Use Service-Level Credits And Incentives To Manage The Value In Outsourcing Relationships

Service-level credits and incentive models are important tools to help outsourcing clients increase business alignment and enforce service-level achievement. Although we speak with many clients who are using these tools, the service providers often have different opinions — they often see credit models as superfluous. There are valid reasons for their skepticism: While the main purpose of service-level credits and incentive models is to get providers to focus on the right service levels and to drive the outsourcing relationships toward better business alignment, the current use of credits and incentive models is generally weak and ineffective. To improve the value of these tools, sourcing and vendor management (SVM) professionals need to ensure that service-level credits and incentives are focused on the relevant service levels, covering the critical business needs, and in the case of incentives, identifying where overachievement is reasonable for the business.