Outsourcing Governance 101: Partnership | Sherpas in Blue Shirts

Posted On December 1, 2015

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.

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