enable the TPO to describe technology effectiveness in business terms. For example, a statement that articulates the economic benefit to the corporation or the return on the technology investment is much more compelling than simply detailing greater technical performance of the corporation's data center; and
Satisfaction: Measures of user and customer satisfaction have long been discounted by technology department personnel as being "soft and mushy" and not nearly as useful as knowing that the network is up "four 9's." I respectfully disagree. Measuring how well users of technology assets, resources and tools are served at the desktop, and how well customers are served by this technology, has enormous value. Areas of dissatisfaction can be useful in identifying potential sources of errors, which in turn cost the corporation additional expense and lost customer opportunities. Satisfied users will also often find new ways to increase the value derived from their technology tools. And of course, the TPO's changed orientation towards user and customer satisfaction also fosters its being viewed as a key member of the corporation team, and a creator of business value.
Additionally, now that these performance specifications and service levels are being measured and reported in business terms rather than technology-centric terms, they can finally also be reported to, and understood by , senior management of the corporation in summary fashion on a quarterly or annual basis, clearly demonstrating the business value created by the TPO and the corporation's technology lawyers through the performance of these technology agreements.
The internal component requires the TPO to break down the well-established rule to provide "one-size-fits-all" products and services across the corporation. Historically, this has been done to gain economies of scale in providing various technology services to the organization. However, this requires a high fixed cost and, without an elaborate chargeback system, provides no ability to recoup expenses or demonstrate real value. This is the number one cause for internal clients' perception that the TPO is "unresponsive and inflexible." The objective then is to reduce the fixed costs associated with the provision of one-size-fits-all, and focus instead on the internal clients as if they were individual paying customers. The TPO should identify particular client needs and meet those needs with a responsive portfolio of products and services, to:
Build a strong foundation - but as small and nimble as possible - for the use of shared resources;
Leverage and manage vendor relationships across internal client and stakeholder groups; and
Facilitate the resolution of specific business projects and opportunities.
Aligning technology performance specifications and required service levels with a corporation's business metrics is critical to establishing that the TPO and technology lawyers create real business value for the corporation. Therefore, converting technology-centric measures in vendor and supplier agreements to measures related to revenues, expenses, productivity, efficiency, profitability and return on capital and investment are essential.
Published February 1, 2007.