Governance is Key to Successful Outsourcing

May 15, 2006

Joe Hogan

In today’s competitive business environment, corporations are constantly looking for ways to improve their bottom line. For some, the level of investment required to maintain high levels of performance across all areas of IT can be a huge drain on human and capital resources.

Off-loading IT functions and select processes to an outsourcing provider can cut overall costs and free up resources to focus on the core competencies and key priorities of the business. However, even with all the benefits, some organizations have experienced negative effects of outsourcing caused by things such as miscommunication and inadequate service delivery by providers.

Perhaps one of the biggest reasons for outsourcing breakdowns is the lack of a governance agreement that helps set expectations between the client and the vendor. In addition to governing the outsourcing agreement, setting program management expectations and guiding the overall relationship, it can measure the key deliverables and metrics agreed to by client and vendor.

Good Governance

Governance is a formal management framework and structure that enables a service provider and client to mutually manage their relationship, expectations, contractual agreements and services.

It allows the service provider to fulfill their contractual obligations, creating more opportunities for a successful customer experience. It enables mutual support and growth of the business and is guided by a defined set of standard, documented processes and best practices.

Governance includes management, control, measurement and assessment, with quantifiable measurement being a key component of governance—it's what can turn a good relationship into a great one.

Additionally, having a methodology for measuring IT's contribution to the business goals of the organization is instrumental in any successful outsourcing engagement.

According to Gartner, fewer than 30% of enterprises have formal sourcing strategies and appropriate governance agreements in place. Given the Gartner figures, 70% of potential outsourcing clients are contemplating an outsourcing agreement with no formalized framework in place to ensure the relationship will be productive and efficient.

The U.K. has taken the lead in setting governance standards that are widely practiced in Europe and are quickly finding their way to the U.S. Standards such as IT Infrastructure Library (ITIL) and IT service management (ITSM) provide consistent and comprehensive documentation of best practices for IT service management used by many organizations around the world.

At its most basic level, ITSM is the alignment of IT and business objectives. This model is a significant, proven tool used to guide clients as they refocus their efforts on service management instead of technology management, and on customers instead of users, and on the integration of processes, people and technology; the three critical elements required to provide and manage quality IT solutions.

The Holistic Approach

To be successful, an outsourcing agreement needs to go beyond merely taking over a function and performing the work at a higher quality and/or lower cost. There must be a governance plan that defines the working relationship with clients and includes planning, training, adoption and adherence to standards such as ITIL and ITSM.

Program management acumen is also a key component to successfully managing a single or multi-sourced environment. Companies need to develop a program roadmap that provides an overall architecture of the sourcing lifecycle that ensures quality and service performance metrics are met, as well as keeping everything on track.

Before engaging with a service provider, it's important to make certain the provider has extensively documented best practices for governance and program management processes.

What follows are some questions to ask a potential provider:

How will the relationship be managed? Make sure to ask your potential provider to define how they will address the total client experience, oversee the execution of the contractual obligations and adapt to changes in the business environment.

These are fundamental-and crucial-factors in any successful outsourcing relationship. Specifically, both you and your provider should have a clear understanding of the following:

  • Who will be the day-to-day contact (client manager/client representative responsible for daily interaction and problem solving)?
  • Weekly status meetings at the account management level.
  • Monthly executive status meetings.
  • Quarterly/bi-annual strategic planning meetings.
  • Formal dispute resolution process.

    What operational controls are in place? Ensure your provider includes rigorous ITIL standards and an ITSM methodology, which should be customized to meet your business objectives. It should cover proven IT service design, deployment and management processes, efficient service operations—including escalation and notification processes, and most importantly, alignment between IT and the business to optimize the value IT brings to the enterprise.

    How do you manage client requests? It is important to understand that requests beyond the scope of the contract will likely come up during the course of your outsourcing engagement.

    Be sure to clarify with the provider what is involved in agreements and how the provider will respond to and manage your requests, both in and out of scope of the contract.

    What role does program management and strategic planning play in the relationship? Make sure to come into the agreement with a provider regarding how they will proactively review, improve, and enhance processes and technologies in service delivery, introduce new innovations into the environment, as well as define how both you and the provider will quickly adapt to meet new or changing market conditions such as business and/or legal requirements.

    Is your service provider partner willing to invest in the relationship? When selecting a service provider it will be important that they do more than just stabilize the current environment and reduce costs.

    Your business is transforming, so you'll need a partner who understands that and can bring technology and service advancements into the environment to support the business objectives and truly deliver additional value to the enterprise.

    As Vice President of HP Joe Hogan leads the WW Marketing, Strategy, and Alliances (MSA) unit of Managed Services. He also has direct line of business responsibility for our Business Continuity practice and several business process outsourcing functions such as software acquisition and publishing.


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