At Outsourcing Center, a frequent comment we hear from buyers of outsourcing services is: "If I had it to do all over again, I would put in place a more effective structure for managing the service provider and the relationship." The problem is significant enough that it spawns many advice-oriented articles with titles such as:
- Why aren't you happy with your service provider?
- Getting more value from managed services
- The IT management dashboard
- Next-generation IT management
It also has spawned a new outsourcing service – independent relationship governance.
Not implementing an effective governance structure is a common problem, no matter the size of the buyer, but especially manifests itself in companies that lack internal resources with adequate experience in managing outsourcing relationships.
Tim Stacey, Managing Partner of Spice-ITSM.com, an independent provider of outsourcing governance services, points out the problem is broader than just designating roles/responsibilities and having an issue-escalation structure.
"Buyers often lack the skills to manage their service provider once they've moved beyond the contract negotiation phase. They don't understand how to get the provider's buy-in for new situations that arise. They don't know how to create a win-win atmosphere. Some even lack clear service definitions and an effective measurement process to make sure the service provider delivers what they require," says Stacey, who has 17 years prior experience with UK-based service provider and telecom companies.
The person in the buyer organization tasked with managing the outsourcing relationship is often the former senior manager of the process the company outsourced. Stacey reiterates what many organizations find out the hard way: "It's a completely different kettle of fish – or a different ball game – to manage outsourced services than to manage in-house services," he says.
What does an independent relationship governance firm do?
Simply put, the independent governance firm acts as a middleman between a customer and its outsourcing service provider in governing the relationship throughout its entire life cycle. However, not all firms providing such services are equal in their approach or the outcomes they achieve.
Although there are only a few competitors today in this budding area of outsourcing services, there are enough to notice a difference. Most take a procurement cost-focused approach to managing the service provider on the customer's behalf. In fact, their background is usually in providing procurement services or in developing software that monitors provider performance.
In contrast, others such as Spice-IT take an operational and relationship-oriented approach. Stacey says his firm's differentiation is due to the background of its management team, which has many years of experience in actually delivering outsourced services. "We understand the dynamics of both parties' business interests, and we know how to create an atmosphere for interactions and decisions that are mutually beneficial."
Stacey adds, "Our approach to providing independent governance services is from a perspective of ensuring best service rather than just low cost. We focus on improving the relationship so that both the customer and service provider can get more value from it."
Benefits of outsourcing to an independent governance firm
Faster realization of ROI. As with any outsourced service, the time to realization of benefits, plus the provider's expertise, are the primary benefits of working with an independent governance firm. "Because we have the governance expertise and experience, our clients get immediate results and faster return on investment (ROI) from governance through our services compared to investing in training their relationship managers," explains Stacey.
Life-cycle approach to governance. Service offerings usually span the life cycle of a relationship and go to the extent to which a client is comfortable. Spice-IT, for example, provides services in four segments: service definition process at the beginning of the relationship, transition process, ongoing governance process, and the transformation-of-governance process (which aims to shift governance back to the buyer).
The up-front definition process is an area where buyers without the requisite experience often make mistakes. Stacey explains an example of what can happen. "They often tell the provider what they want to buy; but if the provider doesn't have that exact service, it often comes back and says, 'Our service is not exactly that, but it will deliver the same as what you're asking."
As an example of benefits in an effective ongoing governance process, the independent provider should be able to determine why a dashboard says the service provider's services are green but the "noise" and other data coming from the customer organization indicates it should actually be orange. "We ensure the parties in a relationship don't hide tensions that can result in disputes," Stacey says.
Face-to-face interactions between the parties. A problem that plagues many outsourcing relationships these days is the lack of opportunities for face-to-face interactions between providers and customers. The cost of regular travel to a distant provider's facilities can be prohibitive for the buyer. And the lack of opportunities to promote enhanced services is problematic for many service providers.
These relationship challenges are especially characteristic of companies that fit the ideal profile for independent relationship governance services. For Spice-IT, for instance, the ideal client has 150-1,000 full-time employees and a multi-vendor environment for its IT services.
The independent governance provider solves both challenges in face-to-face interactions. A UK client of Spice-IT, for example, had multiple service providers in several countries spread throughout Europe and lacked the internal resources to have adequate face-to-face interaction with each of them. On the client's behalf, Spice-IT attends meetings with each service provider and reports back to the client. The result is more frequent and regular contacts with the client's service providers, which both parties appreciate. Spice-IT also travels to various providers' facilities to observe the service performance in real time.
"Initially, some service providers are concerned that they won't get as much customer contact because of our involvement as a middleman," comments Stacey. But in reality they find they get more feedback from their customer – through us – as opposed to less, or even not getting it all without us."
He adds that service providers like the fact that they can ask Spice-IT how best to approach their customer with new services and how to improve services to retain the customer at contract-renewal time. "We're independent and don't promote any service providers, but we do help the parties in a relationship better understand how they can have a win-win relationship."
Buyers need to avoid independent governance profiteers
In many types of outsourcing services, the longer the outsourcer provides the services, the easier it is to reap more profit (unless investing in continuous improvement). Similarly, in independent relationship governance services, the provider's effort at making more profit becomes easier after a certain point in the client's relationship life cycle.
Thus, Stacey warns that profiteering can occur. Spice-IT, however, eliminates this possibility for its clients; instead, it proactively helps clients reach the point where they can govern their own relationship effectively.
He explains that pricing around services varies according to the amount of effort in each life cycle stage, with fixed fees for both the up-front definition and transition processes. Then it shifts to an annual fixed fee for the ongoing governance services.
In the last phase, transformation of governance, "the client at a certain point in time should be able to do what we've been doing for them," says Stacey. "They learn all along from what we do." When the client begins taking over its own governance process, Spice-IT provides an option for a check-and-balance service on a six-month or annual basis to ensure the relationship continues to sustain a win-win atmosphere for both parties.
Summing up the value of turning to an independent relationship governance provider, Stacey says, "A solid governance model will help secure the long-term success of an outsourcing partnership."