In an industry that has changed dramatically over the past decade – expanding beyond a handful of countries, Global Business Services (GBS) pulling together services across an organization under a single umbrella, “as-a-service” delivery models, autonomics and service delivery automation, etc. – one would expect to be hard-pressed to find a component that hasn’t kept pace.
However, one key enabler of effective ongoing client/provider governance has changed little, if at all.
Across the layers of governance, there are multiple monthly and quarterly reports that provide the basis for regular review meetings. But a comparison of governance reports generated over the past year with another set (across different relationships) from close to 10 years ago revealed no major discernible difference in the messaging, format, structure, or – to an extent – the content of the reports. The profound impact of digital and user experience-driven visualization appears to have eluded them altogether!
Some of the issues that were evident in the majority of the cases included:
- High on data, low on context: As a central theme, most reports have too much upfront data with minimal context behind it. “All green” metric performance is never a guarantee of client or provider satisfaction. Honest and open context actually helps avoid uncomfortable situations during discussions.
- Inconsistency of structure across towers: In multi-tower engagements there are often inconsistencies in simple elements like type of charts and terminology used, which increases risk of miscommunication between client and provider.
- Lack of coherence across governance layers: At times, there was lack of coherence and linkage between operational level governance reports and executive/management-level reports for the same outsourcing engagement. Even straightforward items such as FTE numbers and team descriptions failed to tie up in several cases.
- Resistance to evolution: Even if the entire service delivery has gone through multiple iterations of change, the reporting philosophy seems to be the same in Month 6 and Month 48. Just changing the month-to-month line items containing the metrics is not enough.
All this equates to a lot of time and effort utilized in going through data, with some important subjective discussions being lost or pushed to subsequent follow-up sessions. This can cause a high risk of misalignment in objectives and a potential trust deficit. The situation is aggravated if there are new stakeholders inducted into the governance structure who may interpret similar data in different ways!
As a principle, any document intended for circulation to a group of stakeholders should be clear in its objective and explanatory enough for an uninformed reader to understand. It needs to foster honest, engaging discussions, and must be modular enough to avoid re-work in bringing together reports for consolidation.
Some easy to implement practices to consider include:
- Use infographics in the executive summary: It might sound radical, but professionally-rendered infographics can be powerful tools to deliver a high-line summary, as compared with lines of text. They also make for better contextualization and more freedom to change formats on a periodic basis.
- Standardize terms and major assumptions: All service towers and team members preparing reports across the levels of governance should adhere to similar naming conventions. While this appears to be a simple thing, it is surprising to see how often it fails to happen in real life scenarios!
- Apply the relevance thumb rule: Teams responsible for preparing these reports need to regularly assess the relevance of each element for the intended audience, particularly at given moments in time. For example, very detailed incident or missed SLA analyses may be needed for operational governance reports during the stabilization period, but post stabilization, the focus needs to change to other priority areas
- Explore interactive visualization tools like QlikView or Tableau: Organizations have started adopting use of real-time data visualization and reporting across platforms like desktops, mobiles, and tablets. This provides users with flexibility to view dynamic charts based on their preferences. Providers supporting services to mature organizations in which users are comfortable using such tools may want to explore using them to buoy their governance reporting capabilities.
Some of the most conservative companies have had to modernize the structure and layout of even their Annual Reports to keep them relevant and more aligned to changing communication needs. The global sourcing industry should take the cue and look to infuse some change into the very documents that form the basis of their ongoing relationship health assessment!
Enterprises must adopt a new prism through which they view and evaluate digital services in order to realize the full value of their investments
Governance obligations are typically well covered in outsourcing contracts, and select governance documentation developed before the outset of the engagement. But even when both parties are committed to mutual success, conflicts can, and often do, arise between clients and providers.
To help ensure issues don’t raise their ugly heads, every outsourced relationship should develop, maintain, and bi-directionally enforce a governance playbook that is aligned to overall business goals. The playbook should include the governance framework, operating model, processes/procedures, contract, and documentation. A dedicated governance playbook repository for the outsourced relationship enables an overall view, inventory and access to all documentation related to governance processes, tools/templates, training for effective relationship management.
