Outsourcing Governance 101: Proficiency | Sherpas in Blue Shirts

Posted On November 30, 2015

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.

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