Governance Is Key to Managing Outsourcing Relationships

Ann All

Ann All spoke with Liz Campbell, managing director, Governance & Transformation Advisory Services, for EquaTerra, an advisory firm with deep functional knowledge in finance and accounting, HR, IT, procurement and other critical business processes. It helps clients achieve significant cost savings and process improvement with outsourcing, internal transformation and shared services solutions.


All: Are certain market trends - the preference for shorter, multiple outsourcing deals vs. large, long-term ones, for instance - making it harder for companies to determine the value of their outsourcing relationships and to manage those relationships?
Campbell: On the contrary, the move toward multi-sourced environments is giving organizations cause to reconsider how they are managing the relationships, given the additional complexity. It is harder to manage multiple relationships as there are by nature more moving parts to the overall service delivery. However, an interesting number of organizations faced with these challenges look for ways to leverage the experience of managing outsourcing relationships and consider an overall functional or enterprise governance capability. The challenges in the shorter-term multi-sourced environments are still: How should we be organized as a governance team? What type of relationship am I trying to establish? How much investment should I be making? Am I clear about the business benefits? How these will be tracked and realized?


All: How can companies gain better visibility into their outsourcing relationships? Is a centralized management structure the answer?
Campbell: Like with many solutions, one size does not fit all. Single point of account ability for the overall relationship certainly has its advantages. Centralization will provide for improved control and visibility of the relationship. The challenge becomes to ensure the centralized control with local responsibility for the services delivered. Establishing clear decision rights in the management of global agreements, as an example, is critical. The decision rights provide for centralized visibility, and thus control around change to the agreement. Local responsibility comes into play for issue escalation, resolution of local/country or regional specific issues.


All: How can companies determine which of the three common models of centralized management - center of excellence, shared services or central BPO management office - will work best for them?
Campbell: Organizational maturing and experience with outsourcing are key factors to understand which model is most appropriate. One Fortune 500 company has signed a number of BPO outsourcing deals in the last two years and is now looking to structures to share best practices through a Center of Excellence. Strategy for outsourcing, another key factor influencing the governance model development, is how the organization has undertaken outsourcing. If, as is the case in some organizations, a global/enterprise strategy has been established and delivered, the establishment of a shared service or BPO office tends to have more initial support and can be driven through a change program to be successfully implemented. However, in other instances, organizations have outsourcing within functional areas and may not necessarily have collaborated on the transition process. In these instances, which are often more common, organizations may establish a CoE and then look at the economies or control advantages of the other models.


All: EquaTerra says governance of outsourcing relationships should encompass four levels - organization, processes, capabilities and tools. Do companies tend to focus strongly on some of these areas at the expense of others? If so, how can they correct this tendency?
Campbell: There is still a tendency in the marketplace for organizations to have light touch to all these areas. The governance organization and processes are often a focus. The challenge becomes to ensure the resources moved into governance position have the appropriate experience and skills to be successful. There is still little in the way of training offered to governance teams taking on the new challenge of managing a service provider. Tools is another area where organizations "make-do" with spreadsheets rather than leveraging available tools to fully enable the governance team to focus on the strategic tasks at hand to drive transition and transformation of the services.

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