Critical components of the playbook include:
- A detailed outline of all key contractual obligations, such as reporting requirements, metrics, and documentation
- Both the buyer and provider must clearly understand the contractual obligations and confirm a consistent understanding of their respective obligations
- All the dashboards and reports in the world mean little if neither party understands the metrics being measured
- To avoid misaligned expectations and continual delivery issues, ensure that both organizations have a clear understanding of the metrics and how each SLA will be captured, collected and monitored. SLAs are foundational to any services agreement.
- Clear definition and alignment of problem resolution processes to business needs
- Build governance processes that go beyond quality of services and contractual obligations
- Focus on operationalizing joint governance to support accountability and oversight of the outsourced relationship, aligned to desired outcomes
- Instate a process whereby unresolved issues are addressed at appropriate levels to preserve delivery continuity and prevent escalation of every item to the executive level for resolution.
- Consider aligning metrics to documented processes
- Develop process documents and metrics that matter most, and leverage the contract language, but also include concepts related to leadership objectives
- Include these as part of the management review process to ensure alignment throughout the contract
- Develop and maintain a joint Master Training Guide for all things governance to align expectations
- Conduct training from the leadership level down to reinforce management commitment
- Incorporate training to existing meeting agendas to complete training in real-time.
What are the key components of your company’s governance playbook?
Governance balances the competing interests and needs of the buyer, end users, and the service provider. The intent of governance is to build a strong relationship, and align strategies, goals, and objectives through collaboration, mutual respect, and continuous communication.
Governance models should be foundationally designed with a joint relationship management structure and processes to build a cooperative, trusting working environment that encourages both the buyer and provider to make collaborative, proactive, mutually beneficial decisions. This requires active leadership by senior management in both organizations, including hands-on sponsorship, ownership, coaching, mentoring, influencing, and intervening, when necessary.
A true win-win partnership, as enabled by effective governance, is one that motivates the provider to do satisfy not just the contract but also all parties, and deliver value beyond the metrics and the original contractual expectations.
Following are the key principles behind setting up a partnership type of relationship with a service provider.
Tiered management structure with peer-to-peer alignment
With a tiered management structure, effective communication, responsive and efficient decision-making, and resolution are supported across three distinct levels to ensure alignment between executives and delivery teams. This keeps the focus on day-to-day service delivery without either party losing sight of strategy goals. The three tiers and their associated responsibilities should be:
- Executive Committee – enterprise view of outsourcing strategy and provider relationship
- Management Committee – ensure outsourcing performance is meeting internal and external objectives
- Operating Committee – manage performance reporting, provider-driven changes, escalated issues, and out-of-scope requests
To ensure objectives are met and the spirit of the partnership relationship is maintained, the people engaged at each level must view their role as working with the provider, rather than policing its activities.
Decision-making and authority rights must be clearly defined and understood by both parties at each level
Defined and documented decision rights will help organize decision-making and execution by setting clear roles and accountabilities, and by giving all those involved a sense of decision ownership. In addition, the executive, managerial, and operational levels must aligned across both parties. While this may seem obvious, governance models often break down due to misalignment of these levels.
Commitment and sponsorship at senior levels is critical
Sponsorship should be evidenced by the commitment of sufficient resources and management time to nurture the relationship at both the tactical and strategic levels. All communications, formal and informal, must make it clear that senior management views the outsourced relationship as a true partnership, and will work together to provide joint oversight to achieve the desired outcomes. Moreover, commitment and plans for strong change management, training, and communication need to be rolled out, reinforced, and managed.
Governance is successful only when the both the buyer and provider are successful
Buyers must make significant investment in standing up and staffing the governance organization, and management must be aware of the potential impact of the joint governance on current policies, processes, budgets, skills, competencies, and relationships, etc.
To help ensure mutual success, a proactive feedback loop should be developed, and periodic reviews by buyer and service provider stakeholders with progress reported to senior management should be instilled. These regular reviews enable both parties to process feedback, make required changes to the governance model, and proactively manage expected deliverables throughout the contract. They can also present a strategic opportunity to improve buyer and provider organizational capabilities, operational resilience, and competitive analysis in the longer-term.
Has your company experienced misalignment among the executive, managerial, and operational levels? What did you do to rectify the situation?
For insights on two key guiding principles to consider when building your governance team, please read the Proficiency blog in this series.
