• Level 1: Vendor management fundamentals
• Level 2: Defined service outcome
• Level 3: Measurement
• Level 4: Trust
• Level 5: Recognized business value

Level 1: Vendor management fundamentals
Our research indicates that 25 percent of IT organizations fall within this category. This state represents the worst-case scenario. It is characterized by a narrow contract management focus, misaligned expectations, absent SLA reporting, nonexistent processes, and no foundation to build trust and create value. The remediation strategies revolve around changing vendors constantly, but with limited success.

Level 2: Defined service outcome
Our research indicates that 50 percent of IT organizations fall within this category. To reach this status, the following conditions must be met:

• Establish remediation strategies to address vendors' miscommunication issues, redefine roles and responsibilities, and reset expectations with outsourcing vendors
• Establish a relationship management structure to create a winning relationship
• Establish SLAs for all outsourced services to quantify service outcome
• Establish SLA tracking process to detect and address target deviations
• Establish engagement management processes to request new services from outsourcing vendors
• Enforce benchmarking strategies in outsourcing contracts to constantly assess outsourcing competitiveness

Level 3: Measurement
Our research indicates that 20 percent of IT organizations fall within this category. This level can be reached by fulfilling the following criteria:

• SLA targets are reported regularly
• Outsourcing vendors have implemented a balanced scorecard (or its equivalent) to ensure SLA prerequisites are met
• Change management processes are implemented to ensure outsourcing vendors adhere to enterprise architecture principles
• Escalation management process are established to address service malfunction with outsourcing vendors
• Business continuity processes are implemented to ensure outsourcing vendors' disaster recovery services meet business requirements
• Outsourced services are benchmarked at least once per year
• Service single points of failure are identified
• Business and IT measures are correlated and reported regularly

Level 4: Trust
Our research indicates that 5 percent of IT organizations fall within this category. Level 4 can be attained by meeting the following conditions:

• Vendors' security arrangements are proven to be in line with industry standards
• Success stories are identified, whereby outsourcing arrangements reduced cost, improved service quality, and increased responsiveness
• Service-level agreement targets are met continually
• Capacity management processes are established to issue yearly capacity plans, track monthly usage against forecasts, and alert IT organizations and business units to service upgrade timing and cost implications
• Vendors' command-and-control processes are integrated and automated
• Benchmarking costs are reduced by replacing extensive benchmarking studies with third-party consultants validating selected outsourcing proposals
• Vendors' delivery processes are based on operations excellence best practices, or their equivalent
• Service single points of failure are addressed
• A credit/debit scheme is established
• The IT organization's contribution to business metrics is reported regularly

Level 5: Recognized business value
Our research indicated that no IT organization has yet attained this level. The following conditions are required:

• All outsourcing goals are accomplished
• Service-level agreement targets are continuously exceeded
• A process maturity model is adopted to evolve outsourcing management formal processes
• Outsourcing vendors' unit prices are competitive, and at least 90 percent of new proposals are cost effective
• The credit/debit scheme improved service quality
• New technology is leveraged to enable strategic business initiatives
• Vendors' new skills are provided whenever demanded by business units
• Outsourcing arrangements' contribution to business-cost reduction and performance improvement strategies is quantified

Bottom line
IT organizations should locate their position in the Outsourcing Management Maturity Model, finalize the relationship management structure, establish formal vendor management processes, adopt service-level agreement tracking practices (including a credit/debit scheme), benchmark services at least once a year, and evolve to business-oriented service-level agreements.