In the past few years there has been a great deal written about governance, yet it is still a misunderstood subject. In most cases it is an afterthought, only considered once the outsourcing service provider has been selected.
Unfortunately, this relegates governance to no more than a box to be checked on the path to program implementation. To have a chance to realise the business case for which it was created, governance must be more than this.
The governance structures of providers and advisers blend together as though all are dancing to the same sheet of music. Each has its organisational alignment charts, communication plans and list tasks that need to be accomplished.
But if this is the "silver bullet" to programme success, why is there such a high failure rate and common dissatisfaction among buyers? Has reliance on the same sheet of music reduced everyone to following the Pied Piper? Or perhaps it has led to the kind of pack mentality that causes lemmings to run off of the cliff.
According to the proverb there is nothing new under the sun, so if we examine the recent past, lessons can be learned that apply to governance.
In the late 1990s many organisations were jumping on the enterprise resource planning bandwagon, which was driven in part by preparation for Y2K. Many ERP systems were pushed through by zealous consultants who were virtually given an open cheque book.
Quick plans were made to justify the expense, methodologies were developed to implement those plans, and change agents were empowered to execute. It was going to fundamentally change the way organisations were run and drive substantial efficiencies.
But did it? The immediate answer is no, although the long-term answer is yes.
Short-term costs went up as implementations fitted the software to the existing processes not effectively aligned with the new ways of operating. Long-term, it did change the way data was handled and set the stage for successive waves to leverage this data and alter the business processes.
Only later was true business process engineering achieved through proper change management. Admittedly, this is a simplistic view, but maybe if the right change controls and alignment had been considered up front, then companies jumping on the ERP bandwagon would have realised the benefits more quickly.
This is much like the state of business process outsourcing (BPO) today. There is a lot of excitement about the potential, and companies are eager to explore ways to remain cost competitive. However, BPO remains a relatively new and immature field. Many providers are spinning the tale of their delivery capabilities and all the good they can help you to achieve - sound familiar?
The fact is, the savings are there, but labour arbitrage alone does not make a successful venture. The importance of having a good governance structure should never be underestimated and planning for it should start the day you begin the feasibility study, and not the day you sign the contract.
Don't just look at the numbers, look at the organisation itself and ask:
- Can the organisation make the transition?
- Is there sufficient process documentation and metrics?
- Are the right people in the organisation to make it happen?
- Is there adequate executive commitment and oversight?
If the answer to any of these questions is "no", fix it immediately. Planning for the retained organisation and programme management must be holistic and take into account the larger imperative for change.
Understand the key drivers: people, process and performance. Each driver must be coordinated by the programme manager to work together. The retained organisation and the provider's staff (people) must understand the process and the key performance indicators (performance) by which they will be measured. The metrics must be realistic, measurable and repeatable. From this basis, continuous improvement can be embedded throughout the delivery model.
Outsourcing is a long, multi-year journey - you are picking a strategic partner, not a supplier. You want a fair price, but in the end you will get what you pay for. Driving for rock-bottom prices will deliver a provider that looks for every excuse not to improve the process, thereby giving you sub-standard results.
This, too, must be planned for; you have to define the financial targets that must be achieved to meet the business plan.
Then, when they are reached, back off and focus on the relationship.
So ask yourself:
- Is my company just following the outsourcing route to reduce cost without an overarching plan or strategic alignment?
- Is there a central programme management function set up to coordinate and standardise outsourcing efforts?
- Are there effective change controls in place?
- Does my company know how to measure performance and programme success?
- Is my programme floundering and about to derail?
Just like in the ERP days, it comes down to effective programme management, change management and performance measurement, all of which add up to governance.
Jim Whitmore is senior adviser at outsourcing consultancy Alsbridge
This was first published in April 2006