Some organizations – particularly first time outsourcers – tend to think that outsourcing engagement success ends with carefully dotted I’s and crossed T’s on the contract. Unfortunately, they often overlook governance, which is critical to ultimately driving the value captured from the relationship.
What is outsourcing governance? While definitions abound, one Everest Group particularly appreciates was cited in The New Global Services Governance executive point of view written by several of my colleagues:
Governance ensures that stakeholder needs, conditions and options are evaluated to determine balanced, agreed-on enterprise objectives to be achieved; setting direction through prioritization and decision making; and monitoring performance and compliance against agreed-on direction and objectives.
With that stage setting, the blogs in this series looks at three key components of good governance…proficiency, partnership, and playbook. They’ll be refreshers for some readers, and provide new insights for others.
First up is proficiency.
Outsourcing represents a significant change in the way an organization provides its services. Governance of this new service delivery model requires a considerable effort to implement and optimize, even if guided by an experienced team.
A common pitfall is staffing the governance function with personnel that were previously responsible for managing the functions internally, without ensuring they receive the guidance and training required to operate in the new service delivery model.
There is a big difference between knowing what needs to be done and actually implementing and executing it effectively. Understanding governance models, frameworks, and documentation alone will not capture the full value of the relationship. Allocating resources with experience managing service providers and the nuances of outsourced services is critical to achieving the positive results desired.
Here are two key guiding principles to consider when building the team that will play key governance roles:
The retained functions (those that existed prior to outsourcing and will continue to be owned by the buyer) are not the same as the governance functions
- The governance model is the set of functions that exist as a result of the outsourced services
- The over-arching goal of governance is to keep the relationship on track by owning key functions related to governing the buyer/provider relationship
- Governance should be positioned high enough within the business to have the appropriate level of authority and influence, as it is responsible for maintaining alignment of strategy and operations at all levels between the two organizations
- Those in the governance model maintain a broad set of stakeholder communication channels, which include buyer/provider executive and functional leadership, regional units, Finance, Legal, HR, IT, etc.
The skills needed to manage an outsourcing partner are not the same as those needed to run an in-house organization
- Governance should be designed and staffed separate from the function outsourced; the functions required of a governance model are distinctly different from an in-house service model
- Defined roles and responsibilities should be based on governance core competencies/skills and accountability for the governance organization, (including issue management, contract and financial management, committees, service performance/monitoring, communications, and administration), and those selected to play a governance role should be carefully reviewed to ensure that they have the competencies/skills for the job
- Once defined, joint awareness and training sessions with internal/external stakeholders are key to ensuring that all stakeholders know what to expect in the new landscape.
What best practices has your company implemented when building its governance team?
Next in this three-part series: Partnership. Be sure to read it for key principles on establishing a partnership-oriented relationship with your provider.
Despite all the successes in the marketplace, we all know there have been outsourcing arrangements that have gone terribly awry. So, in the spirit of Hallowe’en, I wanted to share some true outsourcing horror stories. But, be forewarned, and read on at your own risk…these true stories will send chills up and down your spine.
Sales process | the secret in the lab
A service provider’s salesperson and solution architect promised to a large enterprise client a transformational technological solution that would save considerable amounts of money, enable realization of all its objectives, etc. The client was very happy with the promise of the solution, as it knew similar approaches provided by other service providers had been successful for the buyer organizations.
But when the engagement moved from transition to presumable steady state, and the results were supposed to start coming to fruition, the provider’s on the ground team had no idea what the client was talking about. The salesperson and solution architect knowingly and willingly sold a solution that their company did not have and had no intention of creating.
Sadly, the secret in the lab for the client was that there was no solution. And not at all surprisingly, the deal faltered and the provider was terminated.
Transition | the monster under the bed
A client that had never outsourced before believed that transition management was the provider’s job, and thus chose to have no involvement in the process. Of course, without active participation from the client, things started to slide. The client began sensing things were going awry, but the provider consistently assured the client that all was fine. The client asked all the right questions, but because they weren’t actively involved, had no insight into what was lurking below.
