As the occurrence of hybrid sourcing deals rises, so too does the complexity of those deals, creating pressure points for both enterprises and service providers
As the occurrence of hybrid sourcing deals rises, so too does the complexity of those deals, creating pressure points for both enterprises and service providers
The first visual that probably comes to a buyer or service provider’s mind when they think of governance is the 3 tier governance pyramid that had been around for many years. The structure of this pyramid, as well as the nature and number of the meetings/forums conducted around it between provider and buyer stakeholders have remained more or less consistent. While over the years some modifications have been made to the structure, many ideas have been more ”lip service” than reality, and most are yet to be institutionalized.
However, as business gets to have a greater say in the transformational agenda of the IT landscape, Everest Group is witnessing some prominent changes in the governance structure when governance is being delivered as a managed services. These enhancements include:
While the above are the most prominent changes happening to outsourcing governance models today, Everest Group foresees many more significant changes at individual layers of the 3 tier governance model, with tighter controls and higher business involvement becoming part of the routine.
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:
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:
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:
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.
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:
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.
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.
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.
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 skills needed to manage an outsourcing partner are not the same as those needed to run an in-house organization
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.
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.
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.
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.