PERFORMANCE MANAGEMENT: THE CONUNDRUM OF SUPPLIERS SOLUTIONS IN THE CLOUD
Lead Consultant
Sourcing Consultant
Most company’s mission critical solutions today are hosted in the Cloud, and the suppliers make many contractual promises on how they will performance, including how much availability the solution will have and how responsive support will be, but do you know if your suppliers are keeping to their performance requirements? One of the most significant challenges facing companies today is how to manage and optimize the performance of Cloud suppliers, and as more technology solutions move to the Cloud, your company has a greater chance that any issues with your most strategically important and operationally impactful suppliers go unresolved.
Technology-savvy companies have already instituted a more intensive vetting process for their prospective Cloud suppliers, but the challenge becomes getting any specific performance commitment concessions your company may need. This results in your team now focusing not only on the critical areas of confidential data protection and other information security protocols but also reviewing in greater depth the suppliers’ standard SLAs to determine they fully support your company’s requirements, and possibly more importantly, what happens if they do not.
Oftentimes, Cloud suppliers want to stick with what they have standardized. And that's where the conundrum begins.
Take a moment to consider your company’s customer-facing business systems. Your team needs to ensure that the prospective supplier’s standard availability SLA is in keeping with your requirements. This may mean that the prospective supplier’s availability SLA should be at least 99.9%, a reasonable standard in Cloud solution parlance. (Sadly, many Cloud suppliers are lower.) But this could result in 43 minutes of daily downtime. Would that be acceptable for a customer-facing solution?
Another key SLA is response and issue resolution times, particularly for what are usually referred to as “Severity 1, Critical Issues”. This issue level typically means that key functions of the system are not operational or responsive to users. This severity of an issue should be no more than two hours, if at all possible, with resolution times no longer than eight business hours. Cloud suppliers like to set their SLAs and expect you to live with them. They’re quick to throw out terms like “industry standard” and “contractual standard terms”.
How can you move the needle on what is presented and what you need if these are different measures?
One way to potentially improve your operational support is to negotiate terms where the Cloud Supplier agrees to “KPIs,” which are Key Performance Indicators. These are typically stated more like joint “goals,” and normally do not carry remedies with them like SLAs do for performance “misses”.
Now, you might ask, how do we make sure these are met?
Seprio’s Supplier Governance Operational Model recommends, as part of your Supplier Performance Management process, that your supplier manager and service team review with your Cloud supplier its performance against established KPI metrics at scheduled joint performance review meetings. As a precursor to these meetings, your team will develop a comprehensive performance dashboard to monitor monthly and quarterly supplier performance against these metrics. Periodic review sessions allow representatives from both parties to discuss any issues or shortcomings of the product or service with the ultimate goal of resolving them before they become bigger issues that are unresolvable.
We’ve focused on Cloud suppliers here, but this process holds true to ALL your key suppliers.
Additionally, Seprio strongly recommends requiring your supplier to perform a formal Root Cause Analysis (“RCA”) as part of your company’s standard operating procedures, and then, after determining the performance issue’s root cause(s), the supplier should be required to submit a formal, time-lined Corrective Action Plan (“CAP”), to be submitted by a senior executive of the supplier to your company’s senior executive with the primary responsibility for the business area supported by the outsourcer Supplier’s services.
The active involvement of both company’s senior executives is a critical component of a successful Performance Management program.
The process we have defined here may not eliminate the conundrum of suppliers sticking with their standardized metrics when the contract is crafted, but it does allow you to express your concerns and require that your suppliers commit to improvement to better meet your specific needs. Stop by next week as we recap and conclude the Seprio Summer Series.
Please join us next week as the 2025 Seprio Summer Series ties everything together into a beautiful bow, and concludes this series.
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