Why Outsourcing Governance Matters
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If only Dr. Phil would take on outsourcing governance relationships. If your
company has outsourced significant business processes, you understand how hard
it is to manage the relationship with service providers. But why? The business
process is not new, you probably went through an extensive review and selection
process to ensure that your provider has the resources and expertise required.
How could there be trouble in paradise when you got along so well while you were
Just like any new relationship, this new partnership with your outsourcing
provider requires some adjustment, some new skills and a commitment to
communication. After the outsourcing contract is signed, the real work begins.
It's not that companies can't handle these outsourcing governance
relationships. Companies typically manage many very important ongoing
relationships with employees, contractors, suppliers and customers. Every
successful company has dedicated significant energy to managing these
relationships. Each of these relationships is supported by an organizational
structure, established processes, management methodologies and a supporting
information infrastructure. Employees have the HR department, consultants have
corporate sponsors, suppliers have procurement, and customers have sales and
If there was a wave of critical resignations in your east coast office, there
would be no question as to who in the organization must be notified. The local
human resources (HR) manager would be the first to know and would immediately
escalate the issue to the senior HR executive. There are policies and systems in
place to manage this smoothly. If the situation were customer defections instead
of employee resignations, the people, processes and systems involved would be
Now, think about your outsourcing providers. If something goes wrong with
your outsourcing relationship, what happens? Is the escalation path clear? Is
there one senior executive with ultimate responsible for the health of the
relationship? What is your outsourcing governance policy? Do you have one? If
not, can you simply substitute your HR policy or your customer retention
strategy? Of course not, the relationship you have with your outsourcing
provider is very different.
Outsourcing providers are unique. They aren't employees, although in many
cases, they do the work that employees used to do. They aren't just suppliers;
they are involved in day-to-day operations. They aren't contractors; you don't
get to dictate how they're doing the work. They're new and different, and you
must change your ways if this new relationship is going to work.
Fortunately, your existing relationships provide the framework for the
adjustments required for outsourcing governance. Just like employees,
contractors, suppliers and customers, your outsourcing providers need a
supporting organizational structure, management methodologies and information
To successfully manage your outsourcing relationships you must:
- Make outsourcing governance a distinct responsibility;
- Clearly define your outsourcing governance and relationship management
- Utilize effective tools to manage the relationship with your outsourcing
Chief Sourcing Officer (CSO)
The organizational chart of a company that makes significant use of
outsourcing should clearly identify the senior executive responsible for
outsourcing governance. This executive should have a team that is dedicated to
the new disciplines of outsourcing governance and relationship management. As a
signal to the growing need for expertise in this area, a new trade group, the
International Association of Outsourcing Professionals (IAOP), has launched a
certification program for outsourcing professionals. The analyst community has
also called for greater focus on this discipline, with Gartner predicting the
emergence of the CSO.
An outsourcing governance methodology is no different than any other
methodology, policy or strategy. There is no right answer. Do you manage to
service level agreements SLAs or operational metrics? Do you make providers
compete with each other or trust that a single provider is doing the best job
possible? How much do you need to know about the details of your providers'
operations? Do you deal only with the CEO of your provider or interact directly
with the employees that are doing your work? What works depends on what is being
outsourced and how critical it is to your company's primary goals. The key is
that your outsourcing management methodology is clearly defined and diligently
The moment you outsourced, you destroyed your information infrastructure.
I'll say that again. The moment you outsourced, you destroyed your information
infrastructure. You now have new people, new locations and new needs. Large
portions of outsourcing transition budgets are dedicated to getting basic
operational systems up and running again. Unfortunately, though, the systems
needed to manage the outsourcing governance are rarely addressed in the initial
strategy. Just like your customer relationship management system manages your
customer relationships, you need an appropriate set of tools to manage the
unique needs of your outsourcing relationships.
Making it Work
Now that you've made the investment in outsourcing, you need to invest the
time and energy in outsourcing governance to keep your relationship with our
provider successful. Don't allow it to get to the point where you need Dr. Phil
or, worse, head for divorce.
The keys to a healthy relationship are to make outsourcing governance part of
your org chart, clearly define your outsourcing relationship management
methodology and utilize effective tools to manage your global network of
outsourcing service providers.
About the Author
Matt Chittle is a veteran of outsourcing and business transformation.
Formerly with Accenture, he is now VP of Product Management at outsourcing
governance software tool provider Janeeva Inc. He can be reached at
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Article Published/Sorted/Amended on Scopulus 2007-12-10 20:41:53 in Business Articles