CCG sourcing management - prepare for excellence

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This is Paper 2 of 3 in a series on Sourcing Management

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CCG sourcing management - prepare for excellence

  1. 1. Sourcing Management: Prepare for Excellence A CHERUBLEEGREEN White Paper by Mark Probyn and John Liburti CONTENTS Introduction ....................................................................... 3 Prepare for capability excellence ...................................... 4 What makes stakeholders tick? ......................................... 7 Levers to work with ......................................................... 13 Critical success factors ..................................................... 15 Conclusion ....................................................................... 16
  2. 2. Sourcing Management: Prepare for Excellence PREFACE This paper is the second in a series of three CHERUBLEEGREEN white papers on the subject of Sourcing Management. The first in the series, titled Sourcing Management: What’s the Problem? was published in June 2008 and is available at cherubleegreen.com.au. The final paper Sourcing Management: Beyond Outsourcing is due to be published in August 2008. The series presents insights into CHERUBLEEGREEN thinking on the subject matter and précis our approach to helping our clients establish the mechanisms and disciplines necessary for effective management of sourced services. JULY, 2008 © 2008 Cherub LeeGreen Pty. Ltd. All Rights Reserved. Reproduction and distribution of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. CHERUBLEEGREEN disclaims all warranties as to the accuracy, completeness or adequacy of such information. Although CHERUBLEEGREEN may discuss legal issues related to business, CHERUBLEEGREEN does not provide legal advice or services and its research, reports, advice or presentations should not be construed or used as such. CHERUBLEEGREEN shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The opinions expressed herein are subject to change without notice. 2|Page
  3. 3. Sourcing Management: Prepare for Excellence Introduction two on the provider side, which practitioners of sourcing management need to work with: In the first paper of this tri-part series “Sourcing Management: What’s the  Enterprise senior management – the Problem?” we identified that despite a lift in persons sponsoring and responsible for satisfaction with the results from outsourcing the sourcing strategy; in recent years there remains considerable  End user community – the persons within room for further improvement. the enterprise who actually use the contracted services on a day-to-day basis; From our observations and experience we  Senior management of the service believe a significant and ongoing problem provider – the persons responsible for with realising further gains to be a poor profitability of the deal at the service understanding of the provider enterprise; sourcing management Figure 1 Five capabilities of sourcing management and function. This is Service  Service delivery compounded by Performance and support agents of inadequate planning, Management the provider – the preparation and persons responsible for execution, even in Championing Relationship the day-to-day situations where the Service Management Provider(s) operational supply of Recipients Innovation Service Service scope of holistic the contracted sourcing management is services. understood. In this paper we explain Five capabilities Contract Service where in the sourcing Administration Financial life cycle the sourcing We presented our view & Management Management that the sourcing management capability management function is comprised of five needs to be established, and offer our insights primary capabilities: into how to prepare to excel.  Relationship Management; Next, we explore the factors which motivate  Service Performance Management; and drive members of each of the four stakeholder groups. We identify some of the  Service Financial Management; key levers available to practitioners to  Contract Administration & Management; influence and manage the often conflicting and aims and objectives of the four groups. In  Championing Service Innovation. particular, we look at the provider-side Effective sourcing management interacts with stakeholder groups and what drives and and influences both the service recipient and influences their behaviour. the service provider. Lastly, we identify critical success factors to Four stakeholder groups consider in order to achieve excellence in the form of the desired outcomes and objectives We also identified the four stakeholder from sourcing arrangements. groups; two on the service recipient side and 3|Page
  4. 4. Sourcing Management: Prepare for Excellence Prepare for capability excellence We highly recommend our clients consider the five stages in the order 1  5  2  3  4 The key to achieving excellent results from when planning the work activities for an outsourcing deals is excellence in the outsourcing initiative. We have found that discipline of sourcing management. doing so compels our clients to give To achieve excellence enterprises must build appropriate early attention to the task of suitable proficiency in the required building the sourcing management capability. competencies and skills. They must do so for Figure 3 Activities through the sourcing life cycle each of the five capabilities that comprise the Sourcing sourcing management function (see Figure 1). Strategy Activities When should this start? Go To Negotiation & Evaluation Market Selection Figure 2 depicts the five major stages of the Activities Activities Activities sourcing life cycle. Establish Sourcing Management Capability Figure 2 Sourcing life cycle model Transition 1. Activities Sourcing Strategy Ongoing 5. 