When they got to the go live date, the provider listed a litany of things that weren’t yet ready, and in a real attempt to make the transition work, suggested alternatives. The client rightly questioned what impact the alternatives would have, but – looking at the situation from its own risk perspective, and truly wanting to fix the issues – the provider again assured the client there wouldn’t be any problems
Of course, there were massive problems. Missed deadlines, impossible turnaround times, finger pointing. The engagement became such a train wreck that no amount of corrective actions could recover the client’s original objectives.
Moral of the story? If you think there’s a monster hiding under your bed, don’t expect someone else to check for you. Actually, the real moral of the story is that it takes two parties to do the transition tango, and buyers must take management responsibility and accountability for their portions of the transition.
Governance | drinking the witches’ brew
For a number of years, a client was very happy with its ITO provider. It was productive, innovative, and collaborative. But, over time, the provider languished and lacked energy, and the initial objectives that everyone had been focused on seemed to die. Hard feelings grew, and eventually one person on the provider’s governance team developed an axe to grind with his client-side counterpart. Before anyone realized what was occurring, this influential person fed his witches’ brew to all his team members. The poison then spread to all the client’s governance team members. The bitter taste in everyone’s mouths grew until every meeting was a new, adversarial battle between the two separate factions. They could no longer work together toward a positive end result.
Ultimately, the only way the deal could be salvaged was by replacing enough people on both governance teams with new people who hadn’t sipped the poison.
On this day before All Hallows’ Eve, be aware that ghosts, ghouls, and goblins may be lurking in your deal. But also be aware that accountability, governance, and knowledge can help you spot and fight the bogeyman.
Photo credit: Flickr
“Google is not an unconventional company. We do not intend to become one,” said Larry Page, co-founder of Google, in his original founders letter in 2004, when Google went public. He reiterated that last week, when, on August 10, Google announced a new operating structure, creating the new entity Alphabet, with Google as a wholly-owned subsidiary.
Much has since been said about the company, its leadership, its transition, and its people. However, the more I read about Google (or should I say Alphabet now) and its reorganization, the more I am inclined to draw parallels between the internet behemoth and service providers, both Indian-heritage and multinationals. The way I see it, here are a few lessons service provides could take from the reorganization:
Most, if not all, large organizations seek to carve out subsidiaries or focused business units to reorganize themselves. These units, with their respective heads, are then entrusted with the responsibility to scale the business. With “digital” being an almost-abused cliché, it is not difficult to hear about service providers hiving off separate digital business units. This unit or subsidiary is like a “child” of the “parent” service provider, which retains control of the child.
Google defied the norm. Rather than creating a specialized business unit, it created an entirely new holding structure, effectively making Google, previously the parent, the child, and creating Alphabet as the parent. This umbrella organization now retains control, with the child (Google) getting a tunnel-vision focus.
Lesson for service providers: Service providers that have attained enormous scale and that are at a stage where they can cause industry turbulence by their initiatives would do well to consider possibilities beyond the conventional norms and innovate even at that scale.
Simplicity and control:
When an organization grows too large, it becomes a management challenge to control it. Simplification becomes a necessity. By breaking down its business units into multiple, independent, and accountable entities, Google has created an operating structure that is much like a conglomerate.
Seems simple enough, right? The challenge, however, is that the leadership of such an enterprise has to relinquish control of at least some of its units. By entrusting Mr. Pichai with the responsibility of running the world’s largest internet-based engine, Mr. Page has relinquished control of the company he co-founded. Surely, founders ceding control has to be personally challenging; however, the need to look beyond itself into something grander has clearly worked well for Google so far.
Lesson for service providers: Management of colossal corporations should hand over control of highly functional cash cows to their number-twos and invest their time on pursuing grander ambitions. When the senior leadership (or the board) is loath to relinquish control, it indicates either a lack of faith in its next-generation leaders or an obsessive need to retain control or both, all of which culminate in lack of relevance and eventual obsolescence.
Culture of radical innovation:
The mention of Google always has the word innovation lurking around and for good reason. Google has always been known to be innovative in the way it perceives and solves problems. When it seemed to reach its comfort zone, it stirred the pot vigorously and conveyed its discomfort with status quo or even incremental changes.
Lesson for service providers: Service providers should embrace such an outlook towards change and not be hesitant to adopt a radical approach. If a US$66 billion enterprise with one primary revenue source can do it, so can a much nimbler service provider with lesser risk exposure and higher market stability.
