Long-term outsourcing deals seem to have mid-life crises. CIBC, a large Canadian bank, determined at the outset to skip that unpleasant stage. It relies on a strong governance program to successfully interact with EDS, its human resources (HR) supplier.
CIBC outsources 40 percent of its HR function to EDS. The deal includes 300 processes and provides services to 45,000 employees and 10,000 retirees. The contract includes 12 high-level service level agreements (SLAs) and 12 transformational projects, including worldwide implementation of PeopleSoft. The relationship is about to enter its sixth year; the current contract expires in 2011.
Hugh McDonald, Vice President, HR Operations and Knowledge Management at CIBC, says statistics he read in the 1990s stuck with him as he designed the firm’s governance model for working with EDS. The research found 50 percent of ITO deals failed. The chances for success were, however, much improved when the buyer had a full-time governance team. “I realized governance is a crucial component of outsourcing success,” he says.
McDonald says good outsourcing relationships “don’t happen because people go to a baseball game together.” Rather, relationships management should be seen as one of a number of critical governance processes. “Structured meetings and formal processes ensure that teams work together to develop trust, confidence, and skill day-to-day and over the long haul – that’s what develops good relationships. Of course, the occasional ballgame doesn’t hurt.”
The CIBC executive created an unambiguous stance in his team’s attitude toward the EDS. Borrowing a term from a colleague, he calls the CIBC / EDS relationship a “professionally distant partnership.” The bank manages the relationship as if it was a joint venture partnership; “we have to make this work,” he explains. But, “we never forget that we are dealing with a supplier in a commercial relationship and this means we also have to maintain a ‘professional distance’.”
The CIBC Alliance Management Team
Currently CIBC has 14 people on its Alliance Management team, which was in place the first day the contract with EDS began. These are full-time jobs at the bank. The team is divided into three groups:
- Financial governance and controls
- Services governance and contract management
- Technology governance
McDonald says he divided up the team because IT and HR management are widely different skills. The HR staff has to know how to deal with people problems, which can be difficult and demanding. “Their problems are often more complex. We can’t just rely on a dashboard to assess the situation,” he explains.
The team is the single point of contact with EDS. “The team makes it easy for the supplier to solve issues that arise in complex projects,” he says. He says EDS also likes the structure because it allows the partners “to resolve issues quickly.”
The Governance Strategy Matrix
MacDonald and his team also developed a Lifecycle Governance Model to manage its relationship with EDS by “directing our focus.” The executive says the idea for the model came from working with Everest Group, an advisory firm who helped the bank with its outsourcing procurement. The original model was inspired by a model in the Everest methodology. CIBC has since expanded it into a suite of tools.
Challenges in the early years differ from obstacles later in the life of the deal, according to MacDonald. “Everest taught us that governance changes over time,” he explains. The model starts with sourcing and concludes with renewal.
One of the additional tools McDonald developed is a Governance Strategy Matrix, which proposes a strategic focus for the supplier as the HR BPO environment changes. For example, if the supplier’s service delivery is not as effective as the buyer might wish and the supplier is also under economic pressure, the matrix suggests the buyer take an active and interventionist role using working and committees.
On the other hand, if the economic climate is good, and performance is satisfactory, the matrix suggests taking a longer-term posture focusing on governance through steering committees.
In short, if the supplier is performing as expected, the model allows for more passive governance.
Supplier’s Service Performance
Supplier’s Economic Pressures
Buyers’ Planning Horizon
Buyers’ Governance Behavior
Joint Steering Committees
Audits and Controls
Joint Working Teams
MacDonald will discuss CIBC’s Strategy Matrix and review some of their other governance tools at HRO World.
Lessons from the Outsourcing Journal:
- Governance is key to the success of an outsourcing relationship. CBIC has created an enduring outsourcing relationship through concerted governance efforts.
- An Alliance Management Team, comprised of full-time employees, manages the relationship and is the single point of contact for the supplier. The benefit: both sides can resolve problems quickly.
- The Governance Strategy Matrix helps companies make governance decisions based on the specific situation.
- CIBC is “professionally distant.” It acts like its relationship is a joint venture with EDS while never forgetting EDS is a supplier.