When the health of outsourcing governance is poor, it’s not just the business case that suffers. Outsourcing governance is all about decision making. Specifically, it’s about the roles and processes that determine who makes decisions on different topics at different times. Effective governance keeps the day to day outputs of delivery teams aligned to the desired outsourcing outcomes.
Badly timed or badly executed decisions can cause ripples of disruption for everyone in the chain – business users through to the supplier. Think of lengthy disputes, early terminations and ever increasing demands for more detailed KPIs.
Here is a five question governance fitness check. It will give you a sense of your governance health and effectiveness and help identify actions to improve the outcomes you’re getting from your outsourcing deals.
1. Are the people responsible for outsourcing governance happy? Are you able to attract and keep the best people?
This is the single best question to gauge the health of any governance organisation. The reason for this is that personal motivation is so strongly linked to clarity of purpose and ability to achieve results. If governance teams are unhappy it is most likely due to ambiguity in roles and responsibilities or in complexity of organisations and processes which are not enabling results but hindering them. The bottom line is simplicity and results make people happy!
2. Does the management team of the governance organization have the same understanding and interpretation of the contract?
This question assesses two critical aspects of healthy outsourcing governance. The first is acknowledgement that the contract is at the heart of the relationship and the second is that consistency in messages are essential when dealing with suppliers. If there are multiple interpretations of the agreement, then it is likely the supplier is getting confusing signals from the governance organisation. Also, it’s likely that the very people the supplier is relying on to set direction are doing so ignorant of the supplier’s perspective as agreed in the contract. Conflicts and poor outcomes are bound to result.
3. Does the governance team spend more than 10% of their time on email? Or more than a half their time in meetings?
There is no single best practice on time management but studies have shown direct correlations between communication complexity and poor performance. High volumes of emailcause confusion, generate unnecessary work and together with meeting volumes are a signal of poor alignment. In outsourcing, good results depend on keeping all critical parties on both sides aligned to objectives, activities and truths regarding performance.
4. Do you know deal performance against business targets?
When outsourcing is initiated, this is almost always done as a result of a detailed business case assessment. However, most businesses lose sight of performance against these original targets. This is often compounded by the dynamic nature of sourced service requirements. Business demands move on and the original intents and targets of outsourcing are no longer fully applicable. It is essential that decisions made to steer the scope and performance of any outsourcing deal are based on a clear understanding of how the deal is performing against business targets, both original and revised. The lack of this information is often a sign that the deal governance is disconnected from the business or that governance processes are too focused on operational management and firefighting. In the case of the latter, this often means governance organisations are shifting to take on the work of their supplier, rather than steering the contracts, relationships and deal performance.
5. Are meeting actions and escalations typically closed or resolved within one month?
Most people have heard how essential trust is in successful outsourcing and also that trust is earned. For a supplier, trust is earned by meeting expectations and performing predictably. For customers, a great deal of trust is based on making fair and clear decisions relatively quickly. Suppliers cannot achieve great results for businesses as an island. They are influenced by and dependent on their customers in numerous ways and therefore need their customers to respond appropriately, often meaning quickly, when ambiguity, issues and conflicts arise. Delayed decisions are usually the result of poor information availability or lack of clarity in decision making roles where consensus forming is necessary to get anything done or worse, decisions are made and then reversed by someone else.
If you answered no more than once, then there is a good chance improvements to your governance can improve the overall outcomes of your outsourcing. Here are a few guidelines on optimizing your outsourcing governance and getting the fever down.
1. Simplify everything related to outsourcing governance – the contract, the governance roles, the meetings and the processes. Use the rules Reduce and Clarify (in that order).
2. Focus decisions on business objectives, empowered by performance transparency. Don’t focus on perfecting processes and operational metrics. Challenge your supplier to show you how they achieved or will achieve a particular goal, not to give reports on the speed of process steps.
3. Communicate with purpose and be strict about quality of communications within your governance teams. If you can’t easily state what each person receiving a communication should do with it, or the answer is ‘nothing’, then don’t communicate.
4. Accept that constant negotiation is part of outsourcing. Decisions need to be made continuously and quickly by people with clear mandate. They must also be recorded for traceability. Identify decisions that seem particularly challenging to make and collaborate with your supplier to agree a path forward you can both be comfortable with, accepting a probable lack of information.