Google has illustrated that moonshot vision and out-of-this-world ideas are not a necessity to become what it is. Pursuing what they believed were smart ideas and chasing them with relentless passion has given us products that have almost become a necessity.
Often, during our interactions with service providers, we discuss their vision and philosophy about next-generation technologies and services. We seldom see those being relentlessly pursued, as the ideas fall victim to the next flavor of the day, management changes, or “change of strategic direction.”
Lesson for service providers: The trick lies in being fast and nimble so that the idea is commercialized before the market moves on, and also relentless, so that innovators aren’t distracted by the whirlpool of daily business.
Last but not the least nicety of Google’s restructuring is its ability to placate its investors. While the same can be said of many other firms, it is Google’s call to action and time to market that stand out. By creating a more accountable structure, Google alleviated a lot of investor concerns, which had been growing owing to the company’s cash-burning yet low-yielding moonshots.
Lesson for service providers: If your initiatives, especially in the digital landscape, do not resonate with your investors, it is time to reconsider those. Service providers should create a more accountable structure for their digital initiatives and appease both customers and investors.
Last week both Serco and Capita announced their interim results. Not only did the two companies show a widening gap in terms of financial performance, but they also highlighted diverging business strategies.
Firstly, their financial performance in H2 2014 to date was very different:
- Capita has managed to stay on track to achieving at least 8% organic growth, net of attrition, for the full year 2014 (2013: 8%). It also stated that it expects to maintain its operating margin in the range of 12.5% to 13.5% for the foreseeable future
- In contrast, Serco announced that the 2% organic growth in H1 2014 has turned into a mid-single digit decline in H2. This has been primarily due to reductions in volume of work in the Australian immigration contract but also due to contract losses and reduced volumes elsewhere. Serco expects to shrink significantly by 2016, with revenue reaching a nadir of £3 billion to £3.5 billion from a forecasted adjusted revenue of £4.8 billion in 2014. It expects to return to growth in 2017
- Serco also announced a proposed equity rights issue of up to £550 million in the first quarter of 2015 to strengthen its capital structure
- Capita announced that it has secured £1.63 billion of major new deals to date in 2014 (nine months). This is down by £1.27 billion year-on-year (largely accounted for by the signing of the £1.2 billion O2 mega deal in 2013). At £4.1 billion the bid pipeline is also lower on a sequential basis compared with £5.7 billion announced in July 2014. However Capita reports a strong win rate of one in two
- Serco reported £900 million of contract awards since the half year to date. It also said that its current pipeline and win rate are considerably weaker than before
Secondly, the strategic directions of the two companies are diverging:
- With its strategic review still ongoing, Serco announced that it is going to focus entirely on business to government (B2G) in the areas of justice and immigration, defense, transport, citizen services, and healthcare
- In contrast, Capita aims to grow its private sector business and in particular in the customer management services (CMS) arena. Like Serco, it made a number of CMS acquisitions in the past few years including Ventura and parts of Vertex. Another growth target is its burgeoning legal business with the acquisition of Eclipse Legal Systems. It is also expanding its presence beyond its UK stronghold to countries such as Ireland and Germany
- Serco will be divesting a number of businesses that are now non-core to its strategy. These include the Environmental and Leisure businesses in the UK, Great Southern Rail business in Australia, and the majority of its private sector BPO business which are mostly CMS businesses delivered by two companies that it acquired in recent years: Intelenet and The Listening Company
- Capita has made 13 acquisitions to date in 2014 for £285 million, with more likely as it continues to expand or enhance its capabilities
Interestingly, both companies have also announced changes to their boards:
- Alastair Lyons, Serco’s chairman has resigned
- Capita’s CFO Gordon Hurst is stepping down following a 27-year stint at the company
Serco’s tale of woe began in 2013 when the British government discovered that it had been overcharged by Serco for offender tagging services to the Ministry of Justice (MoJ). The company is still recovering from the fallout more than a year after the issue first came to light, and having repaid more than £68 million of fees and gone through several reviews and management changes. It is ironic that Serco’s new board has chosen to focus on B2G services only, given that the troubles began in a government contract. That said, front line government services is and has always been at the core of the company’s business.
