By Kendall Dean, Program Director, Governance & Transformation Advisory - EquaTerra and Liz Evans, Managing Director, Governance & Transformation Advisory - EquaTerra
Today’s outsourcing buyers are increasingly opting to contract with multiple service providers within the same function, which results in a much more complex governance environment. If organizations fail to comprehensively focus on governance in a multi-provider scenario, they risk losing significant value from their outsourcing relationships.
The use of multiple outsourcing service providers within the same function (e.g., information technology or finance and accounting) is becoming increasingly commonplace. Today’s buyers are more experienced and sophisticated, and thus feel comfortable with and realize the value of a multi-provider environment within a single tower. Yet, without really noticing it, these companies have evolved from simple to complex outsourcing models. As a result, the increased complexity is driving additional cost and time to oversee these relationships.
Challenges of Multi-Provider Governance
Management of the interfaces to ensure delivery of end-to-end processes is more challenging due to the increased number of hand-offs and interactions with multiple providers. And performance management activities are more difficult as a result of the variety of service delivery models (delivery location, service levels, etc.) utilized by providers. As a result, buyer organizations are facing unfamiliar challenges with additional layers of complexity that threaten to jeopardize both the value and benefits of their outsourcing efforts.
Duplication of Effort
In a more complex environment, duplication of governance efforts is common as buyer organizations struggle to appropriately leverage governance practices across multiple providers. And unfortunately, this is happening at a time when they really need to gain operating efficiencies to reduce costs. But by looking at ways to standardize and consolidate governance activities, buyers can obtain savings.
Lack of Consistency
Different outsourcing relationships with disparate governance mechanisms, processes, reporting, decision rights and roles will drive increased governance costs. Standardization among service providers is the key to efficiency.
Inability to Measure Success
Lack of standardized metrics and overall reporting across the outsourcing provider portfolio often results in an inability to truly measure success and intervene when outsourcing is not delivering.
Leveraging Best Practices
Companies consistently struggle with deploying governance best practices, skills, knowledge, experience and capabilities throughout their enterprise, in large part due to lack of knowledge (i.e., who in the organization has outsourcing experience) and functional or political organizational barriers.
How to Prepare for Increased Complexity
Buyer organizations need to fully understand their current outsourcing environment and evaluate how governance mechanisms can be leveraged to ensure success. Possessing comprehensive insights, including the scope of existing relationships, will help to integrate new providers into the mix. Buyers should examine the following areas to assess complexity:
Outsourcing Scope: What is the scope of your current outsourcing agreements? Is the outsourcing scope new in the marketplace? Provider Interaction: Understanding the level of interaction expected between providers is critical to ensuring appropriate governance mechanisms are established. Organizational Experience & Maturity with Outsourcing: Is your organization new to outsourcing? Is it familiar with working across multiple times zones, with virtual teams, etc., to achieve results? Relationship Objectives: Not all outsourcing relationships are created equal. They can vary from transactional to collaborative to partnering, and each will influence the type of governance model needed. At minimum, your portfolio of relationships is likely to include transactional and collaborative.
Ensure Success by Taking the Following Practical Steps
Buyer organizations can significantly improve their success by taking a number of practical steps, through the contracting process, by preparing for an appropriate scalable governance model. We recommend the following steps:
Consolidate Governance Activities: Certain governance functions and responsibilities can be consolidated across multiple providers. For example, the commercial and reporting responsibilities can be standardized across providers and consolidated into centralized roles. Standardize Governance Processes: While certain governance processes should be decentralized, they can be standardized across providers. For example, service quality management and issue resolution are processes typically managed at the contract/relationship level. And standardization drives reporting consistency across the portfolio. Adapt the Joint Committee Structure: Depending on the structure in place for committee oversight of the relationship, operational level committees can accommodate multi-provider interaction to ensure end-to-end process delivery. Executive committees, focused on business strategy and direction, can also be successfully structured for multiple providers. Deploy Consistent Governance Roles: Ensure the roles, responsibilities and decision rights for the provider relationships are consistently deployed.
Remember what is at stake – loss of value, benefits and, ultimately, loss of control. Smart companies will put retooling their governance models high on their list of priorities to ensure outsourcing delivers on its business promise.