The importance of the statement of work and providing a primer on what makes a good SOW shouldn’t be underestimated.
Ambiguity is a poor HRO foundation. During a recent industry webcast, attendees were asked of their opinion on the biggest governance challenge in outsourcing. There were many choices, but overwhelmingly the vote went to “delivering against ambiguous expectations.” While there are other important governance concerns, no other is as far-reaching and problematic.
The statement of work (SOW) is a primary mechanism by which a customer communicates business requirements and expectations to a service provider. The clarity of the customer’s technical, service, management and implementation requirements and of both parties’ individual and joint roles and responsibilities for service provision has a major impact on HRO success.
TBI has seen service provider profits and customer dissatisfaction grow exponentially when requirements and respective roles and responsibilities are not examined, evaluated, and documented in great detail prior to contract signing. That’s right—for those of you who think that leaving a little vagueness in the SOW works in your favor by giving you “wiggle room” so that you can ask your provider to do a little more than they might have expected when they priced the deal, the evidence is to the contrary.
Everything you need to add to the SOW to clarify service provider responsibilities after going to contract is potentially subject to added costs. And when needed services have not been clearly included, customer satisfaction with service and pricing suffers.
Well-prepared SOWs are the underlying foundation for a successful HRO negotiation, implementation, and governance. We have heard service providers say “in a good deal, we’ll never have to refer to the SOW again.” The inkling of truth here is that when the SOW is clear, it will be well understood with no conflicts in perceptions of roles and responsibilities of the type that lead to finger-pointing and waving the SOW as evidence of each parties’ position in the argument.
However, in a healthy deal, the SOW is a valuable management tool. It provides a clear foundation for pricing and cost benchmarking, establishes guides for collaborative work efforts, and provides the baseline needed to evaluate changing requirements over time. In practice, though, many are inadequate for these purposes.
A best practices SOW is a comprehensive and stable guide to roles and responsibilities under the outsourcing arrangement, which can be easily referenced to answer questions. Tips for creating SOWs that are valuable management tools in HRO are shown in Table 1.
Because the SOW is core to many other aspects of an effective contract, it should be as clear and comprehensive as possible. It should also have a very “user friendly” format in order to facilitate answering questions such as “What are we paying for?” “Is our SLA comprehensive?” “How do our work processes interface?” and “How does pricing benchmark compare against similar deals?” With the proper investment of time and effort, an SOW can be developed that becomes one of the most valuable HRO governance tools you can have.