Sourcing and Deal Governance: What it is and isn't
I recently had the opportunity to review a Forrester report (“Define Your Governance Model For Outsourcing Relationships”) which based on the title, appeared to be highly relevant to what we do in our SYNAPTIC Sourcing practice.
One of the areas that Wolfgang Benkel and his team focused on was how to prepare a vendor governance program for the future IT services environment, and indeed I could see the phrase “vendor governance” was mentioned a lot in the eighteen-page piece. While I tended to agree with many of the findings the report discussed, I couldn’t get myself past that phrase, because when we move into the governance stage with our clients, we shift to a different mindset.
In general, at CAPTO we always think in terms of “strategic partner,” not “vendor.” And as demonstrated in ([add link] “Sourcing Selection: There is a Better Way, and that Way Requires a Shift”), we spend a lot of time and energy identifying the right strategic partner—one who not only has the technical qualifications, but also the inclination and desire to work collaboratively in an outcomes-based relationship.
You may be thinking that we are splitting hairs in substituting the phrase “strategic partner” for “vendor.” But here’s the SYNAPTIC Shift. We look at governing the deal, not the vendor/strategic partner. It isn’t “how do we make them do X?” sort of thinking. Rather, it is “how can we help ensure the agreed upon deal lives up to its promise?” It isn’t about oversight; it is about creating insights and ensuring the desired outcomes are being delivered.
We have come up with a disciplined approach to governance that does a really good job at making sure all parties involved are singing from the same song (deal) sheet.
The Role Shift
In the early stages of any SYNAPTIC sourcing process, CAPTO starts off as the client’s advisor, but during selection, our role shifts from designated gatekeeper to matchmaker. And as the sourcing program gets underway, our role changes again as we focus on the deal itself and making sure the initiative reliably delivers measurable value and drives innovation. It is worth noting that CAPTO, as a proactive participant in governance, is paid by both the client and the newly hired strategic partner and has both parties’ interests in mind.
Multi-level Governance Model
“The right governance model has enough room for communication about changes and strategic direction, but avoids too much negotiation and bureaucratic approvals. This allows both parties to focus on the intended service outcome, not on the controlling mechanisms.”
As indicated in this diagram, we believe the core of governance occurs on the operations level, with the executives (CIO, SVP, senior managers) looped in as needed. Furthermore, we recognize that the actual work that is being transitioned to the strategic partner, represented as clusters or application towers in the diagram, is also part of governance. CAPTO’s role is to make sure all these areas of responsibility are clearly defined, along with how the communications and metrics flow will occur.
CAPTO’s SYNAPTIC Principles of Governance.
While spelling out roles and responsibilities, we make it clear up front what governance is and isn’t for each level.
Operational Governance
Executive Governance
- Governance is not status
- Insight not oversight
Tenants of Operational Governance
- Maintain the spirit of partnership
- Foster and maintain cross functional efficiencies
- Progress: metrics, reporting, finance, and projects based upon desired outcomes
- Escalation Management: non-operational issues to executive governance (e.g., contractual, financial or payment adjustments)
- Training: assure leads prepared for transition and operating the new normal - steady state
- Common interfaces across functions and externally
Tenets of Executive Governance
- Live the spirit of the partnership and align as required
- Monitor the health of the partnership and adjust as necessary
- Strategic alignment to business objectives and outcomes
- Long-term planning and relationship development
- Review and resolve issues from operational governance
- Review and monitor operational and economic results
With all of our deals, Capto is a member of the Executive Governance team. Our role is ensure the principles of the partnership are upheld for both parties and provide insights and suggestions to keep the program on track. Our insights are key too. Because of the number of sourcing deals we’ve been involved in, we have a good sense of when things working and when there is trouble around the bend. Our clients and their partners value our involvement and insights.
Also worth noting is the built-in loop-back from governance to contracting. A scenario may arise where the strategic partner recognizes that the necessary work is outside the agreed-upon scope. In such a case, we have the means to escalate the issue to the executive level and, if necessary, revisit the contract.
Injecting Discipline
Part of CAPTO’s commitment to “the deal” is that we make sure there is a disciplined, well-documented approach to governance.
In the initial meeting, we make the “vision for governance” clear from the beginning. Along with documenting the aspects of project management, we also cover what artifacts are being created and even how documents are organized and stored.
Since communications is of great importance, we spend time laying the groundwork for facilitating the flow of information. The SYNAPTIC approach covers three key areas: message, medium, and frequency.
Message:
- Standardize the messages from governance
- Communicate objectives and progress against the goals and desired outcomes
- Identify stakeholders
- Tailor the message to the stakeholders
- Create and deliver communications across channels
Channels
- Determine appropriate channels for the communications: reports, web, brown bag lunches, 1-on-1 and email
Frequency
- Determine communications schedule and frequency by stakeholder and channel
What we’ve found is that our client and our clients’ partners recognize the importance of adding that layer of discipline. Plus, they’ve told us that they readily embrace our recommendations because our approach intuitively makes sense; it focuses on the core of the deal and measures outcomes.
Shifting to Deal Governance is a Win-Win
We wholeheartedly believe that our SYNAPTIC shift to governance of the deal, as opposed to focusing merely on vendor performance, is the sure-fire way to ensure the desired outcomes are achieved—outcomes that embrace innovation and a incorporate a commitment to continuous improvement. It’s been our experience that both parties work better when governance is approached in this collaborative manner.