Governance Sets the Stage for Outsourcing Success

2007-11-14 17:23:39 By Drew Blanchard Source: http://www.accenture.com

When it comes to outsourcing arrangements, people have rarely focused on the importance of a strong governance process. This is now changing. The reason? With today's outsourcing agreements commonly running into the hundreds of millions of dollars, a poor governance process can significantly impact shareholders' returns. In addition, many of today's arrangements are mutually dependent and transformational, meaning they focus on more strategic, "higher-stakes" business activities that can impact the company's overall performance.

In these scenarios, it is critical that companies and their outsourcing partners align their interests and expectations from the very start, and create a flexible arrangement that can continually accommodate business and market fluctuations. A poor outsourcing governance model creates a dysfunctional environment for decision-making, limits innovation and forces executives to manage to the letter, rather than to the spirit, of the contract. A high-performance governance model, on the other hand, provides a framework that drives the relationship and enables both parties to meet the contractual intent and generate tremendous value. In short, there is a direct correlation between strong governance and:

Maximized delivery of benefits.

Seamless delivery of services.

Service levels and operational performance integrity that exceed expectations.

Superior oversight and consolidated performance reporting.

Mitigated risk.

This begs the following questions: What constitutes high-performance governance in outsourcing? And how do you set up a model to effectively deliver on the goals outlined above?

The fundamental element of any outsourcing government model is a shared understanding of—and agreement to—the specific outsourcing services that a company is purchasing. On the surface, this seems like little more than common sense. And that may be precisely the reason companies often overlook it.

It is very common for companies to finalize their outsourcing arrangements without sharing the goals, expectations and terms of the contract with those who will actually carry it out. When demands fall outside the scope of the agreement, the outsourcing provider will most often implement a change order for the new request or simply say "no," creating a disruption for all parties. This not only damages the relationship, but can also threaten to erode shareholder value.

Companies can avoid this scenario by clearly spelling out their respective roles, rights and responsibilities in their earliest discussions. It is also critical for the outsourced company's leadership and the leadership of the outsourcing company to establish early and ongoing dialogues, with the expectation that these discussions will be as natural as if the outsourcer was "inside" the company.

Establishing a rhythm for communications, as well as peer-to-peer linkages, is critical; regardless of what is documented in the contract, the ongoing habits and behaviors of each companies' leadership will dictate the outsourcing deal's success. Companies and their outsourcing providers can further increase the likelihood of success and high performance by implementing a strong governance model in which all players are actively and passionately focused on delivering on the business intent, amidst changing market demands. Specifically, the model should:

Allocate the right responsibilities to the right governance body entities.

Provide robust and well-documented decision-making structures and processes.

Provide appropriate change control processes.

Provide guiding principles and proactive issue and dispute resolution processes.