The Importance of Governance in Outsoursing
Governance is a critical factor for successfully implementing an outsourcing agreement. Governance defines the roles and responsibilities of both parties related to the management and delivery of outsourced services. It also provides the framework for how both parties work together to support strategy, innovation and business planning. By clearly defining and agreeing to each party’s role, the process of governance can become institutionalized, thus eliminating the “too little, too late” ad-hoc approach that unfortunately is all too common in outsourcing relationships.
Governance will be documented wholly or at least in part within a separate section of the contract. Some governance concepts, depending on the structure of the over-arching Master Services Agreement (MSA), may be alternatively covered in other sections of the contract. Good governance addresses the following four areas:
- Strategic Roles and Responsibilities – There will be some form of executive-level team established to provide overall direction to the relationship and to promote the success of both parties in executing the agreement. This team focuses on strategy, planning, policies, the objectives of both parties, contract change control, evaluation of performance, and dispute resolution. This team typically meets quarterly or semi-annually, and more frequently during the first months of the new agreement.
- Operational Roles and Responsibilities – In parallel with the strategic team, there will be an operationally-focused team of executives and senior managers from both parties that is charged with overseeing day-to-day operational performance and procedures, reviewing monthly SLAs, chartering improvement initiatives, ensuring tight process integration between the parties, funding out-of-scope requests and so forth. This team is also the first line of dispute resolution. The operations team typically meets monthly and can meet on an ad-hoc basis if required.
- Contract Change Control – There should be a well-defined process described for evaluating and implementing changes to the contract. A typical flow would consist of the request being formally documented, an impact analysis being performed (cost, risk, SLA impact, etc.), an operational team review/approval, a strategic team review/approval, a step to develop and execute the formal amendment/change order, and finally some sort of continuous monitoring and improvement loop.
- Dispute Resolution – When a dispute cannot be resolved through normal governance, there should be a documented contract dispute resolution process that gets executed. This not only leads to quicker resolution it also relieves some of the pressure on the relationship since both parties can logically follow a pre-defined process. The process should define at which point there is a dispute (typically the contract executive from one party sends a formal notice to his/her peer from the other party), and then describes the steps and timeframes to follow. Usually there is a set amount of time for the issue to be resolved at the contract executive level, and if not resolved in that timeframe then there is an automatic escalation to more senior executives to resolve. Worst case, if the dispute is not resolved, there are steps defined for how to resolve them through mediation or ultimately through legal means.
Too often, there is little attention paid to defining (and/or executing) the right governance structure that will allow both the client and provider to manage the new outsourcing relationship. Unfortunately, a lack of proper governance can quickly lead to missed deliverables and missed expectations. By focusing on governance during your contract negotiations you will be in a much better position to manage the contract towards a successful outcome.
Alsbridge can help you achieve your governance objectives — not only by ensuring the proper governance language is included in the agreement, but also by helping you design the operational processes (as part of our Sequoia offering) to make it real.