Performance-based Contracting: The Next Step in Sourcing


It has long been standard practice to include performance-based metrics in sourcing contracts. These metrics have traditionally been in the form of key performance indicators (KPIs) and service level agreements (SLAs) to define minimal acceptable service standards. The assumption is that if providers maintain certain standards – a set number of full-time equivalents on the service desk or a set number of days to answer service requests – then the quality of the service is being effectively managed.

Today, high-performing organizations are increasingly building experience and satisfaction metrics into their sourcing contracts, especially in cases where the services delivered have a direct impact on the end user and the contract is “outcome-based.” Outcome-based contracts are those in which either all or part of payment to the provider is tied to its ability to achieve a specific outcome or result.

There is growing recognition that, due to their high level of business visibility, end-user services play a critical role in shaping perceptions of the entire IT organization. For many users, end-user services will be the only interaction they have with IT. It is also worth noting that users often do not differentiate between service provider entities that deliver services and internal IT teams that simply manage the provider relationship.

The concern with traditional approaches to performance management is that end users tend not to be aware of, or particularly interested in, KPIs and SLAs. Instead, they focus simply on whether or not the service is meeting their expectations and allowing them to perform their roles effectively and efficiently. To assess this, the enterprise needs to measure how users perceive the quality of services with a more nuanced view than KPIs and SLAs alone can demonstrate. The answer? End-user satisfaction metrics.

This ISG white paper Performance-based Contracting: The Next Step in Sourcing explores how to build satisfaction metrics into a sourcing contract. Contact us to find out more about how ISG’s User Experience index (UEi™) can help you build the workplace of the future.

About the authors

Lauren is a Senior Research Consultant who works to measure and assess the health of business to business engagements amongst many large organizations. She has run a number of programs assessing the User Experience (UEi™) and health of Business and Vendor Relationships (BRm/VRm) between users of technology, technology groups and external vendors. She has conducted more than 100 interviews and worked on a number of bespoke customer satisfaction and programs for clients in manufacturing, resources and the financial sectors.

Jaimee manages the benchmarking database and analyzes business-to-business engagements for some of the largest Australian and international organizations. She is involved in the design and delivery of ISG’s User Experience index (UEi™), taking an active role in the end-to-end research process from design to data analysis and report delivery. Jaimee has expanded the UEi™ question library and the ISG Satisfaction Benchmarking database, which has led to a considerable broadening of ISG’s benchmarking capabilities.