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

Everyone involved in the deal-inking end of an outsourcing engagement has a love/hate relationship with SOWs. They’re necessary, of course. But, do their creation and iteration need to be painful? They don’t, but buyers and service providers tend to make them more difficult than they need to be.

Here are some of my SOW development tips to make everyone’s life a little easier.

No one knows what Risk Management is

Not even George Costanza from the Seinfeld television show. (If you’re a Seinfeld fan, you’ll catch the joke.) This is why it’s imperative to write clear definitions in any SOW you create.

  • E.K.W.A.Y.R.T (Not Everyone Knows What Acronym You’re Referring Too) – Every company loves their acronyms, but no matter how obvious you think they are, spell them out. You’d be surprised how many people you’re confusing
  • Where’s Waldo – In the definition of terms, simply writing, “as defined in the document” tells people nothing. Tell them where (e.g. “As defined in section 4.1”) and you’ll save readers a lot of searching
  • Change Management – Ask five people how they define Change Management and you’ll get some very different answers. Even if you think a term is industry standard, define it. You’ll save yourself a lot of arguments in the future on what was in-scope versus out-of-scope.

Redlines Redlining is Aan artArtartArt

I have an image of service providers sitting around a table, drinking Cognac, and laughing about how many redlines they will put into a document. If this is a real thing, please stop. It makes everyone but you sad.

  • Very Sneaky Service Providers– If you redline a document, and then ”accidentally” turn track changes off when changing part of the wording in your favor, people will catch it, and it won’t look good for you. Don’t do it
  • Jigsaw Puzzles – I love jigsaw puzzles, but having a service provider rearrange an entire document just for fun makes me cringe. Yes, we know you’re a provider, which means you think you walk on water, but organization can be done later. Focus on the content
  • Vulcan Logic – Always have an independent source re-read an entire document before submitting it to a buyer/service provider. Dividing a document among four different people then duct taping it back together doesn’t work. There are always contradictions, and it makes documents unclear and illogical. Star Trek’s Spock would not be impressed

Nay one und’rstands what ye are writing

We get it. You were an English major and studied Shakespeare, but the people who are going to live and breathe the contract likely weren’t and didn’t.

  • Shift+F7 – Using a thesaurus was great when submitting English papers in high school, but in a SOW, the simplest words often work best
  • Lawyers get paid by the word – Stay away from terms in a SOW that imply something is to be done. Use firm language like “will” and “must.” Don’t worry about what the lawyers will do after. Focus on making sure responsibilities are clear so the attorneys understand the concept, and then let them make their millions
  • Copy-Paste – Let’s be honest…we all re-use content. Copying and pasting great IP is great, if it flows. But it often doesn’t. It’s worth taking the time to rewrite a section, or very carefully reviewing your paste job, to make sure your document flows correctly.

Having anxiety attacks just thinking about working on your next SOW? These tips may be just the natural remedy you’ve been searching for.

Photo credit: Flickr

EPAM, a midsize, $800+ million service provider, is growing faster than the market. And it’s achieving this notable status in a mature application space where others have struggled and also in a services world that favors scale and size. What is its secret for beating the odds and seemingly defying gravity?

At first glance, EPAM shouldn’t be able to succeed. Its customer base is large enterprises with mature sourcing models. And although it has an arbitrage value proposition, it uses Eastern European resources, which are more expensive arbitrage than available in India. Yet it achieves attractive margins and is quickly growing.

EPAM succeeds because it has a highly differentiated value proposition around its talent model, client intimacy and capabilities. It’s a compelling story.

It delivers against the traditional pyramid offshore factory model with its incumbent churn. EPAM provides, instead, talent from Eastern Europe who have deep engineering skills and are more technically savvy. Once it puts a team in place, it keeps that team in place; so there is low turnover in staff. This positions EPAM as better understanding its clients and bringing a more stable, higher-productive, knowledgeable team than its competitors, with deep customer and technical knowledge. They don’t take over all the operations; they focus on highly technical applications that tend to be mission critical.

