If you’ve been following some of the recent trends for governance and risk management, then the topic of soft controls will be something you’re familiar with. Historically, most organisations focused on hard controls in their enterprise governance and risk management approaches but this is changing as more and more research shows how essential soft controls are to mitigating risk and generating value. In the space of sourcing however, with the exception of CSAT surveys, the focus has almost always been, and continues to be on hard controls. Reconsidering this approach offers advantages, such as reduced governance costs, more manageable contracts, better supplier relationships – not to mention improved results.
What are soft controls?
Soft controls are checks done on the critical aspects of performance which cannot be objectively measured. This contrasts with hard controls which can be measured clearly – such as meeting a target date, meeting a quality metric, delivering a certain volume or achieving a certain speed. However, rather than just seeing soft controls as subjective scores – good/bad; met/not met; 7 out of 10; etc… it’s important to realize that more often than not, soft measures are required because they align to the higher level aspects of your control framework** (see picture below). This means that rather than being a subjective qualifier to the otherwise hard reported performance metrics, they are actually a precursor to good performance on hard controls. Getting the right soft controls in place can reduce the need for a lot of lower level controls, metrics and reporting. The soft metrics are those that keep people aligned to objectives and business value.
Intent of this article
The intent of this article is not to go into full depth of how to embed soft controls, but to raise awareness of how essential they are and to provide a few examples (as above) of how they can be applied. As research in the field summarizes: Values and behaviour drive performance*. Just because sourcing involves a relationship between two or more distinct organisations, does not mean this principle is no longer valid. Instilling these values and behavious starts with making these clear in agreements with suppliers. It must then also be followed up with clear contractual controls, both soft and hard, that ensure ongoing performance.
Leadmark offers a fast and easy evaluation of sourcing contracts and governance that gives objective insight into how fit for purpose your governance controls are. This reduces your internal overheads, improves clarity and alignment with suppliers and builds vendor management maturity that improves future relationships and results. Are you wondering what the added value of soft controls can be for your organizations?. Please contact us for a free introductory meeting.
* Richard Barrett, Building a Values-Driven Organization: A Whole-System Approach to Cultural Transformation, Boston: Butterworth-Heinemann, 2006.
** COSO Framework