Much is written about 'outsourcing governance' these days - specifically, that a lack thereof is causing a large percentage of companies to fail to fully realize the value of the outsourcing deal into which they entered.
As always, industry research varies as to the exact percentage of value lost, but most will agree that a company's inability to manage governance has the potential to reduce business case realization by as much as 35-55%.
So why aren't companies paying more attention to outsourcing governance? It is now widely recognized that standard procurement procedures do not apply to the selection of an outsourcing partner.
And further, that zero-sum negotiations will lead to a lose-lose deal for both parties in an outsourcing contract.
Why then do companies view outsourcing governance as simply an extension of their existing vendor management practices? Or even worse ignore the need for it altogether? Perhaps it's because the term is bandied about so cavalierly with each person implying or inferring the meaning they like.
To some it's a soft term implying touchy-feely relationship management and politely worded communications.
Others infer the hard line management of service level agreements (SLA's) and the application of credits against invoices.
To others still it's simply an afterthought once the "real work" of provider selection and contract negotiation has been completed.
Whatever the reason, companies should be aware that the failure to plan for and execute a proper outsourcing governance function could cost them dearly.
So, assuming I've convinced you of the value of governance, what is it exactly? Is it relationship management? Or is it contract and financial management? Or perhaps service delivery management? Outsourcing governance is all of those things.
And while the principles of each exist independently as do the skills needed to execute against those principles, it's rare that companies are prepared to execute each of them in concert.
Further complicating the effort is the unique idiosyncrasies of an outsourcing relationship.
Managing an outsourcing service provider is not like managing a vendor.
Nor is it like managing an internal organization.
Rather, it's a hybrid of the characteristics of both.
Unlike a vendor, an outsourcing provider is provisioning services that would typically be - and perhaps were in the past - provided by your employees.
They are working closely on a daily basis with either (or both) your existing employees and/or your customers.
They may well be interacting on your behalf with other third parties with whom you hold relationships.
Pundits in the outsourcing industry often liken an outsourcing deal to a marriage; and, to be fair, the analogy has some merit.
So, if we extrapolate, the outsourcing governance function is very much akin to the job performed by a marriage counselor.
Now, while your mother may be a font of wisdom and your father may offer sage advice, neither could be said to be offering impartial guidance when helping you communicate with your spouse.
Further, marital relationships have changed a tad bit in the last 30+ years.
No, I think most people would look to an outside professional for marriage counseling - someone with professional training, years of experience in the field, and information on what others were doing to make their marriages a success.
In the case of my analogy, that someone might be an outsourcing advisor.
Now, I know what you're thinking - it's a rather self-serving analogy since I work for an outsourcing advisory firm.
Fair enough.
But let's give it some critical thought and look at what an outsourcing advisor brings to the table in some key areas: 1) Relationship management - not only does the outsourcing advisor have an intimate understanding of the dynamics of an outsourced relationship, but they come to the table with a clean slate and a measure of objectivity.
They've been there, done that and have the t-shirt to prove it.
2) Contract management - for many years outsourcing advisors were hired primarily for their expertise in the negotiation of contract terms and have a full understanding of how the contracted services were intended to be executed and managed.
3) Financial management - in addition to the tools and models an outsourcing advisor brings to the table, their insight into the "tricks of the trade" will prove invaluable over the course of time as even the best written contract has its loopholes.
4) Service delivery management - anyone can measure performance against SLA's and monitor regulatory compliance, but an outsourcing advisor can help the outsourcing provider deliver true business value rather than simply meet the metrics set forth in the contract.
If you've read this far, I trust you're convinced of the vital role that planning for an executing a proper outsourcing governance program plays.
As always, industry research varies as to the exact percentage of value lost, but most will agree that a company's inability to manage governance has the potential to reduce business case realization by as much as 35-55%.
So why aren't companies paying more attention to outsourcing governance? It is now widely recognized that standard procurement procedures do not apply to the selection of an outsourcing partner.
And further, that zero-sum negotiations will lead to a lose-lose deal for both parties in an outsourcing contract.
Why then do companies view outsourcing governance as simply an extension of their existing vendor management practices? Or even worse ignore the need for it altogether? Perhaps it's because the term is bandied about so cavalierly with each person implying or inferring the meaning they like.
To some it's a soft term implying touchy-feely relationship management and politely worded communications.
Others infer the hard line management of service level agreements (SLA's) and the application of credits against invoices.
To others still it's simply an afterthought once the "real work" of provider selection and contract negotiation has been completed.
Whatever the reason, companies should be aware that the failure to plan for and execute a proper outsourcing governance function could cost them dearly.
So, assuming I've convinced you of the value of governance, what is it exactly? Is it relationship management? Or is it contract and financial management? Or perhaps service delivery management? Outsourcing governance is all of those things.
And while the principles of each exist independently as do the skills needed to execute against those principles, it's rare that companies are prepared to execute each of them in concert.
Further complicating the effort is the unique idiosyncrasies of an outsourcing relationship.
Managing an outsourcing service provider is not like managing a vendor.
Nor is it like managing an internal organization.
Rather, it's a hybrid of the characteristics of both.
Unlike a vendor, an outsourcing provider is provisioning services that would typically be - and perhaps were in the past - provided by your employees.
They are working closely on a daily basis with either (or both) your existing employees and/or your customers.
They may well be interacting on your behalf with other third parties with whom you hold relationships.
Pundits in the outsourcing industry often liken an outsourcing deal to a marriage; and, to be fair, the analogy has some merit.
So, if we extrapolate, the outsourcing governance function is very much akin to the job performed by a marriage counselor.
Now, while your mother may be a font of wisdom and your father may offer sage advice, neither could be said to be offering impartial guidance when helping you communicate with your spouse.
Further, marital relationships have changed a tad bit in the last 30+ years.
No, I think most people would look to an outside professional for marriage counseling - someone with professional training, years of experience in the field, and information on what others were doing to make their marriages a success.
In the case of my analogy, that someone might be an outsourcing advisor.
Now, I know what you're thinking - it's a rather self-serving analogy since I work for an outsourcing advisory firm.
Fair enough.
But let's give it some critical thought and look at what an outsourcing advisor brings to the table in some key areas: 1) Relationship management - not only does the outsourcing advisor have an intimate understanding of the dynamics of an outsourced relationship, but they come to the table with a clean slate and a measure of objectivity.
They've been there, done that and have the t-shirt to prove it.
2) Contract management - for many years outsourcing advisors were hired primarily for their expertise in the negotiation of contract terms and have a full understanding of how the contracted services were intended to be executed and managed.
3) Financial management - in addition to the tools and models an outsourcing advisor brings to the table, their insight into the "tricks of the trade" will prove invaluable over the course of time as even the best written contract has its loopholes.
4) Service delivery management - anyone can measure performance against SLA's and monitor regulatory compliance, but an outsourcing advisor can help the outsourcing provider deliver true business value rather than simply meet the metrics set forth in the contract.
If you've read this far, I trust you're convinced of the vital role that planning for an executing a proper outsourcing governance program plays.
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