A successful Vested Agreement depends largely on clear thinking and accurate answers to two essential questions: What are the results needed from our Vested Agreement? And how will we know when we get the needed results?
Adhering to Element 3 (covered in the previous 10 Elements series) means you have answered the first question by establishing Desired Outcomes and the Statement of Objectives. Under Rule #3, the Vested Agreement will contain performance metrics that clearly define and measure success against the parties’ Desired Outcomes. Implementing Element 4 – Top Level Desired Outcomes – will help answer the second question by aligning your metrics to your Desired Outcomes.
A key part of implementing Element 4 is to further describe the outcomes/ Statement of Objectives by aligning the parties on a performance statement, or the targeted level of performance for each of the objectives.
The overarching agreement should focus on the critical few metrics that are linked to the Desired Outcomes. However, many other process and operational measures are needed to track day-to-day performance. Thinking about metrics in terms of a “metrics hierarchy” can help ensure that companies properly establish the correct levels of KPIs, process measures and results measures.
Key Performance Indicators (KPIs) represent the broadest sets of metrics that are typically end-to-end in nature and determine overall success against the Desired Outcomes, regardless of whether the company or the service provider is accountable for discrete activities. Jointly establishing KPIs will help avoid Ailment #8, Driving Blind Disease because the organization must collaboratively and transparently establish the definitions and measures that define success.
Many companies feel comfortable only creating and measuring t- level metrics. However, others feel the need to have formalized SLAs (service-level agreements) in their agreement. This “next level” of metrics includes specific service provider metrics. A common mistake companies make is skipping over the Top Level Desired Outcomes metrics and only creating SLAs. If you use SLAs, they should be in addition to KPIs associated with top level Desired Outcomes. Another common mistake comes under the ailment (#9) known as Measurement Minutiae. The hallmark of this ailment is the attempt to measure everything; few companies have the diligence, resources and time to monitor every measurement they create. They thus create a blur of information and statistics but find no helpful clarity.
Many companies often ask “what about those day-to-day activity level measures?” We agree these are important measures, but they are operational in nature and best suited for the service provider to measure—not for the company to measure and micromanage the service provider. If you find yourself wanting to dictate operational measures, you clearly will fall victim to the measurement minutiae ailment and you are likely have team members who are junkyard dogs.
For much more on implementing Element 4, see chapter 5 of The Vested Outsourcing Manual. Also note that Vested’s free self-assessment will help in benchmarking your agreements so that you can identify the structural flaws that can bar transformational success. The 10 Ailments assessment will also help in assessing the ailments plaguing you.