2. Management Ongoing Go To Activities Management Market Figure 3 models our recommended order of activity as it might be represented in a high- level project network or flow chart. The 4. Negotiation 3. Evaluation diagram highlights the need to establish the & Selection Process sourcing management capability at the same time as progressing the Go To Market through One mistake we commonly see is managers - Negotiation & Selection activities. including C-level executives - embarking on a Following the 1  5  2  3  4 mantra guards sourcing initiative by interpreting the high- against the immediacy (and often, urgency) of level stages of the sourcing life cycle as activity for the other four stages causing presenting a strict chronology of activity. deferment of action to build the sourcing When traversing an iteration of the cycle it is management capabilities until too late. It important to recognise dependencies helps to ensure adequate resource and time is between the major stages. It is very important allocated to planning, preparing and to recognise that excellence in Ongoing establishing the sourcing management Management, the longest duration stage of capability. the cycle, will only be possible if the prerequisite capabilities are planned, prepared and established during the earlier stages. 4|Page
  5. 5. Sourcing Management: Prepare for Excellence How much time and resource is required Once the gap analysis is complete it is possible depends upon a range factors which include: to formulate and proceed with plans to close any disparities and prepare individuals  the extent of change the new sourcing assigned to the sourcing management arrangement represents to the enterprise function for their roles. – organisational reach, complexity of services affected, cultural and political In the first paper of this Sourcing impact of the initiative, and the Management series we identified many of the enterprise’s proven competence in key competencies required for each of the executing change management; five capability domains.  the sourcing model of the new To kick-start the documentation of the arrangement - single service provider, necessary competencies, skills and prime contractor, multi-sourced, other; proficiencies in detail, we summarise the  the enterprise’s prior experience with competency information from the first paper similar outsourcing arrangements; in Figure 4. Note the two main correlations in  the extent to which the necessary the competencies across the five capability competencies and skills already exist in domains. First, between the competencies the enterprise and the availability of required for the Relationship Management suitable persons for assignment to roles in capability and those required for Championing the sourcing management function of the Service Innovation; and second, between the new outsourcing arrangement; and remaining three capability domains.  degree of flexibility to hire persons with suitable proficiency in the necessary competencies and skills if appropriate, and available persons are not already on TIP: staff. When reviewing staff competencies and Regardless of the time and effort required, skills, be on the lookout for any the sourcing management capability ought to particular or additional knowledge be in place, ready to go prior to beginning the which they may have of special or transition from current to new state of important business functions in the sourcing arrangement. enterprise. Consider whether any such One of the first actions, if not the first, must knowledge would enhance the be to assemble a detailed and comprehensive capabilities of the planned sourcing list documenting the competencies, skills and management function. proficiency levels that will be required for each of the five capabilities which comprise the sourcing management function. Immediately follow that action with an audit of existing staff’s competencies, skills and attained proficiencies, and map to those required so as to identify any gaps. 5|Page
  6. 6. Sourcing Management: Prepare for Excellence Figure 4 Key competencies map Sourcing Management Capabilities 1 2 3 4 5 Service Contract Key Competencies Relationship Performance Service Financial Administration & Championing (in descending order of commonality to the 5 Sourcing Management Capabilities) Management Management Management Management Service Innovation Communication – aural, verbal and written      Negotiation, Mediation & Conflict Resolution      Auditing abilities    Capacity for Thoroughness and Attention to Detail    Constructive Criticism – both giving and taking    Emotional intelligence    Information and Record keeping abilities    Investigative, Analytical and Interpretive competencies    Adherence to policies and procedures   Facilitation   Leadership   Persuasion, Influence and Advocacy   Service domain knowledge   Ability to identify risks and consider impact, likelihood and mitigation tactics  Change catalyst - the ability to initiate, manage, and lead in a new direction  Enterprise business value chain and process knowledge  Knowledge of applicable regulatory requirements and contract law  Knowledge of business and commercial practices  Knowledge of financial accounting and accounting processes and procedures  Lateral thinking  Legal literacy and comprehension  Numerical abilities  Numerical and statistical abilities   Please note that the list of competencies is not intended to be exhaustive. 6|Page