EPAM succeeds because it hits the market with the right differentiated story and a set of capabilities, messaging and business practices that align well for large, mature companies. In today’s mature market, EPAM presents a nice counterpoint to the big Indian firms. And they are taking share.

“Sir, sir – a monkey pooped on your shoe!” was the first thing that brought my attention to the large, wet mound on my casual walking shoe.

Ick. Not a convenient development when walking around Connaught Place in New Delhi.

Interestingly, the next thing I heard was “Shoe shine – only 500.”

Despite the jet lag, I was able to immediately recognize the scam. The fact that the same person who pointed out the poop before I noticed it also happened to have a shoe shine kit was a pretty good clue. Never did see the accused monkey, although I strongly suspect it was actually the person who I begrudgingly paid INR 500 for that shoe clean-up and shine!

I filed it away as a humorous lesson and forgot about it until mentioning it some colleagues in our India office the next week. They were aghast and surprised that I would pay so much for the shoe service (about US$10 at the time, and 20% of the value of the shoes – which I had never previously considered deserving of a shine). From their perspective, I had paid far above market value (10-15 times the market rate) and should have negotiated the price down. From my perspective, I had no idea of the market price and just wanted the issue fixed quickly despite knowing the painful truth that the source of the problem was also the solution to the problem.

I was recently reflecting on this for reasons completely unknown to me (er, might have come about while changing a baby diaper…you get the idea). I was struck by the fact that my colleagues, the shoe shiner, and I all had different thoughts upon the value exchange. In an effort to demonstrate exactly how much I over-analyze life, I distilled this to three lessons.

1. Value is relative

The shoe shine from my perspective cost US$10 and allowed me to get back to enjoying the sights and sounds of Delhi. Frustrating, but well worth the money from a functional perspective that had nothing to do with the shoes themselves, but rather to remove a nuisance and enable me to do other things. From my colleagues’ perspective, it was 10x the market rate. From my experience, it was about 2X the market rate (US$5) in the U.S., so I did not mind the rate too much. If I had been asked to pay 10X the U.S. rate or US$50, I would have resisted and likely gone ballistic. For the shoe shiner, ignoring raw material costs of the poop, it was tremendous profit and a highly valuable exchange.

Depending upon one’s perspective, the financial price of a value exchange and the utility from the value are viewed differently.

No wonder we struggle to put a price to value in outsourcing!

2. Attribution of value creation is contextual

Although the shoe shiner definitely helped solve the issue and did so quickly, I could not be pleased with the value received; the context of the need for the services completely undermined his shoe shining contribution.

If this had not been a scam and I accidentally stepped into something and a shoe shiner happened to be nearby and solved the issue, then I would have thanked him profusely and happily paid the INR 500. However, instead of thanking him, I left grumbling and scowling because of the context in how the value was created for me.

In other words, if you cause the problem, your perceived value in solving the problem is less than if you solve problems created by others.

3. Perception of value is as much about experience as results

After starting to reflect on this, I pulled out these old shoes (see photo), which I have not worn much in recent years. Ironically, they look pretty good. In fact, I believe the leather is softer and better looking than when I first bought them. They have also avoided collecting as much dust as before the unplanned shoe shine.

In other words, they benefited from the shoe shine and it appears to have been a decent shoe shine.

But I can’t give the shoe shiner any credit for this because the experience was such a turn-off.

So, solve the problem, but also ensure the experience of problem resolution is appreciated by the recipient.

Outsourcing is fundamentally a service provided by one complex organization to another complex organization. The situation is ripe with many factors (mis-communications, mis-aligned stakeholders, budget pressures, turnover, etc.) to limit the chance for perceived value exchange between organizations. Although we need to ensure the work completed creates value, we should not forgot that how we treat each other and manage our interactions can completely undermine the appreciation of value. If you solve a problem, don’t expect credit if you created the problem – solve problems beyond your scope. If you solve a problem, don’t expect much credit if the experience is suboptimal – own the problem and the service experience.

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