Sourcing Governance - 2012 Global Update

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Fact-based Governance execution fosters an environment that focuses efforts on performance improvement rather than debates on whose data is right and whose data is wrong.

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Sourcing Governance - 2012 Global Update

  1. 1. Sourcing Governance – Global UpdateSteve KoppPartner, Business Advisory ServicesSeptember, 2012 Copyright © 2012 Information Services Group, Inc. All Rights Reserved. No part of this document may be reproduced in any form or by any electronic or mechanical means, including information storage and retrieval devices or systems, without prior written permission from ISG, Inc.
  2. 2. Contents 2 ► Global insights into Governance ► Why Governance fails or succeeds ► Trends in Outsourcing GovernanceCopyright © 2012 Information Services Group, Inc. All Rights Reserved 2
  3. 3. Global insights into GovernanceCopyright © 2012 Information Services Group, Inc. All Rights Reserved 3
  4. 4. What Do We Mean By Governance? Corporate Governance Governance (or Functional Governance) Service Management Governance Contract GovernanceCopyright © 2012 Information Services Group, Inc. All Rights Reserved 4
  5. 5. Sourcing Governance Remains An Immature Function In A MatureIndustry. “Companies report between 5% and 30% of the expected value of their transaction is lost through ineffective governance.” ISG Research Study “81% of suppliers believe that poor or failed outcomes are primarily or Client completely the customer’s fault 89% of customers believe that poor or Governance failed outcomes are primarily or completely the supplier’s fault.” Providers International Association of Outsourcing Professionals “Lack of management is central to the problems with multiple sourcing. 84% of companies do not have what they regard as a mature governance model.” Financial TimesCopyright © 2012 Information Services Group, Inc. All Rights Reserved 5
  6. 6. Investment Too Often Still Remains Focused On The Contracting ActivityGreatest time, money, and complexity occur post-contract; that is where true valueand success are measured – not at contract signing. Assess Strategy Transaction Transition Manage & Govern Renew Post-contract period – where governance processes really matter! ► Post-contract stages: ► ~10-15% of time spent in overall lifecycle ► ~85-90% of time spent in overall lifecycle ► About 2-3% of total spend ► About 97-98% of total spend ► Choreographed process ► Dynamic business changes ► Specialists within both client and service ► Multiple internal and external stakeholders provider Strategy and evaluation stages:Copyright © 2012 Information Services Group, Inc. All Rights Reserved 6
  7. 7. Large Amounts Of Value Are Lost Through Lack Of Good GovernanceThe dollar value is becoming apparent through organizations tracking the deltabetween good and poor/absent governance…..Savings were recorded as an average of 16% ACV over the three years. Savings Savings as % of ACV $1,200 $1,000 $972M $800 $678M Hard $600 Dollar $400 $253M Savings $200 17.33% 14.73% 16.58% $- 2009 2010 2011Copyright © 2012 Information Services Group, Inc. All Rights Reserved 7
  8. 8. Third-Generation Outsourcing Governance Is Filling This Critical Gap… Third Generation ► Single top-down view of all ► Holistic view of outsourcing outsourcing performance ► Optimization of governance ► Consolidated dashboard on all aspects of governance Second Generation ► External/internal ► Improved isolated elements measurements of governance ► Common data sources First Generation ► Measures effectiveness of ► Focused on measuring service governance provider cost and performance onlyCopyright © 2012 Information Services Group, Inc. All Rights Reserved 8
  9. 9. Underpinnings of 3rd Generation Sourcing GovernanceThird generation sourcing governance relies on expertise, robust processes andtechnology, and flexible resource options. Governance Processes Technology Flexible Resource Expertise Options ► Processes integrated with ► Onsite, offsite or ► 30+ processes ► Years of robust software offshore resource ► Proven through governance ► Adaptable to options dozens of experience specific client ► Utilizes a mix that transitions and ► Subject matter needs and in- optimizes adapted for expertise house performance unique client available as technologies while keeping needs required ► Comprehensive costs down ► Proven offshore ► Experienced dashboard ► Utilizes labor management design teams improves overall arbitrage where it processes sourcing makes sense management Combining these elements result in value exceeding the sum of the partsCopyright © 2012 Information Services Group, Inc. All Rights Reserved 9
  10. 10. Why Governance fails or succeedsCopyright © 2012 Information Services Group, Inc. All Rights Reserved 10
  11. 11. Governance Should Prevent Failure And Ensure Value RetentionNearly 90% of the time, legal or financial terms and conditions are not the principlesource of problems. Foremost causes of sourcing failure Flawed strategy and Poor or damaged business planning relationships between firms 37% 52% 11% Flawed legal and financial terms and conditionsSource: Sourcing advisory service executive report, Cutter ConsortiumCopyright © 2012 Information Services Group, Inc. All Rights Reserved 11