  7. 7. Sourcing Management: Prepare for Excellence What makes stakeholders tick? and illustrates their relative business value and enterprise impact. The sourcing management function should include the following two fundamental aims: Utility deals 1. Ensure sourcing arrangements deliver to Utility type deals – outsourcing of functions desired outcomes and objectives. that are commodity-like; providing only low 2. Foster, facilitate and channel open contribution to the business value chain – are communication between the four likely to be judged primarily on the efficiency stakeholder groups. and effectiveness of service delivery and the To excel, sourcing management practitioners price paid. must consider the outsourcing arrangements Typically, utility deals are entered into from the perspective of each stakeholder because senior group. management believe Figure 5 Outsource contract types They need to the services can be understand what provided more Business Value efficiently and/or each group expects to gain effectively by an Transformational – external specialist from the services are of strategic business value. They are arrangements. expected to lead to or than can be empower transformation They need to Enhancement – services of the business value achieved in-house. are of significant business chain and/or business value. They are expected know how the model. to deliver enhanced A second gain business productivity and enterprise value chain effectiveness. senior management service users and Utility – services are of comparatively may be looking for low business value. Typically these are the senior ‘keep the lights on’ services essential to is flexibility in business-as-usual operations. Emphasis is management will on delivering cost efficient and effective service volume. By services in accordance with industry best judge the success practice procedures. Impact on Enterprise outsourcing, fixed or failure of each annual costs for arrangement. They need to understand what provision of a resource-constrained volume of the service providers providing the services service may be replaced in the main by expect to gain. variable, pay-per-capacity required services. What is motivating the provider’s service This can allow service capacity to be better delivery and support agents? What is the matched to year-to-year changes in business service provider’s senior management need, at a predictable cost to the business. expecting from the deal? The extent to which this is achievable will depend upon the provisions, pricing The enterprise’s senior management schedules, and so forth of individual deals. How senior management of the enterprise When there is a utility type deal senior will judge the success of each arrangement management will want to be kept informed will vary depending upon the nature of the on measures of the efficiency and deal. Figure 5 provides an overview effectiveness of services delivered by the description of the three major contract types provider. They will also want to be kept 7|Page
  8. 8. Sourcing Management: Prepare for Excellence informed of any price variations over time, or As may be expected, both deal types will charges for extra-ordinary services. provide for significantly higher levels of consultancy services from the service provider When outsourcing services which have, to than is to be found in utility type contracts. date, been provided in-house, senior Transformation type deals will have an even management will be keen to ensure that greater component of consultancy services people and monies previously devoted to than enhancement type deals. providing the in-house service are deployed elsewhere. One danger is that some of those In either deal type, utility type services resources may end up providing a shadow typically form a subset of the portfolio of service to the outsourced service. services to be provided overall. It is that utility Responsibility for the fate of freed internal service component that differentiates these resources falls outside the scope of the outsourcing deals from traditional sourcing management function. However it is professional consultancy service important for practitioners in the role to be arrangements. aware that senior management will likely be When there is either an enhancement type monitoring how those internal resources are deal or a transformation type deal senior redeployed and probably including that as management will be most concerned with one of the early success/failure criteria for the outcomes from the consultancy services. outsourcing deal. The utility service component will be judged Enhancement and Transformation deals in the same ways as with utility type deals, Enhancement and transformation deals and for the same reasons. provide progressively greater contribution to Senior management are almost certainly the business value chain. They also have going to measure the success or otherwise of progressively greater impact upon the the consultancy component using business enterprise. measures agreed with the provider at the With enhancement type deals senior time of negotiating the deal. For example, management is typically seeking to leverage achieving a 10% improvement in EBITAi by the the knowledge and competencies of the second year of the deal; achieving 25% provider to drive productivity gains in existing growth in revenues by year three as a result business functions and enhance the business of establishing a new sales channel to new value chain. markets. With transformation type deals senior Control of outcomes such as these is beyond management is seeking to leverage the the scope of the sourcing management provider’s knowledge and competencies to function. Awareness of whichever such fundamentally rejuvenate or alter existing measures have been agreed is important business functions. Such change may enable a however. new business model or paradigm shift in the construct or net worth of the business value chain. i Earnings Before Interest, Taxes and Amortisation 8|Page
  9. 9. Sourcing Management: Prepare for Excellence Factors which are in scope and that will be of Poor sourcing management allows deal to drift particular concern to senior management, and which and ultimately fail may at least be influenced, at best controlled by sourcing management practitioners include: XYZ Company – a well-known, major Australian enterprise outsourced its IT services. The contract  Quality of the people assigned by the service was for 3 years, having previously been renewed provider to the consultancy service roles - for 3 years. ensuring that persons of suitable depth and Within 6 months it became apparent to XYZ’s breadth of knowledge and experience are senior management that the service provider was assigned; failing to meet certain key performance  Continuity of the people assigned to the milestones. They referred to the contract but for consultancy roles – ensuring that the core team of commercial and other reasons chose not to use consultants and advisors are assigned for the any of the provisions available to put pressure on duration of the consultancy service period. the service provider to perform better.  Ability and willingness of the service provider to The service provider’s performance further supplement the core team of consultants and deteriorated over time and performance advisors with additional and appropriately milestones continued to be missed. Eventually proficient subject-matter experts as and when performance deteriorated to the point where XYZ required. started disengagement procedures Lessons Learnt The end-user community  XYZ failed to take action with the service The end users of the services contracted for will be provider when performance first started to concerned firstly with how the new service deteriorate. In essence, they did little over a 2 arrangements will impact them in the daily year period other than become internally performance of their duties and secondly, how it may frustrated. Had XYZ taken positive action with the service provider to remediate the affect their colleagues. situation as events were occurring, it’s The user community are most likely working within a probable that the performance, and framework of business process service level relationship, wouldn’t have deteriorated to agreements (SLAs) and key performance indicators the point where disengagement resulted. (KPIs).  Little or no effort was made during the 2 year period to work with the service provider to They will quickly deem outsourced services to be understand what was going wrong. All XYZ unsatisfactory if service performance prevents, did was complain, with no strong action. All frustrates or otherwise impedes them from getting the service provider did was continue to their job done, or from collaborating readily and perform badly. Had XYZ and the service effectively with their colleagues and external parties. provider worked together to identify the root Particularly, if that occurs to such a degree it affects causes of the poor performance and XYZ’s users’ ability to meet their SLAs or KPIs. dissatisfaction, steps could have been taken to improve the service provider’s We suggest identifying by role the broad groupings of performance. end users that exist in the enterprise and which consume the contracted services. 9|Page
  10. 10. Sourcing Management: Prepare for Excellence To the extent privacy and confidentiality contract, senior management will most likely requirements and company policy permits, be the primary users of the consultancy have the sourcing management practitioners services component of the deal. In which case familiarise themselves with the enterprise’s the end user concerns outlined above will KPI model and the nature of the KPIs for each largely apply in addition to the concerns of broad group of service users. They should also senior management stakeholders. familiarise themselves with any internal business process SLAs. Service Provider’s senior management Then identify those particular services (the Service provider senior management will be key one or two) which would most quickly motivated by the following critical two impact each group’s ability to meet its SLAs or outcomes: KPIs if subjected to poor service performance 1. Profit margin attained from the deal – at a from the provider. minimum the deal must return a Aside from any direct impact upon their commercially viable profit. Beyond ability to work and collaborate effectively, the commercial viability the service provider propensity of users to become dissatisfied will may have other threshold margin rates be next most driven by hygiene factors in which their senior management may need respect of the service provider’s front line to attain, or be rewarded for attaining. staff. Factors such as: 2. Commercial reputation – at least, to maintain their enterprises service  Courtesy, responsiveness and attitude; reputation in the marketplace. Better still,  Empathy for the user’s priorities and enhancing that reputation as a result of concerns; the service provided to the enterprise.  Any significant and demonstrable lack of The profit margin motive may however be understanding of the enterprise’s moderated at the time of winning the business, its organisation structure and business if the service provider has an more specifically, of the various roles of overriding strategic interest in doing so. the users;  Language skills and awareness of cultural For example, the service provider may be sensitivities where the provider is seeking business growth by entering or offshore. increasing their presence in markets that represent for them, a new geographic region The sensitivity of the user community to or new client industry sector. Likewise, they service performance issues will be may be interested in significantly increasing significantly heightened in situations where a market share or their business profile in a new sourcing arrangement has noteworthy region or industry sector where they already impact upon the enterprise’s culture or have an established presence. political status quo. This is especially true when transitioning from internally provided to The enterprise may be seen as a key client in outsourced services. the region or industry sector; or the scope and scale of services being sought may be viewed Note also that where there is either an as presenting strategic opportunity to the enhancement type or transformation type service provider. 10 | P a g e
  11. 11. Sourcing Management: Prepare for Excellence Alternatively, the service provider may be Of course, any of the above mechanisms may interested in winning the business as a means be used to by the service provider to grow the of preventing a competitor from entering a profit margin of the deal over the life of the market, attaining a strategically important contract, regardless of the margin starting client, or growing market share. point. Any one of them could result in the enterprise stakeholders (senior management If the service provider considers or considered and users) being dissatisfied with the winning the business to be of significant outcomes of the deal. strategic importance then they have been or may be prepared to do so at the sacrifice of Another important factor that will drive normal profit margin. service provider senior management’s assessment of the profitability of the deal is Be alert to such situations. Inevitably senior the contribution to profit margin made by management at the service provider will seek each separately charged for service in the to restore the deal to normal profit margins contract. over the life of the contract. Typically, they may seek to do so in one or more of the Not all services will generate the same following ways: contribution to margin. Some will contribute more than others and will therefore be more  Through the price increase mechanisms valuable in the eyes of the service provider built into the contract; senior management than others.  By decreasing the cost of providing the services. This may reduce the quality of the services received, for example the Figure 6 provides a table of the common service provider may try to assign less pricing models used to price the various proficient or more junior staff to the services specified within a contract. (The same contract in place of the original team; or models may be used to price services that are  By working to a rigid interpretation of the outside of the contract.) contract statements of works and SLAs Sourcing management practitioners ought to and charging extra for any works or levels know which pricing models are used for which of service that fall outside of that strict services; and be aware of the relative financial interpretation. risk each presents to the enterprise and to the service provider. Figure 6 Service pricing models Financial Risk ...to ...to Pricing model Service Recipient Service Provider Charging Method Calculation Input Measures Fixed Price Low High Fixed rate Deliverables and time Cost plus Medium Low Actual cost plus fees Deliverables and SLAs Time and materials Medium Low Fixed rate day/hour/month Deliverables Gain share Medium Medium Fixed rate plus % of $ gain SLAs or deliverables and time Usage based Medium Medium Rate per transaction Resource units Business benefit Medium High % of profit or revenue Business metrics Shared risk/reward High High Fixed rate plus % of $ gain SLAs and business benefit 11 | P a g e
  12. 12. Sourcing Management: Prepare for Excellence For obvious commercial reasons it is highly strategy objectives by striking a balance in unlikely the service provider will disclose the focus between four performance relative contribution each service makes to perspectives. the overall profit margin. Nor are they likely These perspectives are: to disclose the overall margin for that matter. However, to understand the motivations that  Financial may lay behind actions and negotiating tactics  Customer of the service provider’s senior management  Internal process over the life of the contract we recommend  Learning and growth. seeking to discern the business model of the The service delivery and support agents of the service provider. provider will most likely have at least one and Do they typically provide significant projects possibly several KPIs for each of the four BSC to their clients? Do they have a positive perspectives. Achieving their assigned KPIs record of extending and expanding their will be the main driver of the agents’ steady state business with clients? Do they behaviour. push one type of pricing model in preference The customer perspective will almost certainly to others? Questions of this nature may give include a measure of customer satisfaction you insights into their desired outcomes, but this alone is too broad-brush to drive which in turn allow the enterprise to balance optimal performance from the service those with the required outcomes for the provider’s agents. enterprise. We recommend enterprises identify the Service Provider’s delivery & support measures used by the provider to manage agents their staff’s performance across all four perspectives. Endeavour to learn what the The service provider’s service delivery and KPIs are as well as how they are actually support agents, including their operational measured, and how often. managers, are the ‘coal face’ staff assigned to the deal. Then look for ways to link achievement (and over-achievement) of the contract’s service The service provider will have an internal staff performance measures with the service performance management framework in provider’s internal staff performance KPIs. Go operation. In common with the majority of beyond the broad-brush of customer best practice enterprises, that framework is satisfaction rating. Seek to establish those likely to be heavily based on the well-known links in the mindset of the service provider’s Kaplan & Norton Balanced Scorecard service delivery agents. methodologyii. The Balance Scorecard (BSC) method seeks to align operational activities to business ii Kaplan R S and Norton D P, Balanced Scorecard: Translating Strategy into Action, 1996, Harvard Business School Press 12 | P a g e
