Should you put KPIs in Localization Vendor Contracts?
I was really struck by Ameesh Randeri’s amazing share that AutoDesk is using KPIs in their LSP contracts — and not just the obvious ones! The entire panel discussion was really great and we think it’s quite worthwhile to watch.
Fixing monetary incentives to KPIs is super interesting, but is it a good idea? It’s working well for Ameesh & Co., so it must work for some companies. Will it work for your company?
Why it’s such a good idea
Incentives are great, especially when they incentivize going above and beyond.
The goal isn’t so much to pay less when your targets aren’t achieved, as it is to pay more when things are really close to how you want them. Or perhaps a combination of the two. Having incentives should really be a win-win — almost a gamification of the contract — as opposed to the “perform or this won’t be a worthwhile relationship” variety you see often in sales departments.
The problem with incentives is that you need measurable results to implement them.
This is really only interesting if you are managing vendors and a fairly large amount of words and/or languages.
You’ll probably want to negotiate the incentives together with your LSP vendors so you can agree on something reasonable, and so it’s a prerequisite here that they agree to find a win-win set of incentives.
You’ll also need some kind of analytics or data collection system. Wordbee offers more than 120 analytics reports and Excel customization, but you might find creative ways to come up with analytics besides that.
Can you trust your data?
If you’re going to start putting KPIs into vendor contracts, you’ll need to make sure your data is correct.
There are really two kinds of data in localization. You have the data you can get from your translation management system and/or CAT tool, and then you have the data you can get separately from that. Let’s go over both types here.
Data you can get in your TMS or CAT tool
Wordbee, for example, is a TMS and integrated CAT tool, so you can literally get your data sliced every which way. Having your CAT tool data completely integrated with your vendor management system turns out to be a total coup for data collection, as you can easily get stuff like “on-time percentage” or other time-based metrics easy, as well as exotic metrics like advanced first-pass yield on individual segments, sliced however you want. Moreover, you can rate your vendors based on customized start-based systems, as well as any project managers.
Regardless, the most common KPIs that you take from a TMS or CAT Tool and use to negotiate vendor contracts are time-based KPIs like % of on-time deliveries.
Working quality into your vendor contracts is even better, but quality-based data is harder to get. Depending on the TMS you use and your in-house capabilities, you may achieve this too.
But not all cases are like that. Depending on your current system configuration, you may not be able to get 99.9% reliable data, so you’ll need to figure that out first.
Data you can get separately
You shouldn’t overlook data that you can get separately. Just because it’s not in your TMS doesn’t mean it’s not important.
Ameesh mentioned a subjective score of the satisfaction people in your localization department have with the projects managers on the vendor side. What a fantastic idea, right?
But you might not stop there. There are other goals you might shoot for that pertain more directly to your specific industry. For example, the SEO rankings of webpages that are translated using SEO translation, NPS surveys for software, or “localization satisfaction” surveys for games.
Reasons not to do it
The most important reason is because you feel like it’s not necessary. Every business is different, and there are lots of relationships out there without this kind of KPI-driven incentive package.
Another reason might include “backfire.” What we mean by backfire is, for example, when you offer a commission-heavy package to a salesperson who then either a) can’t meet their commission goals or b) refuses to do other important tasks because they are only paid to close deals.
In this case, if your time-based incentives are heavy-handed, you might get risky, inferior deliveries that promote “on-time” versus “quality.”
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