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Outsource magazine: thought-leadership and outsourcing strategy | October 23, 2014

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Middle-market vendor governance: definition and implementation

Middle-market vendor governance: definition and implementation
Olen Pepple
  • On March 1, 2011
  • http://www.novusorigo.com/

Governance is crucial to the success of an outsourcing relationship between a client and its vendors.  It is the glue that forms the operational structure, as well as the authority and guiding principles to ensure a healthy relationship.  A governance model should clearly define the roles, responsibilities, authorities, objectives, and controls to support success at each level of operations in the relationship.  Once governance is defined and properly implemented it will create the standard operating model in which the organisations will work.

Definition of Governance

Governance may well be the most crucial piece to the success of any outsourcing relationship between a client and its vendors. It becomes the glue that forms the operational structure, as well as the authority and guiding principles to ensure a healthy relationship.  At a minimum a governance model should clearly define the roles, responsibilities, authorities, objectives, and controls to support success at each level of operations in the relationship.  Once governance is defined and properly implemented it will create the standard operating model in which the organisations will work together to communicate requirements, align objectives, review performance, and manage risks.  Implementation of the governance process as soon as possible in the relationship to facilitate in building the foundation of a successful relationship is vital.

Governance Implementation

There are typically two phases of governance during an outsourcing engagement, with the main difference being the roles or resources involved in each phase.  The first phase or foundation phase of governance is developed during project planning and transition.  This foundation phase is built on the overall design of the long-term governance model and defines the specific roles and responsibilities required to support the success of the short term transition project team.  As the project matures and starts to move from transition to the steady state or run model, the second phase of governance begins. This is where the responsibilities of the long-term resources become further defined and the resources start to move into the roles to support the ongoing long-term relationship.

Governance Structure

Governance can be structured in many different ways, from a simple two person model to a complex design with multiple levels of responsibility and authority.  A popular successful approach is a four-layered pyramid which will visually illustrate authority and meeting frequency. The top level of the pyramid reflects the highest level of responsibility, as well as the least occurring meeting. This is where the most senior individuals meet to manage the performance, alignment of the organisations, health of the relationship, and changes to the contract or operating agreement. The bottom of the pyramid symbolises the operational groups or project teams.  This level meets most frequently and is responsible for managing the day-to-day tactical operations of the relationship.  One of the main purposes of this type of governance model is to promote issue and risk management at the lowest possible levels of the pyramid.

The Governance Pyramid Defined

As noted above, there are many different approaches to governance; the below outlines one successful approach to ongoing operational governance. Transition governance can be modeled on this structure but time must be taken into consideration as a transition is a project and by definition has a finite timeline. Thus decisions must be made quickly by designated groups of individuals who have the authority and knowledge to make such decisions.

Joint Review Board
This group meets monthly in the beginning of the relationship and then quarterly as the relationship stabilises. The Joint Review Board is comprised of the senior ‘C’ level executives from all parties and several senior members of the Management Committee. The ultimate responsibility of this group is the strategic health of the overall relationship.  Some of the tasks regularly undertaken by this group are:

  • Ensure business alignment between the parties and the analysis of client and vendor business plans.
  • Ensure that changes to processes are in accordance with and support client goals and objectives.
  • Periodically review the authority of the Management Committee, and resolve issues escalated by the Management Committee.
  • Approve the Management Committee report and recommendations.
  • Approve changes to the contract including adding, modifying, and/or removing any services as needed.
  • Provide operational, technical, financial, and general management oversight of the contract.

Management Committee
This group meets weekly in the beginning of the relationship and then monthly as the relationship stabilises. The Management Committee is comprised of several senior members of the Service Delivery Committees and the executives from all parties who are directly responsible for outsourced operations. The responsibility of this group is the ongoing success of the outsourced operations.  Some of the tasks regularly undertaken by this group are:

  • Ensure ongoing analysis of client and vendor business plans.
  • Ensure that changes to processes support client goals and objectives.
  • Periodically review the authority and makeup of the Service Delivery Committees.
  • Vet, approve and forward the Service Delivery Committees reports and recommendations.
  • Recommend changes to the contract as needed.
  • Recommend adding, modifying, and/or removing services covered by the contract.
  • Provide operational, technical, financial, and general management oversight of the contract.
  • Resolution of issues escalated by the Service Delivery Committees.

Service Delivery Committees
These groups meet weekly in the beginning of the relationship and then bi-weekly as the relationship stabilises. The Service Delivery Committees are several groups that may be defined as application support, service management and/or delivery management and comprised of senior individuals from all parties who are directly responsible for designated areas of operations. The responsibility of these groups is the success of the tactical day-to-day operations of the outsourced operations.  Some of the tasks regularly undertaken by these groups are:

  • Review and approve, where possible, the short-term and long-term plans and activities in regard to the delivery of services.
  • Review performance metrics.
  • Resolution of service delivery issues.
  • Upward notification of all opportunities or issues that may result in the addition, deletion, or modification of services, or the terms of the contract.
  • Agreement of local service delivery initiatives.

Ongoing Operational Forums
These forums are created the Service Delivery Committees to solve operations requirements as the need arises and meet on an as-needed basis. They are composed of the leads of the defined forums; the tasks regularly undertaken by these groups include:

  • Complete tasks as defined by Service Delivery Committees.
  • Review performance against approved SLA’s.
  • Identify service issues improvements.
  • Review service variations in service delivery.
  • Review operational trends.
  • Document demand flexing recommendations.
  • Resolve technology and delivery issues.
  • Review performance against delivery commitments.

Final Advice

The governance pyramid defined above is not meant to be prescriptive but a guideline by which to create a successful outsourcing relationship. The actual structure created does not need to be complex in order for it to be successful; it will be defined by the relationship of the client and vendor and the services being outsourced. Although the model must have clearly defined roles, responsibilities, and objectives, it must also be flexible and adjust as the relationship changes and matures. Ultimately, the key to a healthy client/vendor relationship and the success of governance is communication at all levels, from tactical to strategic, so that all items pertaining to the outsourced services from both the client and the vendor perspective are on the table and discussed. An item not fully vetted by all parties will turn into an issue and an issue unresolved will inevitably disrupt the relationship – and ultimately the anticipated return of investment.



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