Multi-sourcing Governance through Operational Level Agreements Navoneil Bhattacharyya and Bhuwan Atri Disappointed with the failure of traditional IT outsourcing, many leading enterprises are moving away from large, multi-year, single-vendor contracts. Instead, they are adopting a new model, one commonly referred to as “multi-sourcing”, which involves allocating separate IT functions to different vendors. This enables them to leverage the skills and value propositions of each vendor to enhance efficiency and reduce risk. However, multisourcing is not without challenges. It requires a wide range of services to be demarcated, tracked and measured, while simultaneously retaining a holistic view of the company’s entire IT infrastructure, applications and processes. In response to this challenge, Infosys has adopted and refined the concept of Operational Level Agreements (OLAs), a metric-based approach to coordinate and manage multiple services. Originally developed to ensure coordination within a company’s IT organization, OLAs provide the mechanism for ensuring vendor collaboration and end-to-end service governance in multisourcing. Jun 2006 Balancing the Benefits and Challenges of Multi-sourcing Large IT outsourcing initiatives are increasingly being implemented through agreements with multiple vendors. Typically called multi-sourcing, this arrangement enables enterprise IT organizations to increase efficiency, reduce costs and improve service quality, by leveraging the capabilities of each partner. Unlike sole-sourcing – a relationship in which a single vendor is given well-defined work units and a commensurate span of control and accountability, multi-sourcing requires two or more vendors to work together to deliver a single end-to-end service. In multi-sourcing, no one vendor is accountable for it in its entirety. Diffused accountability makes vendor coordination and collaboration difficult. This raises the critical question for services clients – how to combine the benefits of multi-sourcing with the single-point accountability of sole-sourcing? To ensure accountability among vendors in a multi-sourcing arrangement, there must be rules that describe interaction. Operational Level Agreements (OLAs) set out such rules by demarcating responsibilities between vendors, defining interaction for delivery of services and providing incentives for adherence. OLA: Theory and Practice The concept of OLA originally addressed dependencies across the internal sub-departments of corporate IT organizations. Multi-sourcing arrangements are similar in that there are multiple vendors with different roles and responsibilities, e.g. application development and/or maintenance, infrastructure management, etc. However, unlike internal IT organizations, vendors in a multi-sourcing arrangement, while individually accountable to the client through Service Level Agreements (SLAs), are not necessarily accountable to one another. In addition to providing different skill sets and value propositions, vendors in a multi-sourcing arrangement may represent different business cultures and languages. Also, each vendor contract may contain commitments to specific service levels, which can be disparate across vendors. OLAs provide a framework and mechanism for coordination and collaboration among vendors. However, establishing and administering OLAs through a metric-based approach without the provision for legal recourse, but with incentives sufficient to induce adherence, is a great challenge. To overcome this, enterprise clients must play different, often critical roles throughout the OLA planning, implementation, and governance lifecycle. The Client’s role The enterprise client or customer’s involvement in the OLA definition and implementation process changes with progressive phases. During the kick-off phase, for example, client involvement is critical in ensuring buy-in and common understanding of the expectations from all the concerned vendors. This role changes to one of oversight and facilitation during the OLA definition process. After the vendors have jointly defined the OLAs, client involvement again intensifies during the internal review and approval phases. After OLA approval, the client’s focus turns to commitment compliance report verification and validation, dispute resolution (if disputes are not resolved by the vendors themselves), and the review of maintenance-related changes, if any. Establishing OLAs The first step in establishing an OLA is the creation of a development roadmap (Figure 1). It involves the identification of vendor interdependencies and determination of contractual gaps in their management. Then a set of cross-vendor services underpinning these dependencies (called underpinning services), and a comprehensive set of metrics and measurement mechanisms to manage these services are created. 