Simpler governance for complex organisations

Simpler governance for complex organisations

The greatest brands make life simple. Think Google, Amazon, Spotify and Netflix. They cut through the clutter by delivering what consumers want, when they want it, without hassle.
By simplifying customer experience in a complex world, these brands win customer loyalty, which drives business results and creates value for shareholders. Simplicity has not only value in dealing with customers. It also pays when dealing with suppliers. Cutting through the clutter, a clear focus and strong message, the use of technology, fewer rules and smart controls.
By simplifying governance organisations make working together easier, faster and cheaper. That’s why simple is smart.   

Complexity in large organisations is a major source of headache for managing sourced services. Cross geography and timezone teams, hub and spoke interactions, matrix organisations (often in more than 2 dimensions) all create complexity that makes the job of the sourcing governance team complex and difficult. Often, the time drain on stakeholders and governance teams to manage the communications necessary in complex organisations undermines the value proposition of many sourcing arrangements as the effort to align objectives and messages is replaced by fire fighting and damage control with suppliers. This is often reflected in the experiences of service providers as well, that will identify critical success factors for sourcing are clarity of requirements on the client side coupled with a level of trust built through realistic expectations on the abilities and expertise of the supplier. Both of these elements are the role of the client governance organisation to foster and maintain, and both of these factors are made much more difficult to do when client organisations are complex, multi-layered and shifting. These organisation risks resulting from complexity are very real and should therefore be an essential consideration in developing, maintaining and governing the strategic portfolio of sourcing relationships.

Solutions to help reduce complexity fall into two categories. The first are solutions related to strategy and the second are more immediate solutions related to governance team activities. In all cases, these solutions look to reduce the volume of interacting components – whether it’s interfacing suppliers, interfacing stakeholders, interfacing services or a combination of these. For strategic solutions, the types of sourcing relationships developed within in organisations must be considered. This includes what scope of services are being sourced, to what kind of supplier, over what timeframe and meeting which business objectives. At a high level, there are a few things that can be done here to prevent the proliferation of complexity.

Source operations and processes, rather than just technology
This is an area that is opening up more and more in the market as cloud services drive flexibility in infrastructure services. The market is moving integrated end-to-end solutions that address a specific business need, rather than simply removing a legacy technology and/or skill deficit challenge.

Consolidate to reduce coordination
Look to consolidate and leverage suppliers as service integrators. Although many fear this will result in a loss of control, when done correctly, it reduces complexity and generates many benefits because it allows the client organisation to focus on service value, instead of managing the storms of integration and coordination. The critical factors are to consider that you’re not trying to integrate competing suppliers because this will present IP and transparency/cooperation challenges. Also, suppliers responsible for integration should have commercial control (transferred contracts) as much as possible. Finally, this should not be done in service areas with a high degree of requirements change where either the current supplier expertise may need to change or the business criticality of service is so high that the risk of lengthening communication lines is too high.

Simplify communication lines
Make sure governance teams report into the same level at which the sourced services are owned. One of the most important roles of any sourcing governance team is to understand and keep agreements aligned to business needs. This requires clear communication and trust between business service owners and governance professionals. When working well, business leaders will recognize and appreciate the value the governance team delivers in championing their business needs towards the external supplier market and getting the skills, services and results for them with less hassle. Speed and clarity of communications is key here and this is often hindered when the governance team sits too low down in the organisation and/or sits in a silo which is seen outside the control of other service silos, geographies, timezones. If you have key services being delivered across organisational silos and geographies which come together at a global CxO positions, then this is also the level at which the management of the sourcing strategy and overall governance should reside. The governance team should not be seen as a service management, coordination or administrative body. These are all activities which may form part of teams that interface with the governance organisation but at its lean core, the governance team focusses on keeping suppliers compliant to agreements and agreements aligned to business.

Align contract terms to business dynamics
Make sure the length of your sourcing relationships is proportional to the speed of requirements and stakeholder change related to sourced services. In highly dynamic organisations, deal length must be kept short. The commercial impact of this can be somewhat compensated with more flexible termination terms, rather than a very short contract term, but what must be seriously considered is that the cost of early termination and/or renegotiation is often much higher than agreeing a shorter term up front.

Some of the steps mentioned above may seem a big step but it would be wrong to read this article and conclude that attacking complexity is only about setting up projects to re-engineer processes, contracts or relationships. There are also immediate steps you can take to simplify.

Group stakeholders based on business needs
Group stakeholders into categories based on their critical service needs from sourcing relationships. Rather than involving all stakeholders in governance activities and meetings, group them and rotate participation or appoint a joint representative. This can significantly reduce the time drain on stakeholders and also simplify lines of communication. In cases where whole portfolios of services overlap, stakeholders can be engaged by the governance team across suppliers/services and topics, with the governance team taking responsibility to separate messages and input into individual supplier engagement.

Reevaluate where governance effort is actually needed
The complexity of suppliers and stakeholders in complex organisations can be exacerbated by governance teams that focus too much on the detail and not on the big picture. Governance efforts must focus on where value is most at risk. This means that although a standard contractual governance framework might require monthly review, in reality a reduced frequency may be just as acceptable. Likewise on data needs, stakeholder reports and communications. Reducing the noise and increasing the impact can have a huge impact on the perceived value of governance and also on the effort and frustration levels of the governance team themselves.

Leverage the power of technology
Use technology to get in control and communicate effortlessly. In complex organisations, automating access to management information, logging of objectives and review of contract terms, can simplify everyones life. Tooling helps enforce discipline between roles to ensure matrix organisations are not simply run by who screams loudest and it can also help manage perceptions and experiences since often it is a lack of transparency that undermines trust and satisfaction, rather than poor service. With effective tooling, simplification of information exchange can compensate for complexity of information lines.