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The Watermelon Effect in Outsourcing

By Paddy Padmanabhan, Founder & CEO, Damo Consulting

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Paddy Padmanabhan, Founder & CEO, Damo Consulting

You are a CIO of a large enterprise. Your service provider has been   reporting outstanding performance to   you on their service level agreements.   And you just got off the phone with   your key business stakeholder who   expressed extreme frustration with the quality of   service from enterprise IT.

"In large outsourcingcontracts, clients handover substantially all control over IT operations to the service provider,and hope the provider will step up and whip the environment into shape"

  If you’re a CIO who has outsourced IT operations   to a global service provider with an offshore delivery   model, you just experienced the Watermelon Effect. 

 Watermelons are green on the outside and red   on the inside. In this case, your service provider has   green on their dashboards, but you are experiencing   red within the organization. Why does this happen?   Here are some common reasons: 

-Everyone is touching some part of the   elephant:
You went from having complete control   of all aspects of IT to a multi-vendor environment   (including your own internal org that retains some   functions). Everyone is focused on their piece, and   are neither accountable nor care for how the other   pieces function.

- You don’t have an outsourcing czar: 
There   needs to be someone who is focused on end to   end service quality at the enterprise level. This   individual knows how the individual service   components work, and has a deep understanding   of outsourcing and offshoring. If you don’t have   one of these folks, then you’re it.

  - You think you have handed over the keys to  the kingdom:
In large outsourcing contracts,   clients hand over (or think they have handed   over) substantially all control over IT operations   to the service provider, and hope the provider   will step up and whip the environment into shape.   Unfortunately, most service providers fail to do   that.   For their part, here is a   sample of what service   providers tend to do:

  - Define SLA’s in a way   that it’s impossible to   miss them: An example of   this would be to sign up for   system down times at aggregate   levels, so even if one component of   the system (let’s say a critical hospital   in a large system of hospitals and clinics) is   down for half a day, it all comes   in under allowable limits at the   enterprise level. The system   looks like it’s functioning well at   the enterprise level, however for   that one hospital, a critically ill   patient’s life may have been put at   serious risk due to an inability to   access the EMR system during an  episode of care. 

 - “Negotiate” exclusions:
   Service providers have mastered   the art of holding everyone other   than themselves responsible for   service quality deficiencies. When   there is a failure somewhere, they   will quickly identify some other   component of the system that   caused it and negotiate exclusions   to avoid penalties.

  - Downgrade the critical SLA’s   :
Service providers know all   too well where the challenges   are, and they will be careful   about assigning higher risk pool   percentages to these critical   items.   And so, the Watermelon Effect.   In healthy outsourcing   relationships, neither party wants   to experience this.

  Here are some things service   providers and clients can do to  avoid this: 

1. Hold each other accountable:
 In large outsourcing relationships,   the client all too often tends   to blame the service provider   for everything. For their part,   service providers fail to insist   on the client’s fulfilment of their   obligations around a robust   technology environment,   governance and compliance with   internal policies and standards.

  2. Define service levels in a   meaningful way:                                                                                                                                                                                                                 what’s the   most critical indicator of service   quality, and how does one   measure it? Unless you know the   answer to the question, your SLA’s   are pretty much meaningless.

  3. Manage expectations:
all   too often, internal customers   will demand things like fournine   system availability without   understanding that it costs money   to build an environment that will   meet the expectation.

 Ultimately both service  providers and clients want to  succeed.The Watermelon can be  the fruit of joint labor.      

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