Walking back service levels a client couldn't control, before signing

The situation

StatusNext was asked to help the client negotiate a new, performance-based agreement with its main customer, who was a primary growth driver for the business. The primary problems StatusNext encountered were two-fold:

1. Lack of direct control of the outcome. The new metrics required by the client’s customer were largely out of the client’s direct control. The client could influence the metrics, but customer behavior ultimately drove the outcome.
2. False confidence. The client had been successful in winning and executing on previous “time and materials”-based service agreements, and this was a new, performance-based agreement. Unfortunately, prior success fueled optimism in the client’s belief that they could meet any service level for which their customer was willing to pay.

What was at stake

The client forecasted 30% year-over-year growth of their service business for the next 5 years.

What StatusNext did

StatusNext’s task included 1) an assessment of the client’s ability to meet the performance levels demanded in this new agreement, 2) recommendations on the service levels the client should be willing to commit to, and 3) real-time negotiation support.

Research StatusNext conducted through problem discovery sessions and client stakeholder interviews provided a robust understanding of the problem. StatusNext then conducted a deep quantitative analysis to assess the client’s ability to perform. This step included analysis of historical performance, statistical and simulation modeling of the client’s service process, and developing a model to translate performance metric outcomes into financial terms, including incentives and margin.

From there, StatusNext helped the client understand the story that the data was telling. StatusNext was ultimately asked by the client to tell the same story to their customer at the negotiation.

What changed

The analysis proved critical to the client’s financial performance on the new agreement.

1. Expectations grounded in data. During the negotiation preparation phase, the client reset their own expectations (reduced their optimism) with respect to their ability to deliver to the customer’s demands.
2. Data-driven negotiation. During the negotiation and with StatusNext’s real-time support, the client successfully negotiated lower service levels in the agreement.
3. Financial success. During contract execution, the client achieved the desired financial outcomes of the contract.

This engagement led to follow-on work redefining the metrics themselves.