Outsourcing is increasingly becoming a top strategic management tool as companies focus on their core business. This involves turning over responsibility for work process and results to someone else.
The track record of the outsourcing company, combined with effective performance measurements, ensures you get better performance from your outsourcing company than from traditionally managed services. The key result of Performance Management is to:
- Foster a partnership, not an adversarial relationship. The Outsourcing company’s success is your success
- Support your company’s overall strategic goals.
- Focussing service delivery on what matters to you.
- Enable you to provide leadership and management on strategic issues and outcomes, not processes, practices, procedures or methods.
Effectively implemented, performance measurements drive the behaviours you want and result in the performance you need while at the same time making the overall management of the contract easier. Providing the outsourcing company with clear goals and objectives will drive specific outcomes that support your company’s success.
The real key to effective measurement is to focus on results. Measuring process may be useful to track the direction things are going and provide an early warning system, but ultimately, the only thing that matters is results.
Building a flexible performance measurement framework into the contract is important, and ensures the outsourcing company knows and understands your expectations and performance targets in advance. There are a number of considerations that will ensure a healthy, stable, flexible relationship that gets you results:
- Define the Measurement framework in the Contract. The clearer expectations are, the better.
- The contract language and structure should support and encourage achieving performance.
- You need to maintain flexibility so your measures can change as your business evolves through the life of the outsourcing contract.
- Outline the fundamental areas of performance that are critical to your core business success.
- Define the measures, targets, measurement tools, incentives, penalties and management processes up-front.
- Set reasonable benchmarks or develop the benchmarks in the first year of the contract.
Most performance measurement frameworks involve penalties or incentives of some nature. Design these carefully to drive the behaviours you want while ensuring a fair relationship with your outsourcing company. Some key considerations include:
- Incentives are more likely to inspire performance.
- Incentives or Penalties must be relative to the performance (outcomes or results).
- Not all measures should be linked to Incentives/Penalties.
When developing the measurements themselves, ensure the measurements relate to your company’s core business and meet your corporate goals and objectives. Start by identifying the key success factors that are important to your core business, then identify the related key success factors for the facility management services provided by the outsourcing company and align your measurements with these.
The term Key Performance Indicators (KPI) is commonly used for all measurements, however it should be reserved for a small handful of critical measurements that relate directly to the company’s core business. The rest of the measurements should be used as a tracking and management tool, since they are typically related to process or simply roll-up into the KPI’s.
There are some fundamental characteristics of good measurements. These characteristics include statistical relevance, objectivity, the ability to be quantified and within the outsourcing company’s control. For each measurement you develop, test it against these characteristics. If they don’t match, you should re-evaluate the measure.
Before implementing measurements, you should ask two questions:
- What behavior will this measurement encourage?
- Will this behavior support my company’s goals?
With carefully designed and well-implemented performance measurements, you will get performance like you never did before. The measurements provide you with control over the results, establish common priorities and clear goals, provide feedback and management information, drive the behaviours you expect and most importantly, give you the results you need to be successful.