Putting the contract to work

Putting the contract to work

Working in a sourced services environment is not trivial and simple things often take longer and cost more than what you would typically expect. So, what’s missing? Is it leadership, innovation, knowledge or collaboration?

The simple fact is this. Work gets done through and with people from the client and the service provider, and it only gets done when people have a clear understanding of what needs to be done, how it’s done, who will do it and how it relates to other work and overall objectives. To provide this focus and clarity, we at Leadmark see the operationalization of a sourced services contract as a critical step to take the deal from the contracting stage into the operational stage. It is a step often underestimated or neglected by organizations resulting in misunderstandings, non-compliance, mistakes, obligations not being fulfilled and results not realized. So, before starting to manage a contract make sure it’s operationalized.

The idea behind operationalization is that if you want to manage the performance of a contract, you need to control the units of performance which includes obligations, services and deliverables.


Just what is operationalizing a contract?

To operationalize a contract is to put it into practice or use. It is the process or approach of making a contract a living, valuable part of the way how sourcing partners work together by strictly defining contractual obligations into clear, well understood, observable and measurable actions.

Operationalizing a contract involves 4 keys:

The first key in operationalizing sourcing contract is to take ownership of it. Don’t just enter into an agreement and then hope that results will emerge. Create the contract, then work and govern it until it delivers the anticipated outcomes. Operationalization turns a good sourced services contract into a strong and living operational guideline for both sides of the relationship. Suppliers schedule the work needed to deliver the services. They actively track and report the metrics that show the value they are delivering, assuring the client that they are delivering on promise and adjusting when they are not. Clients schedule performance and invoice reviews based on the value of the work delivered and associated risks.

Second, an operationalized contract does not sit in isolation. When the contract is signed, leadership makes sure that the work of the people shoveling the sand is clearly tied to the objectives, obligations and services contracted. It starts by extracting obligations, services and deliverables – the units of performance –  from the contract and to be operationalized, the contract should engage both the client and the service provider at the operational, tactical and strategic level. To clarify obligations, services and deliverables they can be put in a story format where each story reads like a narrative that provides context and meaning; Who delivers what and by when, what are the constraints and quality attributes, what are the risks and which controls should be put in place, who reviews and accepts the results? Once the contract is operationalized, the work can roll into action, with everyone understanding exactly what to do and how their tasks and schedule align and how they contribute to the overall objectives.

Third, the operationalized contract becomes the lens for the organization to view results, assess risks, identify opportunities for improvement and make informed decisions. Rather than looking at the contract as a whole – a monolithic entity – specific units of performance are addressed. Which obligation, service or deliverable is not met and how does it affect overall quality? What are the main risks we are facing, where do we see opportunities for improvement and where do we focus our control efforts. Are we in alignment with contract intents and objectives? The contract lays the groundwork, and all activities should be detailed and measured against, aligned with, and driven by it.

Finally to fully the operationalize a sourced services contract you need to make it flexible – able to be easily revised, updated and adjusted throughout the term of the engagement. Are the risks you are treating still current? Make sure opportunities for improvement do not go unnoticed. Are you still focusing on the highest priorities or do you need to put different controls in place? An operationalized contract is regularly updated so that it is a accurate reflection of the contract, current priorities and the objectives of both sides of the partnership.


How to make it happen?

To operationalize a sourced services contract means that the organization is making efforts to reinforce the behaviors that will continue to drive productive collaboration and create a culture of transparency, focus and fact based decision making. There is however no magic formula to operationalizing a contract and making it an essential piece of your operations. Implement the 4 keys above: take ownership, align work – throughout both client and supplier organizations – to the contract, use it as the lens to monitor performance and keep it current.

Most importantly, realize that operationalizing your contract is not an instant solution, a “one and done”, but rather a way of approaching your sourcing contract throughout the entire life cycle that makes it an integral part of the ongoing governance of the engagement. Because it typically involves keeping track of a large number of items over a long period of time the use of technology is advised to keep things collaborative, efficient, visible and transparent. For this you might want to take a look at our cloud based governance platform TRAC.

Here are some examples of operationalized obligations: