the structure of outsourcing governance - three critical elements
How many contracts for outsourced services does your organisation have now? If you are a larger organisation it will be many. The challenge is to ensure that each individual contract is successfully commissioned and managed AND all contracts successfully comply with organisational policy and strategy. The challenge becomes increasingly difficult as the number and complexity of contracts increases. How do you reap the benefits of effective outsourcing and keep audit, risk and the regulators happy?
The problem faced by many managers is that the outsourcing life cycle phases are owned by different people across the business. Procurement might own the supplier selection and contracting, handing it over to a Programme Management Office function to implement the contract, before then handing it over to individual contract managers. In many organisations there might be other fingers in the pie: this can include Risk, Commercial, an Outsourcing team and, of course, Finance. Strategy can be co-ordinated from the Executive or happen at divisional or functional levels across the business. Your governance design is critical to making this work. Get the governance structure wrong and governance can do as much harm as it does good.
The key to effective governance is to make it intelligent. Governance can’t be ‘dumb’. It needs to be dynamic, enable insight, facilitate learning and collaboration and be responsive and action orientated. How does it do this? Here are 3 critical ingredients.
1. THE SUPER PHASE
Anchor strategy and leadership as the hub in the middle of your governance design. This encourages strategy and leadership to be a constant through the life cycle, linking everything together. Strategy and leadership must inform and be informed by the individual phases of contracting, transition and contract management: if that doesn’t happen it will inevitably become disjointed, inefficient and is more likely to fail to achieve desired goals. Design your outsourcing life cycle as a circle and you will leave strategy behind, and with it probably leadership.
2. THE SOURCING LEADERSHIP TEAM
Establish a governance leadership group that oversees all outsourcing across the organisation. It is mandated by the Executive (in some organisations it might even be the Executive) sets policy and strategy and uses a segmentation model to focus its attention.
For large organisations the SLT will need to delegate authority across the organisation, say at division level, to develop local strategy, make outsourcing ‘make or buy’ decisions, appoint contract managers and oversee contracts.
3. CONTRACT OWNERSHIP AND ACCOUNTABILITY
For each individual contract appoint a contract owner, accountable to the SLT. Contract owners may own a number of contracts and may or may not be the day to day contract manager; it depends on organisation and contract size and complexity. The contract owner’s focus is on strategic intent and performance of the contract. They ensure the right people are appointed to deliver the various life cycle phases, oversee compliance, key stakeholder management, dispute resolution and escalation.
There’s lots of other considerations around governance regarding reporting, risk management, metrics and performance monitoring and analysis, and don’t get me started on governance behaviours. This is all important stuff but without the basic structure in place governance and the contracts it oversees will be far less successful.
If you want to discuss training Strategic Sourcing Professionals in your organisation call Chris Halward at RQV Learning on +44 (0)7879815122 or email him at chrish@rqvlearning.online
Programmes can be tailored to meet your needs either as an open or in-house programme covering one or more of the Strategic Soucing topics