2 | Infosys – White Paper Figure 1: OLA Development Roadmap The process of defining and establishing OLAs requires the dedicated involvement of a core group. This group comprises of authorized vendor representatives conversant with their respective contracts. It identifies and defines interdependencies and underpinning services between vendors for each service. This is accomplished by studying process documents and sharing information contained in vendor contracts. An anchor representing the customer’s vendor management or procurement organization oversees the core group. Infosys – White Paper | 3 OLA Organization and Governance The OLA(s) that result from the planning, development and approval cycle define change management, problem resolution and other activities between vendors. Each vendor is answerable to the client for its part in the system or process, as defined by contracted SLAs (Figure 2). Figure 2: The Organization of an OLA At the heart of OLA is the Responsible-Accountable-Consulted-Informed (RACI) matrix – also called the responsibility matrix. It captures cross-vendor dependencies, and defines roles and responsibilities of the vendors involved. Vendor representatives sign the service matrix in agreement of their share of responsibility in the delivery of each service. The matrix allocates – either in singular or in combination – the following roles to vendors participating in a service: • ‘Responsible’ – the party is required to execute the activity • ‘Accountable’ – the party owns the “bottom-line” for the activity, and hence is also the party with decision (“Yes/No”) authority for the activity • ‘Consulted’ – the party is involved in providing inputs prior to the decision related to the activity • ‘Informed’ – the party must be informed of the outcome of the activity For an OLA to function smoothly, only one vendor should hold the ‘Accountable’ position for an activity. 4 | Infosys – White Paper The RACI matrix is administered through a series of governance mechanisms developed by the core group. They include: • Management organization • Cross-vendor communication protocol • Escalation protocol • Dispute resolution mechanism. Although the involvement of customers in creating OLAs is low, their involvement in running it is deep. Running OLAs is a balancing act between enforcement and cooperation, and each company has to strike its own balance. Pragmatism is the guiding theme in dispute settlement. Ideally, mechanisms related to dispute settlement should be tiered. Bilateral settlements must be attempted first. Only if these fails should the customer be involved. OLAs must always be kept away from legal enforcement, since that can complicate governance. The Case for OLAs At Infosys, we believe that the OLA concept can be extended to bilateral agreements between vendors providing IT services in a multi-sourcing engagement. This will enable companies to adopt flexible, best-in-class multi-sourcing, while ensuring accountability of individual vendors. By comprehensively addressing the complexities inherent in multi-sourcing, OLAs make it easy for enterprise IT organizations to implement and take advantage of this model. Responsibilities defined at a greater level of granularity than sole-sourcing, ensure seamless operations. OLAs provide IT and sourcing executives as well as decision-makers with a more transparent view of the entire outsourced activities and services. OLAs also enable relationship managers to sensitize vendors to the business goals of their companies. These agreements relate outsourced IT tasks to the client’s business goals through a chain of agreed performance levels, thus significantly enhancing the alignment of IT with business. The result is better governance and lower vendor management costs. In short, OLAs lend sharp focus to multi-sourcing – the current preferred outsourcing option. These agreements are designed through discussions and implemented through cooperation and agreement between vendors, with oversight from the customer. OLAs improve transparency in outsourcing, and help multi-sourcing achieve high quality delivery of end-to-end IT services. OLAs are, therefore, a very important consideration for organizations considering multi-sourcing. About the Authors Navoneil Bhattacharyya is a Project Manager with Infosys Limited. He has about eight years of experience in the software industry. He is dedicated to the development of the concept of Operational Level Agreements, as applied to multi-vendor outsourcing scenarios, and the practical implementation of these agreements. He can be reached at [email protected] Bhuwan Atri is an Associate in Infosys’ Strategic Global Sourcing Solutions group. The group is responsible for developing best-in-class frameworks, methodologies and practices aimed at improving business process and IT outsourcing effectiveness and efficiencies. Bhuwan holds an MBA from the Indian Institute of Management and a bachelor’s degree in engineering from the Indian Institute of Technology. He can be reached at [email protected] Infosys – White Paper | 5