Five Paths to Better Governance and Outsourcing Nirvana

Better-governance-and-outsourcing-nirvanaOutsourcing customers want better results, and one of the most popular ways to accomplish that is through better governance. According to KPMG's most recent Sourcing Advisory Pulse Survey, 71% of advisors said improving governance processes was one of the best paths to outsourcing nirvana.

Clients are now "more focused on improving efforts already deployed in the field, versus just initiating new outsourcing or shared services arrangements,” says Stan Lepeak, a global research director with KPMG Management Consulting.

What, then, are some of the ways clients, advisors, and others who've been around the outsourcing block a few times suggest to governate?

CIO Jeff Steinhorn at Hess Corp., in an IT sourcing relationship with IBM, found a solution in "multiple committees, meetings, and reviews" — beyond the regular interactions that occur (or should) daily between buyer and provider. He found that "granual issues" would be discussed, and that big executives did not need to be involved except for monthly reviews. Steinhorn and his team came up with "a very detailed governance structure" that is not for the meeting-averse but paid off.

Don't let lawyers get in the way. Sure, you need them to set up the legal frameworks and all that. But as my colleague Bob Scheier reported from the recent SIG Leadership Summit, some intrepid lawyers recognize that attorneys — by focusing mostly on potential risks — can get in the way of negotiating a deal that allows you to innovate. "The need for better governance so outsourcers can innovate" was a key theme at that conference, and it's a topic we'll talk more about here in the future.

Make sure formal processes are in place. Sometimes I think we fear that too much process can stymie the entrepreneurial spirit. But without process, important things can and will slip... and then the time spent getting things unslipped takes away from the energy that could be devoted to entrepreneurial activities. Pablo Velasco, a director at TPI, calls lack of formal training and process one of the top five governance mistakes. In a column for Nearshore Americas, he says:

"Commitment includes taking the time and seeking the knowledge needed to develop appropriate governance processes and training the team how to follow them. While outsourcing contracts make provisions for knowledge transfer, that is not the same as developing the knowledge needed to manage the contract."

Be open to the idea that the "customer is not always right." That's the advice of Cathy Hyatt, a vendor management and global procurement veteran. She says:

"Governance group members must keep their minds open and reach across organizational boundaries to understand the motivations of all stakeholders. Communication is an imprecise science, and misinterpretation increases when people attempt to bridge the language and experience gaps across functions and cultures. By taking special care to develop a deep understanding of stakeholders' motivations and expectations, governance group members can negotiate more creative and mutually beneficial solutions."

Consult the people who do the actual work. As Edward Hansen, of law firm Baker & McKenzie, told "It can be helpful to turn to the people in the trenches who are working together on a day to day basis. These people have worked out problems together and [may] even have ideas on how to improve [the engagement] that would bring real value to both companies."

Having been in the trenches and also hung around with lots of upper-echelon types, I say amen to that.

Of course there's always the option of outsourcing governance. But that's another topic.