Serco has suffered from failures of governance and risk management. As it rebuilds itself, it will seek to enhance these significantly. In terms of business strategy, it will target growing opportunities in the government sector, as the pressures from aging populations and rising demand for services pushes governments to outsource more. Serco will seek to differentiate itself with its international approach, as part of which it will give its businesses a portfolio of services to go to market within specific regions of the world, to share experience and expertise.
Capita boasts of robust financial and governance structures and highly selective approach to opportunities that it pursues. Robust governance is highly needed given Capita’s aggressive acquisition strategy that has seen it take over more than a dozen companies a year for many years. Even with robust governance problems can still occur. For example, in its eagerness to win more government clients, in 2012 Capita acquired Applied Language Solutions (ALS), which had been awarded responsibility for courts interpreter services in England and Wales. For a while service delivery was less than smooth leading to the MoJ withholding fees in some instances and bad publicity in the press. Overall though Capita has benefited from many niche and strategic acquisitions that it has fully internalized, and which have largely created value and revenue.
There are lessons to be learnt from the performance of the giants of UK outsourcing. Today, one thing that is common to both is the belief that bid and governance structures have to be robust and maintained at all times.
The state of today’s enterprise mobile apps industry is akin to the dark side of a jungle: a dense forest and tangled vegetation, inhabited by hundreds of largely unfamiliar animals and plants that rely on its delicate ecosystem to survive, perhaps to thrive. This is creating frustration among stakeholders including the CIO, CFO, CMO, and CEO, who believe they might have over-invested in mobility initiatives.
However, this is far from the truth. Mobile apps have a long way to go in enterprise. Yet, to avoid the earlier pitfalls, enterprises and technology providers need to be fully aware of the following dangers in the mobile apps jungle:
Business process transformation: Few enterprises or technology providers even consider that enforcing mobile access to an existing business process may be a poor idea. Making the end-user consume the same business process albeit through a different, perhaps “cooler,” app is not true mobility. User interest will not last if the business process is itself unsuitable for mobile. At the same time, not all business processes require this change. Enterprises must be selective in changing business processes while undertaking the mobility journey. Consultants, vendors, and others with vested interests will always extol the virtue of business process transformation for mobility, but enterprises should be very wary of this aggressive spiel.
Line of business collaboration: In their desire to be the first movers, many line of business managers are creating all kinds of mobile apps with little collaboration with other business units. Given the increasing influence of non-CIO budget centers to approve technology funding, the tried and tested processes of application development are being compromised under a convenient, self-pleasing argument that mobile apps do not require a structured or “traditional” approach.
Will this ad-hoc development blow up in our faces? I think it will. Can we prevent this? Unfortunately not. Business users are happy getting the needed application functionality on mobile devices, yet no one is thinking about the mobile application lifecycle. A long-term technology adoption framework is an unthinkable thought for these budget owners. They do not believe collaboration is their mandate or their responsibility. Their KPIs are linked to business outcomes, not to channelizing or seamlessly introducing mobile technology, and thus they will rarely ever have an incentive to create the needed structure.
Cost of mobility: Enterprises and technology providers need to understand that while business agility, flexibility, and access is all good, the cost of these should not outweigh the rewards. Therefore, enterprise mobility should be viewed in its entirety to understand whether the incremental business has come at a greater cost of management and complexity. Yet the existing mechanisms across enterprises, where different unconnected lines of businesses are creating their noodly soups of mobile apps, does not engender great confidence that they will take a view of the broader picture any time soon.
- Mobility governance: It is fashionable these days to ignore any advice from someone who wants to instill structure or a governance model on enterprise mobility. Governance is perceived as “anti-growth” and “uncool.” Given this perception, few technology managers, despite their strong opinions, express any sentiments against the ad-hoc enterprise mobile strategy. This is a recipe for disaster.
So what can enterprises do to quash the mobile apps jungle’s beastly flora and fauna?
- Be selective about changing/transforming the underlying business process while mapping to mobile apps
- Create an environment that incentivizes lines of businesses to collaborate rather than compete in creating the next “cool” mobile app
- Adopt a lifecycle management approach to mobile apps
- Balance the growth objectives with the cost implications of enterprise mobility
- Incorporate an “eagle eye” to govern mobility projects
If you are undertaking an enterprise mobile application initiative and want to share your experiences and perspectives, please comment below or reach out to me directly at [email protected].