Fact-Based Management should provide the information needed for clear communications that enable buyer-contractor relationships to deliver value — and given these trying economic times, allow breakthrough ideas or initiatives that bring increased quality and savings.
Yet, we are finding that performance measurement itself is underperforming.
According to a 2008 survey by the International Association for Contract & Commercial Management (IACCM)
and Argea Consulting, less than 40 percent of respondents feel that performance monitoring is serving a useful purpose.
Addressing this weakness may prove somewhat difficult, since each group appears to see measurement goals and problems differently.
Contractors seem to feel that measurement activities are motivated by the customer''s desire to cut cost and demand more.
By contrast, customers believe that the purpose of performance management is primarily to assure service quality and identify opportunities for continuous improvement and/or innovation in the service arrangement.
This difference in views increases the risk of failure and ultimately reduces the chances of innovation or well-managed improvements in services.
These survey findings highlight the lack of agreement over results and marginalize the relationship toward a reactive, rather than proactive, management model.
The lack of a clear and consistent results-oriented scope of work also works against formulating objective, meaningful key performance indicators (KPIs).
And without these KPIs, measurable judgments on performance tend to become highly subjective.
Unless everyone is in agreement about what is to be measured, the data being collected and the resulting information exchanged is unlikely to be effective in fostering performance improvements.
A solution for resolving these measurement challenges is available for those willing to make a commitment to creating a successful and measured relationship.
The solution is found in: Consistently and objectively measuring performance; measuring the right key performance indicators; starting measurement with outsourcing; and ongoing management.
Consistently And Objectively Measure Performance
While the quality of the data collected seems to be the second most important factor for monitoring performance — behind defining the right KPIs — a majority of those surveyed were not happy with the quality of data they were collecting.
While 96 percent of those surveyed said that service level agreements (SLAs) are an important management tool, nearly 40 percent of buyers and 24 percent of contractors said they do not systematically measure performance.
Measure The Right Key Performance Indicators
Both buyers and contractors believe that effective performance measurement is achieved by clearly defining the right KPIs.
However, both also agreed that this area exhibited the largest gap in skills.
Only 3 percent of the contractors surveyed identified continuous process improvement as a primary reason for measuring performance.
The rest identified contractual considerations, such as cost control, complaint management, etc., as primary reasons.
This indicates that contractors focus on delivering what was agreed to at the time of contracting, not on the evolving business needs of customers or constant improvement of the services delivered.
This suggests that there is a lack of clarity among both buyers and contractors on what is important for their business, what needs to be monitored, and therefore a failure to align expectations.
Measurement Starts With Outsourcing
We do what we''ve always done, and yet we expect a different outcome.
Many buyers do a lot of product purchasing, where a highly detailed description or specification of the product is the path to success, at the lowest price.
After all, it''s the same product, so the only difference is the price vendors are willing to offer.
While the vast majority of buyers also agree that services are different, they use a product-buying strategy to purchase and measure services.
Buyers document a detailed service "specification" that defines everything the contractor must do, how often to do it, products, equipment and materials to use and sometimes how much labor is required.
With so much of what to do specified, buyers mistakenly believe that the best measure of the differences between contractors is price.
Over half of the buyers surveyed do not think they had professionally qualified project managers overseeing the buyer-contractor relationship.
By contrast, nearly three-quarters of the contractors believed that the buyer does have a professionally qualified project manager.
Next month''s column will examine possible success strategies for overcoming these challenges to effective performance measurement.
Vincent F. Elliott is the founder, president and CEO of Elliott Affiliates, Ltd. of Hunt Valley, MD, www.ealtd.com. He is widely recognized as the leading authority in the design and utilization of best practice performance-driven techniques for janitorial outsourcing and ongoing management.