Misalignment between vendor goals and business objectives
In theory, what we expect of technology vendors should be in alignment with what the business expects and needs of the technology function. If we work to improve vendor performance, the business should be in a better position to meet financial objectives and serve our stakeholders.
Otherwise, why bother managing vendors at all?
But in practice, comparing vendor performance through SLAs with business financial objectives can feel like converting inches to kilometers. There is a disconnect between the language and metrics we use to describe technology vendors and the financial terms that define business value.
For example, a vendor’s agreement may guarantee XX% first call resolution, XX% uptime, <4 hour response, etc. Those metrics define quality delivery for a service provider, but how do they relate to business value creation? If the vendor improves their performance against one of those metrics, will the company have a better chance of hitting their financial objectives?
Reconciling the language we use to define vendor performance with the objectives set by the business is the first step to finding alignment and understanding the business value created by these vendors.
Need for better metrics
Gartner and EBRC worked together to define this common language with their Business Value Model (BVM). They point out that the market no longer looks myopically at lagging indicators of financial success like EPS and ROIC, but rather considers leading indicators that imply trajectory. Therefore, businesses need to adopt a broader, more operationally focused set of objectives.
This balanced scorecard approach prioritizes operational capabilities over quarterly financial performance. Strong delivery against operational objectives is a leading indicator of future financial results.
The model also applies to technology vendors. While it may not be possible to connect Vendor SLAs with ROIC, it is possible to show a relationship between vendor performance and balanced scorecard objectives. So long as everyone agrees these objectives measure business value and are a leading indicator of financial performance, they are relevant and warrant investment.
Connecting technology outcomes with business needs
The COBIT 2019 Goals Cascade creates the needed connective tissue between technology activities and business needs. (1) Stakeholder Drivers and Needs lead to (2) Enterprise goals, which lead to (3) Alignment goals, and (4) Governance and Management Objectives. COBIT measure performance against these objectives with defined capability levels on a scale of 1-5.
COBIT explains how improvements in capability level flow up through the goals cascade to provide value to stakeholders. For example, a new managed security service provider (MSSP) improves the capability level from 3 to 4 of the management practice DSS05.02 Manage Network and Connectivity Security, which supports the Alignment goal “AG02 Managed I&T-related risk” and the Enterprise Goal “Managed Business Risk”. We can reason that the MSSP is providing measurable business value as it contributes to the fulfillment of that enterprise goal.
COBIT’s management objectives are much more comprehensive than the BVM aggregate and prime objectives. COBIT covers technology end to end with useful, actionable definitions of processes and capability levels. BVM uses leading performance indicators that tie directly to financial performance metrics investors care about. The two could be combined in an effective way as a BVM style balanced score card that uses the COBIT process definitions.
Aligning business needs and business objectives on a balanced scorecard with technology needs and vendor SLAs makes for a more efficient flow of value from the vendor to the business. Defining technology vendor spend in financial terms in context of business objectives makes that spend more relevant and impactful.