  13. 13. Sourcing Management: Prepare for Excellence Levers to work with Indirect levers... There exists a range of direct and indirect Whilst the contract and supporting schedules levers that can be employed to drive and provide the direct levers, there are a number influence the behaviours of each of the four of indirect levers available, some of which stakeholder groups. Of course, the two main have been identified in the preceding section groups to drive and influence are those on the on what makes stakeholders ‘tick’. service provider side. That is, the provider ... Applicable to the Service Provider senior management stakeholder group and the service delivery and support agent The best indirect levers available to influence stakeholder group. and drive the service provider are: At CHERUBLEEGREEN we work with our  The performance management clients as may be required over the life of framework and KPIs used by the service their sourcing contracts to advise and assist provider to manage the internal them to exploit the full range of levers to best performance of its service delivery and advantage. support staff;  Knowledge of, and demonstrated interest The most valuable lever available is in, the service provider’s business. We knowledge. Knowledge is the foundation for suggest you strive to: effectively influencing members of all four stakeholder groups. The adage “knowledge is - Discover the service provider’s growth power”iii holds true for excellence in sourcing strategy and if possible, who they may management. As always, that power needs be be targeting as potential clients. - Identify the true reasons why the used judiciously by sourcing management service provider wanted to win your practitioners who are proficient in the business. competencies of emotional intelligence and - Know the relative strategic communication. importance of the business to the service provider – and be alert to how Direct levers that may change over the life of the deal. The most obvious and direct levers are those - Know what the senior management at built into the contract Master Service the service provider expect to gain Agreement and supporting schedules– the from the deal – and be alert to statements of works, service level targets, changing expectations over the life of performance measures and reports, penalties the deal. for poor service performance, dispute  Understanding of the pricing model resolution mechanisms, and at the extreme applied to each service and, to the extent end of the spectrum, contract termination it is possible to ethically discover, which conditions. services contribute most to the service provider’s profit margin on the overall contract; and which least. iii Sir Francis Bacon, Religious Meditations, Of Heresies, 1597; English author, courtier, & philosopher (1561 - 1626) 13 | P a g e
  14. 14. Sourcing Management: Prepare for Excellence  Knowledge of the service delivery and  The political capital of peer-to-peer, two- support agents’ actual experience, formal way communication between senior qualifications and demonstrable management stakeholders and those of proficiencies in the competencies and the service provider. skills needed by the enterprise in respect  The goodwill from timely, open, two-way of the contracted for services. communication between enterprise  The political capital of peer-to-peer, two- service end-user community and the way communication between enterprise service provider’s service delivery and senior management stakeholders and support agents. those of the service provider.  Knowledge of the type of deal enterprise  The goodwill from timely, open, two-way senior management stakeholders sought communication between enterprise to put in place – utility, enhancement or service end-user community and the transformation. This knowledge will provider’s service delivery and support enable sourcing management agents. practitioners to understand what senior  Political gain from overt networking by management stakeholders will consider enterprise sourcing management important when judging the overall practitioners and senior management success or failure of the deal. It will also stakeholders with their respective allow them to correctly frame their counterparts at other customers and communications to senior management prospect customers of the provider’s stakeholders. outsourcing services. ...Applicable to internal (Service Recipient) stakeholders The best indirect levers available to influence and motivate enterprise internal stakeholders are:  The KPIs of the staff performance framework the enterprise uses to manage the end-user community. Use the KPIs and other elements of the staff performance framework to encourage the user community to: - overcome any latent cultural or political opposition they may have to the outsource arrangement; and to - foster a favourable environment for the outsourcing arrangement to operate in so as to optimise conditions for success. 14 | P a g e
