Outsourcing Governance: Ensuring True Transparency

As today`s business world is becoming more and more aware of the importance of a vigorous governance model and true transparency for outsourcing engagements, this article will discuss key principles of governance framework implementation.

Many outsourcing challenges can be traced back to the antagonism between service providers and client organizations that historically suffered from too little transparency. Formalized process of outsourcing project initiation can address this root cause by setting a common ground between client expectations and service provider’s potential. However even the best laid, transparent and aligned plans can go wrong with a faulted execution. And it’s not even the lack of technical competence or quality gaps but rather lack of consistent oversight.

Outsourcing Governance Challenges

My past experience with numerous engagements shows that outsourcing governance within client organizations, especially large ones, is often fragmented and viewed mainly as contract/invoice management or micromanagement of distributed teams typically divided across business units and various stakeholders. The situation becomes even more challenging when the outsourcing portfolio includes several directions or requires collaboration with numerous vendors.

Competition between the diverse groups, political challenges, and cultural collisions can compromise the entire notion of outsourcing within an organization.

Even if a measurement system is used to regularly report on the project results, it does not always ensure the expected transparency. On the contrary, it can even lead to a bad behavioral patterns among employees and so-called “green-shifting effect”, a situation when a project status report is all “green” and the existing problems are not reflected. Project lead can make a personal choice not to report the true status because of a fear to bring bad news or because of an optimistic feeling that issues can be resolved internally without too much noise. But quite often it’s the failure to recognize the true status of the project based on the metrics that are used in the management reporting. They simply don’t reveal real issues. While team reports “wishful” or “carefully measured” status, problems pile up without being addressed, and the cost to correct them grows. Operating under the false impression of “all`s well”, management does not have a clear vision of the project and cannot make effective decisions. After the process becomes irreversible, the partnership risks entering the “doom loop”, where the client organization doesn’t trust their service provider`s team and doesn’t share the big picture of the product roadmap with them. This might lead to a situation when the provider`s team starts addressing shortcuts instead of making strategically balanced moves.

Ensuring True Transparency: Fundamentals of Governance Framework

The key points of setting up an objective measurement system that are often missed are the frequent revisiting of the measurements and an extra focus on the interdependencies and unmeasurable soft factors that are continuously changing.

The framework that keeps all these “mutable” parts together is called outsourcing governance. It should not be confused with the day-to-day project management activities, but rather viewed as a control body which ensures transparency and trust between partners in a distributed environment.

The ground rules, goals and stakeholders for Outsourcing Governance process are usually set up during the project initiation. At SoftServe, we`ve created SmartStart, an effective approach to outsourcing process analysis, aimed at continuous communication with a client on the project development details in a distributed environment. Its goal is to analyze core areas of the client’s organization (People, Process, Technologies), to ensure they comply with the vendor’s profile. We then design a transparent unique collaboration model that will work for both parties.

Below is a typical governance framework established in the projects developed by SoftServe.

Each level of the governance structure reports within their area of responsibility using the project results and metrics. The set of metrics depends on the project specifics and business goals of the partnership. For example, if the major outsourcing driver was faster time-to-market, the metrics covering productivity will be selected to track the status. For organizations committed to quality, a dashboard reflecting major quality measurements will be established. A single goal is not enough to determine the true project status. A combination of different criteria, professional judgment and knowledge of influential non-measurable factors is the best way to ensure success.

Conclusion

In an outsourcing relationship, to establish true transparency, the unbiased figures should be accompanied with a professional analysis of interdependencies between metrics, taking into account the soft factors that might influence the results.