How to (contractually) arrange a beneficial ‘modus operandi’ with your service provider?

This article will be the first in a series of articles that address the non-technical aspects of acquiring service based concepts, approaching the word ‘service’ as a practice, not a product.


Over the past years, we have seen a dramatic rise in solution providers changing their license model to service based concepts. In contrast to acquiring a product (for example, a software solution), you and your service provider start a long-term, intensive relationship.

Their service activities will become an integral part of your business processes, taking a profound share in your operational business opportunities but also risks.

Therefore, instead of mainly discussing technical qualifications such as scalability, security, cost and software customization, acquiring service based concepts means taking into consideration more operational aspects as well.


3 ways to optimize your service contract

In this first article, Christian Renders (responsible for IT projects and service integration at Uniper in the Benelux) and Jesper den Engelsman (Head of Managed Services at Energy21), will share their thoughts on the starting point of the relationship with your service provider: the service contract. They will try to find an honest and realistic answer to the following question:

When moving to service based concepts, how to (contractually) optimize the ‘modus operandi’ with your service provider to maximally benefit from the services offered?

Significant parts of the answer can be found in 1) regulated proximity, 2) tranparant and business driven targets and 3) close involvement in the contracting negations. Let’s take a closer look at each.


1. Create regulated proximity towards your business departments

Business departments tend to define their desired IT solutions themselves. Yet, within the relationship between the IT department and the business departments, Renders stresses that both parties should stick to their expertise. It should be the IT department that pro-actively defines the correct IT solutions to current and future business problems.

To be able to do so, he argues that being responsible for IT has got more to do with business than with IT. “I spend 80% of my time among my business colleagues”, says Renders, “since I think it is most important that I understand their job and the hick-ups in their daily processes, not the other way around.”

This means that if one outsources IT service management, it is most important to organize a similar, close connection. “One cannot expect a service provider to provide outstanding service management if they are not able to get as familiar with the essentials of your business departments’ daily processes (and challenges) as you do.” says Renders.

Den Engelsman agrees, “from a service provider’s perspective you owe it to your customers to know what they are doing and why they are doing it. This can only be accomplished if both parties invest time and effort in sharing knowledge and creating awareness.”

But allowing a direct connection will make most IT managers fear blind follow up of IT requests by dirty & quick fixes resulting in the creation of an IT infrastructural monster, know both Renders and Den Engelsman.

To take away this fear, the solution can be found by only mandating business up to a certain level. All fixes that exceed this level will be discussed and evaluated more extensively. This way, you can create increased proximity and speed up the process while monitoring thoroughness.


2. Target models that live up to the meaning of “service”

It is important to create mechanisms that trigger your service provider to be transparent about the quality of their work. “I’ve seen contracts in which the service provider was paid based on the number of closed incident tickets, resulting in a perverted incentive: ticket creation led to higher payments.”

Therefore, don’t focus on fix targets but on prevention targets. Renders explains: “Problem management is a key to success, as this will make the total number of bugs decrease over time. This is beneficial for all, as business experiences less disruption in their application landscape and IT can spend more time on structural improvements of infrastructure and application functionality.”

Both the customer and the service provider take a shared responsibility in this. The quality of a fix and the extent to which it contributes to managing the bigger problem, is defined by both the solution and the definition of the problem. “In your release management process, include clear definitions of a proper problem description”, says Den Engelsman, “and create a culture in which your service provider is eager to ask supplementary questions”.

While many focus on the number of fixes, “service targets should ultimately be defined by the business processes they support” says Den Engelsman. For example, look at the invoicing process of an energy supplier. Instead of agreeing upon follow-up time, number of fixes and availability hours of the system, the service target could be defined by the number of invoices that can be processed within the hour.

That way, the service provider focuses on making sure that the service is available at exactly the right time, in exactly the right manner. This can in its turn result into lower effort and lower costs, yet optimal availability. 


3. Beat contractual mis-matches: corporate compliancy versus business reality

A third way of securing high quality service is to stay in the driver’s seat during the contract negotiations, up until the final bit. Contracts should pass all legal and financial compliancy requirements, but be aware that technicalities like intellectual property or payment terms do not make the success of the operations.

To protect your business from contractual mismatches, limit your contract to business-driven service targets as explained in the previous section. “Business priorities are jeopardized when contractual targets just consider resolution times rather business continuity,” says Renders, “If a billing run needs to be completed today, business is not helped if the incident will be resolved ‘within 8 hours’; it needs to be fixed right here and right now.”

If you do prefer to address operational details, create a separate Operational Manual. Creacting such a non-legal document has another important benefit: speed up operational change management. “Along the road, new insights will force you to quickly change your modus operandi. The extensive compliancy checks that are needed to change legally imposed procedures will slow down your operational resilience”, according to Den Engelsman.


Bridging the first 2 years…

“My experience is that it will take a year or two to develop a partnership that is able to optimize results”, says Renders. In his long experience in running IT operations, implementing new IT capabilities and setting up contractual relationships, he knows that you’ll learn by doing and that it takes a lot of commitment from both parties. However, the above 3 strategies can help you and your service provider make it through these first 2 years.

In upcoming articles, we will take a deeper dive into the relationship between you and your service provider after the contracts have been signed and the actual service delivery will have to start taking place. Stay tuned!

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