With the advent of the digital enterprise where more and more organizations are executing to their digital agenda, new technologies are being deployed across industries to support the needs of the next generation enterprise. While this gradual move to digital has implications in multiple areas of your business, it will also affect how you evaluate and select your Application Maintenance and Support (AMS) partner. Recent UpperEdge engagements have shown that the uncertainty of some of the new technologies deployed in the digital age can have a direct impact on the outcome of commercial negotiations during the evaluation and selection of your AMS partner.
New Technologies Create Uncertainty and More Provider Reluctance to Bear Risk
The digital age has brought an onslaught of recently released technologies to the market. These new technologies, while offering exciting new enterprise capabilities to support their business objectives, also significantly disrupt the concept of “business as usual” and have natural implications for both organizations and providers. As you establish your next generation support model via a third-party AMS provider (the focus of this blog), two aspects of this reality will need to be considered and dealt with during your AMS evaluation and selection process:
- Brand New Technologies = More Unknowns for Your Organization: Introducing new technologies into your application portfolio increases the level of uncertainty of support requirements due to the inability to rely on historical data and prior end-user behaviors. This will make the accurate baselining of ticket volumes during the negotiation phase challenging and may result in baseline volumes misaligned with the magnitude of the actual support levels required down the road.
- Brand New Technologies = More Provider Reluctance to Bear Risk: While uncertainty is an inherent characteristic of the deployment of any new technology within an organization, the digital space and its plethora of brand new technologies brings another level of unknown due to the more limited experience that AMS providers can rely on when it comes to technologies recently released on the market.
During the course of our engagements, we often see prospective AMS service providers anchor their approach to negotiations on the unknowns brought along by those new environments to defer commitments towards a later stage of the relationship. While this is fair to a degree, there are certain mitigation measures to leverage during AMS negotiations. These measures help to ensure the level of protection and accountability afforded by your commercial arrangement is not diluted by the uncertainty specific to the advent of new technologies.
Key Risk Areas and Mitigation Measures
- Ticket Baseline Protection: Your upfront workload baseline estimates may not reflect the actual level of support that will be required over the next few years. Predicting actuals with a high level of accuracy is challenging in and of itself; even more so when it comes to brand new technologies. Securing a flexible and predictable re-baselining framework will allow you to adjust your baselines without seeing your baseline costs fly through the roof.
Specifically, in high uncertainty environments, UpperEdge recommends securing the one-time ability to adjust baseline volumes after the go-live of each environment (assuming multiple go-live scenarios, otherwise after your one go-live event) based on a 2-3-month re-baselining period. The one-time baseline and cost adjustment mechanism should be clearly defined in the contract to afford predictability as to cost adjustments based on defined volume increase/decrease increments.
- Pricing Adjustment Structure: Temporary and unpredictable workload variations are prevalent in the context of new technologies. Protecting your costs while ensuring your AMS partner is committed to handling unforeseen issues becomes even more important. Secure a comprehensive pricing structure that includes:
- A buffer (dead band) within which monthly workload variations above and beyond the baseline will be handled at no cost
- Pre-defined unit pricing and credits (additional resource charge/reduced resource credit) to determine monthly cost adjustments for workload variations outside of the buffer thresholds, and
- Re-negotiation triggers for consistent and significant (i.e., -/+ 25-35%) workload variations above AND below the baseline.
- Continuous Improvement of Service Level Agreements: Under a high uncertainty scenario, move away from pre-set year-over-year service level improvements that impose a defined improvement to a service level annually regardless of the actual performance of your AMS partner throughout the year (e.g., avoid a minimum adherence percentage for an SLA increased by 10% annually). In the context of new and more unpredictable environments, these pre-set mechanisms may create unnecessary pressure on the relationship with your provider and set new expectations that are not backed up by precedent and have limited opportunity to course correct.Secure a framework that includes annual service level improvements based on an average of the highest actual monthly results throughout the year. This will ensure consistent improvements to your AMS partner’s service level commitments aligned with actual performance. Note that your provider may request a cap on each year’s improvement, which is a reasonable expectation.
- Service Level Accountability Framework: Secure a flexible service level framework that guarantees quarterly adjustments of service levels to increase the level of accountability progressively as the environment matures. For those new technologies that present more uncertainty, consider carving out service levels to be initially tracked as key performance indicators (i.e., no penalties for failure) with a contractual, unilateral, ability to promote such service levels to critical performance indicators (i.e., penalty structure applies) on a quarterly basis after your AMS partner becomes more familiar with your environment. This level of flexibility should carry forward to your penalty structure, with a quarterly ability to reallocate credit percentages across critical performance indicators to increase accountability in specific “problem” areas.
- Regarding penalties, note that AMS providers are getting more and more discrete in their approach to credit structures by adding carveouts/relief from service-level failure under specific low volume scenarios. While generally appropriate, low volume exceptions should be carefully reviewed to ensure low volume/high business impact service levels (e.g., Severity 1 restoration time) are still backed up by the right level of accountability.
- Key Personnel Protection: Introduction of highly sought after, cutting edge technologies typically creates scarcity in the availability of skilled resources. Demand for these skilled resources increases, which drives competition between the various providers. Ensuring your key support personnel are locked during the term of your agreement will help mitigate the risk of seeing your AMS partner frequently swap out your key resources, which can potentially result in impact to service delivery.
Overall, it is critical to strive to resolve the issue of change and uncertainty in your next generation support environment collaboratively with your AMS partner. If the advancement of new technologies in the digital age can impact some of the business and commercial practices of your AMS providers, they should still be the best positioned party (as experts in the field) to provide solutions to the risk associated with a time of significant change in your organization. The areas discussed, while not exhaustive in nature, are key examples of commercial frameworks that can be used to strike the right level of accountability and flexibility in a time of constant evolution.
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