MANAGING BPO GOVERNANCE

Governance Is Critical

Governance is the latest focus in the evolving outsourcing industry as it improves management control of any outsourcing engagement. It establishes a formal process that provides a comprehensive view of an organization’s disparate sourcing initiatives. This level of visibility enables an enterprise to continuously monitor, measure, and manage factors critical to the success of the outsourcing relationship. Governance ensures that individual outsourcing actions are consistent with the overall strategies of the enterprise. As such, governance is not just compliance with current processes, but a way to maximize a BPO relationship’s business value for both parties. It is the key to a successful outsourcing strategy. Governance must address both ‘hard’ concerns like cost or technology issues as well as ‘soft’ concerns i.e. people, business knowledge.

Workable Governance Structure

A multi-tiered governance model is best for managing large outsourcing initiatives -globally. The desired tiers of governance teams-executive governance team, core management team, and expanded management team- should function with pre-determined levels of responsibility & accountability. This proven governance structure includes:

Executive governance team - comprising of the top management that takes strategic level decisions, assesses the outsourcing relationship, and charts the future road map. This team primarily has members from the customer's organization and invites vendor representatives to participate in strategic decisions.
Core management team - ideally comprises of the service provider’s key managers working closely with the customer's business and outsourced process departments. This team evaluates the outsourcing programme, identifies process enhancements and formulates recommendations.
Expanded management team - iis that extension of the core team that manages the day-to-day activities of the outsourcing initiative. The teams roll up for the reporting metrics and project progress and roll down decisions on strategic direction, culture, priorities, roles, communication protocols, and exceptions.

For a successful, all pervasive governance initiative, empowerment down the three levels and open communication across all tiers is critical. Proactive governance builds a culture of discipline and defines the operational context of a successful outsourcing relationship. This creates an equal playing field among all parties in which the rules of engagement are well documented/ known.

Proven Governance Approach

In successful outsourcing, partners work together to share ownership, accountability, and responsibility of product and service delivery that lead to accomplishments in the marketplace. The success of an outsourcing relationship is a consequence of an intimate working relationship that defines rules, disciplines, success factors, roles, and accountability. Governance supervises outsourcing by building a formal corporate structure to ensure consistent success. The goal of governance is to have—
• aligned cultural foundation
• business results focus
• Consistent and disciplined methodologies, processes and communication protocols
• agreed upon decision making authority and processes to resolve disputes
• shared accountability for all parties

Culture: Defining the Ground Rules

Culture generally refers to the unwritten rules of how things get done—what is acceptable behavior and what is not. A framework for culture must include—
• values accepted throughout both organizations that foster a set of behaviors
• rewards and recognitions aligned to the values
• activities that reinforce values-for example and protocols for conducting a meeting
• deterrents / taboos that are enacted when culture is violated
Outsourcing relationships succeed in direct proportion to cultural alignment and focussed governance formalizes the unwritten rules and sets the tone for the business relationship.

Discipline: Rules of Engagement

Effective outsourcing cannot be based on the good relationships of a few key individuals. To scale a outsourcing relationship, commonly agreed-upon methodologies and processes need to be in place.
Consistent and repeatable delivery processes are common in any mature industry. However, less common are non-technical processes like communications, relationship management, and conflict resolution. Governance enables the building, documentation, and adherence of these processes on an enterprise wide scale for both organizations.

Decision making authority: Defining Roles

Governance establishes a decision making structure for the disparate pieces of the outsourcing initiative. It clarifies strategic and tactical ownership roles by fixing responsibility at one of the three tiers. One of the best practices that governance builds is the approach of "equal accountability and individual responsibility." This is achieved by putting in place shared critical success factors for both vendor and customer. Team objectives must be structured to align incentive compensation. The goal is to award bonuses to both the vendor and customer associates only if team objectives are met. Failure to meet team objectives results in zero bonuses. The shared accountability encourages each team to work together to reach defined goals of the relationship.

Business results: Measuring Success

An effective governance model must monitor and measure the outsourcing relationship both on "hard" and "soft" issues. Monthly reports and dashboards measure the "hard" project and deliverable issues. Customer and vendor feedback surveys conducted by an independent team measures the "soft" and "hard" issues of the relationship. Prior to measuring metrics, it is important set mutually agreed benchmarks. The hard measurable metrics include—

• Offshore/onsite leverage ratios
• Blended rates
• Quality
• Head count
• Revenues and cost
• Cost and revenue per deliverable
• SLA utilization
• Time & materials utilization

Real-time monitoring of these metrics through online tools is necessary to prevent time and cost slippages. The feedback survey is multi-step process—

• Identifying attributes important to the customer and vendor
• Getting feedback on those attributes
• Analyzing the feedback to identify areas of change
• Ranking areas of change by importance
• Taking action to initiate change in the important areas
Measuring, monitoring, and ensuring action on the results is one of the most crucial functions of governance. Early identification of action items enables quick problem resolution—a critical success factor for intimate relationships.

Best Practices

Some key outsourcing best practices emerge from successful governance are:
• Clearly define ownership roles and decision makers
• Clearly outline the business goals and ensure they are understood by all players
• Monitor and measure soft and hard issues
• Constantly evaluate progress against pre-set benchmarks
• Create a plan of action to fix slippage
• Share cultural do's and don'ts so all parties understand what is acceptable

Global outsourcing is at a critical juncture as business-improvement process & technology spends increase, pressuring offshore delivery channels. Point solutions such as quality improvement programs or disciplined development methodologies are the typical response to project risks. A comprehensive governance system which addresses culture, accountability, decision making, discipline and goals, is imperative to guarantee continuous improvement and predictable outsourcing service success.