  15. 15. Sourcing Management: Prepare for Excellence Critical success factors Managing the four stakeholder groups We offer the following as critical success 7. Know the enterprises internal factors for firstly building sourcing stakeholders’ expectations from each of management capability; and secondly the sourcing arrangements. managing the four stakeholder groups. 8. Be aware of the reasons why senior management chose to outsource in the Building sourcing management capability first place. 1. Understand the five capabilities that 9. To the extent regulations and company comprise the sourcing management policy permit, know for each main job role discipline. group across the service user community, 2. Recognise the importance of excellent the business process SLAs that people sourcing management to realising working in those role groups adhere to. expected service outcomes and enterprise Also be familiar with the KPI model as it objectives. Resource the function applies to each user group. accordingly. 10. Know the business of the service provider 3. Build suitable proficiency in the required and keep that knowledge fresh over the competencies and skills for each of the life of the deal. five capabilities that comprise the 11. Communicate frequently to all sourcing management function. stakeholders; avoid surprises. 4. Follow the 1  5  2  3  4 mantra when 12. Frame communications to each of the traversing the sourcing life cycle. Plan, four stakeholder groups according to prepare and establish the prerequisite what each group considers important. sourcing management capabilities early in 13. Foster, facilitate and channel open and the cycle. on-going communication between the 5. Identify early, and proceed to close any four stakeholder groups. gaps that may exist between existing 14. Arm enterprise senior management staff’s competencies, skills and proficiency stakeholders with any relevant and levels and those required for each of the current information about the service five capabilities which comprise the provider, their business and their latest sourcing management function. service performance. 6. The sourcing management capability 15. Seek to create appropriate opportunities ought to be in place, ready to go prior to for the service provider’s staff to achieve, beginning the transition from current to whilst servicing the contract, their new state of sourcing arrangement. Balanced Scorecard Card (or other performance management framework) KPIs, beyond that of client satisfaction. 16. Avoid driving the service provider so hard that you tip the deal over the edge and into unprofitability from the provider’s perspective. 15 | P a g e
  16. 16. Sourcing Management: Prepare for Excellence Conclusion As the use of outsourcing in Australia and across the Asia-Pacific region grows and broadens into business processes and other non-IT functions it will become increasingly important that the dollars invested contribute maximum economic benefit. That is, that the sourcing deals work and fully deliver to objectives. Figure 7 Outcome of sourcing management capability excellence Business Service Objectives Performance Management Sourcing Objectives Championing Relationship Service Management Deal-specific Provider(s) Recipients Innovation Service Objectives Service Contract Service Administration Financial & Management Management Enterprises will not be able to concentrate fully on core, value-adding activities they are being unnecessarily distracted, or worse still, hobbled by poor service performance and inadequate outcomes from those services they have chosen to source externally. Whilst business satisfaction with the outcomes from outsourcing non-core services has increased in recent years, greater satisfaction and better outcomes are sought and can be achieved. The key is excellence in the discipline of sourcing management. In its absence deal-specific objectives and sourcing strategy objectives will be at risk. Ultimately enterprise’s business objectives may also be compromised. At CHERUBLEEGREEN we assist our clients to appreciate the scope of the sourcing management function and to prepare for, establish and achieve excellence in the discipline. In the third white paper of this tri-part series on Sourcing Management we will examine other situations where the capabilities of the sourcing management function can be used to great effect. 16 | P a g e
  17. 17. CHERUBLEEGREEN is a specialist advisory and consulting firm that brings together a rich heritage of experience and expertise in business and ICT sourcing and vendor management. Our clients rely on us to deliver solutions that address their complex and challenging sourcing and vendor management issues. We are about practical solutions – combining specialist skills in governance, strategy, performance management, with our know-how in IT sourcing, vendor and contract management and program assessment and benefits realisation to provide our clients with a comprehensive and powerful business advisory asset. We provide the thought leadership, guidance, proven methodologies, templates and tools to help our clients navigate through complex sourcing initiatives, and actively work with them to mentor and coach their procurement leaders and key staff to maximise the benefit from established vendor and supplier relationships. Our core services include:  Strategic Planning service  Sourcing and Selection services  Vendor and Service Management services  Benchmarking services  Program and Portfolio Management services Contact details Mark Probyn John Liburti mark.probyn@cherubleegreen.com.au john.liburti@cherubleegreen.com.au +61 419 376 411 +61 403 484 948 enquiry@cherubleegreen.com.au www.cherubleegreen.com.au

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