Governance during the operational stage is one of the main reasons why service provider relationships succeed or suffer. Poor outsourcing governance can weaken the potential of the engagement, can lead to performance issues, financial difficulties, and in some cases cause long-term fractures in the relationship. If managed well, the partners may establish productive collaboration based on unity of purpose and realize the intended outcomes.
During our many years in managing sourced services and supplier relationships we have seen both governance practices that do work and practices that do not work. Based on this experience and inspired by research and best practices we have come to value a set of core principles for effective outsourcing governance. These principles are the fundamental to our Value-led governance framework to drive the successful management and direction of service provider relationships.
A company which applies the principles of Value-led governance will typically outperform other companies and will be able to realize their sourcing objectives.
Principles of Value-led governance
The highest priority is to optimize the outcome of the engagement while minimizing the risks and costs for both sides of the relationship.
Performance and risk are reviewed at regular intervals to facilitate a structural focus and promotion of continuous improvements.
The service provider is accountable for achieving and demonstrating service levels.
The client reviews performance of the engagement with minimal operational involvement.
To maintain a sustainable relationship based on unity of purpose, the engagement is supervised by a joint board of senior managers from both parties.
Change is welcomed and preferred over rigidly following the contract.
Risk based thinking is used to identify potential failure modes and facilitate a structural focus and promotion of mitigating actions and controls.
Performance of the engagement is systematically reviewed using a dynamic mix of controls that is evaluated at regular intervals on how to be more effective and then adjusted accordingly.
Payments are clearly aligned to outcomes and based on demonstrated performance.
The contract is useful and manageable for both sides of the relationship and provides targets for measuring performance against business objectives.
At regular intervals the parties reflects on their collaborative practices and behaviours, then tunes and adjusts it accordingly.
Collaborative team effort is preferred over command and control.
Collaboration is promoted on the foundation of trustworthiness, transparency and a balanced system of risk and reward.
Happy customers are preferred over green performance indicators.
Governance is build around a small, competent and empowered team using structured processess.
Peer problem solving and fair dispute resolution is preferred over escalation and formal litigation.
he parties utilize a shared information management and record keeping system to provide transparency in communication and underpin fact based decision making.