Specific governance may be established to oversee contractual, financial, and service delivery performance that can improve outcomes within projects, programs and the overall organization portfolio. This governance can be built into the relationship from the onset of the engagement to improve the overall health of the relationship and maximize value for current and future engagements.
Outsourcing and Governance
In today's world, an organization can outsource anything, from an activity or role to a project, fully implemented program or entire portfolio of services. “Turnkey solutions” and Business Process Outsourcing (BPOs) offer packaged solutions that contain the allure of reduced complexity and perhaps less hands-on oversight. Organizational outcomes can be achieved through delivering a product or service that may be completed by a series of contributing organizations completing complex hand-offs that result in a finished product.
This can include achieving organizational outcomes through the following:
- Staff augmentation (specialized roles)
- Projects/programs
- Deliverables
- Workstreams
- “Turnkey” solutions
- Portfolios (ongoing operations/outsourcing)
- Processes
- Departments
- Functions
The draw is understandable. Organizations may prefer to focus resources on a certain market offering and less on the underpinning technology or process that, for example, keeps the organization running operationally. Sourcing for specialized skill sets can become a consumptive activity and less cost effective for limited-term engagements. Building something “from scratch” can easily be demonstrated to be less cost effective than outsourcing the activity to a well-defined and pre-organized service provider in many scenarios.
Where the relationship may run into challenges and value lost is when the relationship is not well defined and maintained through the life of the engagement. Many project and program managers can attest to struggles with attempting to define and create accountability after a contract has been (poorly) defined and the delivery is not meeting (poorly) defined expectations. Issue management becomes complex and slow to corrective action when escalation procedures are limited or are not captured from the onset of the relationship. Managers overseeing multiple vendors that must hand off packages of work to one another can spend excessive time navigating the politics of determining fault if quality is low. Outsourced services health reporting may be limited and Service Level Agreement (SLA) targets may not be met, with little consequence. Future possible collaborations are obscured by current discontent on all sides due to disconnect.
These issues can be broken into three different sourcing stages, as shown in Exhibit 1.
Joint Vendor Governance
Governance refers to “all processes of governing, whether undertaken by a government, market or network, whether over a family, tribe, formal or informal organization or territory and whether through laws, norms, power or language” (Bevir, 2013, p. 24). Governance contains “the processes of interaction and decision-making among the actors involved in a collective problem that lead to the creation, reinforcement, or reproduction of social norms and institutions” (Hufty, 2014, p. 404).
Vendor governance is a system to define, organize and assess the relationship with regular, predefined cadence. Joint governance differs from simply oversight in that it also provides a venue for both (or multiple) parties to assemble and have multi-way dialogue. It also is a system of measures, reviews and decisions that monitor and adjust the overall relationship in addition to specific deliverables. Joint vendor governance is typically:
- Captured formally in contractual language as a baseline commitment for all parties to participate in this collaborative venue;
- A system of processes with assessment/decision mechanisms, ideally captured in a process or governance manual; and
- A series of review boards or committees that focus on specific relationship or delivery aspects and are informed by the underpinning governance processes and data collected.
The content, attendees and cadence for review boards can vary widely depending on the delivery. The objectives are relatively standard to ensure:
- Common understanding of delivery standards, assessment tools, and escalation from the onset of the initiative/delivery;
- Captured and adhered-to reporting structures that clearly defined accountability and penalties; and
- Forward-looking growth opportunities are identified and shared in a timely way for the relationship to potentially expand in new, mutually beneficial ways.
Exhibit 1: Tracking value in the life cycle.
Initiation and Planning—Value Identification
When the relationship between the organizations/individuals is first established, it can be easy to focus on the positive and feel cautious about imposing rigor to the relationship. Vendor governance can create a venue for both rigor and flexibility, however, and the contract needs to host both. This is particularly true when determining accountability, penalties for default, escalations, and determinations for quality (who measures, who defines, who delivers, what happens if quality isn't met). This is often left off contracts that can be smaller in nature and at the Statement of Work level, but this is a tremendous source of value leakage.
Similarly, outsourcing portfolios of work or business processes can also be vulnerable if contracts do not capture the necessary requirements to mitigate value loss. Everest Group reports that 35%–50% of potential value can be lost by a series of managerial decisions made by vendors and acquiring organizations (see Exhibit 2). These managerial decisions can be guided by or bounded by contractual language that is integrated into the organizational agreements. If this value hasn't been “identified” in an up-front manner, this remains a point of potential loss.
Simply aligning early on templates and processes to use operationally and throughout the delivery can also create value. Project managers who garner up-front agreement for vendors to use templates that were previously screened and adopted by the organization will likely see fewer and more abbreviated document review cycles overall.
Exhibit 2: Post-signing “value leakage” (Everest Group, 2015).
Execution—Value Capture
During the life cycle of a project, program or vendor/service provider engagement, vendor governance will often take the shape of various forms of accountability structures. The relationship is tiered into operations, managerial and executive-level teams that may work collaboratively with the provider organization and assess performance, provide feedback and escalate issues as needed.
The joint governance includes the following:
- Performing delivery checks
- Assessing delivery quality (predefined processes to measure against a predefined baseline)
- Monitoring project transitions/ hand-offs (“go/no-go” tollgates from one accountable party to another)
- Project and Service Delivery Review Boards
- Establishing Operating Level Agreements (OLAs) between vendors
- Monitoring issues
- Performing escalations at the operating, managerial and executive “layers” of the organization as needed with review boards/committees focused specifically on relationship management and underpinned by reporting processes
- Relationship health checks
- Issues management
- Assessment of delivery and approvals for payment
Monitoring and Controlling—Value Creation
Vendor governance can add value capture as the relationship continues by installing proactive venues to discuss future joint ventures. This strategic and cyclic review should be built in to the relationship early and set up quickly to establish expectations of willingness for future collaboration. The agenda is typically oriented around current offerings and capabilities, and what future investments may be made in support of a shift of strategy by either organization. This provides the opportunity for both organizations to think proactively about how the capabilities of both may be aligned in future states to influence current spending and resource allocation.
Summary
Closing the gaps between organizations’ mutual understanding of commitments and building a stronger relationship overall can be captured early (through contractual documentation) and through the life cycle of the relationship (monitoring documented commitments and maintaining a strategic, forward-focused connection through a formally structured joint governance structure). Though contract and governance contents can vary across services being delivered, the core concept of joint governance is to build and maintain a healthy relationship for all parties involved that maximizes value. Joint governance focuses not just on delivery, but also on the ongoing relationship performance, and is underpinned by delivery standard commitments and a system of measures against captured commitments. When orienting a collaborative engagement from oversight to joint governance, both organizations can change the overall value gained in the process.