  12. 12. What Do You Absolutely Need To Get Right?Governance is not a one-way street…….. ► Respect from all parties from the get go ► Process alignment from early on, Suppliers Process compliance throughout. ► Focus on collaboration with the Suppliers, its not a one-way street…. SM & G ► Have the tough conversation with Consumers both Suppliers and Consumers ► Be fair…perception of fairness is key to successful governanceCopyright © 2012 Information Services Group, Inc. All Rights Reserved 12
  13. 13. Pitfalls Of Supplier GovernanceToo often, customers fail to manage to the contract that has been so painstakinglynegotiated.► Supplier-promoted and client- accepted, position that the contract should be put on the shelf and forgotten► Lack of process or compliance to established processes► When it becomes only about service delivery, or cost, or relationship…..► Contractual Deliverables & Obligations are not forgottenCopyright © 2012 Information Services Group, Inc. All Rights Reserved 13
  14. 14. Trends in Outsourcing GovernanceCopyright © 2012 Information Services Group, Inc. All Rights Reserved 14
  15. 15. 15 1. Moving Governance from an art to a science 2. Measuring the Effectiveness of Outsourcing Governance End- to-End 3. Choices in execution 4. The changing role of softwareCopyright © 2012 Information Services Group, Inc. All Rights Reserved 15
  16. 16. From Art to ScienceOutsourcing governance is becoming more fact and measurement driven. Someexamples…….. Trends – Savings Vs Error Error Value as % Contract Value Savings as % Contract Value 25% 21.61% 22.06% 22.34% 20.29% % of Contract Value 20% 17.41% 15% 9.28% 10% 8.12% 5% 2.89% 1.31% 0.45% 0.28% 0% 0-6 7-12 13-18 19-24 25-30 31-36 Months into Governance ServicesCopyright © 2012 Information Services Group, Inc. All Rights Reserved 16
  17. 17. 17 1. Moving from an Art to a Science 2. Measuring the Effectiveness of Outsourcing Governance End-to-End 3. Choices in execution 4. The changing role of softwareCopyright © 2012 Information Services Group, Inc. All Rights Reserved 17
  18. 18. Measurement –Has Become A Necessity, Not A Luxury… ABC DEF Overall Governance Process Status Supplier Overall Ratings   Status # Trend # ABC DEF ABC DEF Contract Management Financial Management Status Trend Status Trend Status Trend Status TrendContract Deliverables & Milestones     Invoice Managem ent    Contract Change Request & Revision     Credits, Earnbacks and Milestones    Governance Issue Managem ent     Financial Analysis and Planning    Governance Library     Value Assurance     ABC DEF ABC DEF Relationship Management Performance Management Status Trend Status Trend Status Trend Status TrendCustom er Satisfaction Managem ent     Perform ance Analysis    Spend Pool     Service Level Managem ent    Governance Activities Managem ent     Service Request Managem ent     Copyright © 2012 Information Services Group, Inc. All Rights Reserved 18
  19. 19. Measuring Internal Governance Processes Is Also A Necessity Governance Process - Health Metrics Sample Service Management Process Key Process Metric Target Sep-10 Oct-10 Nov-10 Dec-10 Discipline Contract Change Contract Change Request < 20 business days 23 days 23 days 58 days 28 days Request Cycle Time Contract Contract Issue Contract Issue Open < 20 business days 9 days 12 days 14 days 10 days Management Management Aging Contract Contract Interpretation < 10 days 2 days 3 days 2 days 4 days Interpretations Resolution Cycle Time Service Provider Invoice Invoice Management < 10 business days 14 days 24 days 23 days 12 days Financial Discrepancy Resolution Management % Invoice Back Up Data Invoice Management 5% 14% 17% 11% 50% Line Items with Errors Work Request Cycle Work Requests < 10 business days 3 days 3 days 3 days 4 days Performance Time Management Work Request Open Work Request < 20 business days 16 days 10 days 12 days 11 days Aging Relationship Governance Meeting >90% of last months Governance 35% 40% 55% 50% Management Action Resolution action items closed Green >=80% Overall Health Criteria Yellow between 70% and 79% Red Less than 70%Copyright © 2012 Information Services Group, Inc. All Rights Reserved 19
  20. 20. Measuring To Understanding Process EfficiencyCopyright © 2012 Information Services Group, Inc. All Rights Reserved 20
  21. 21. 21 1. Moving from an Art to a Science 2. Measuring the Effectiveness of Outsourcing Governance End-to-End 3. Minding both the P’s and Q’s 4. Choices in execution 5. The changing role of softwareCopyright © 2012 Information Services Group, Inc. All Rights Reserved 21
  22. 22. Choices In ExecutionCompanies have choices when they start…Do it all on their own or practice whatthey preach… Client► Relationship ► Governance Process► Client Culture ► Governance Experience► IT Delivery Processes ► Technology/Tools ► Flexible resource► Accountability model at offshore cost 3RD GENERATION GLOBAL SOURCING ORGANIZATIONCopyright © 2012 Information Services Group, Inc. All Rights Reserved 22
  23. 23. Best of Breed GovernanceNot everyone is good at everything; similarly not all organizations have the skills,resources and tools to excel at outsourcing governance► Organizational maturity dictates the level of investment companies are willing to make to improve their outsourcing governance  Always the third priority – a clear warning sign► Pooling of governance resources and know-how across functional boundaries are becoming more common place  Enterprise outsourcing governance a reality► Deliberate decisions on what is “core” in outsourcing management► More than $11Billion in outsourcing contracts managed by third parties  Rapid growth  New market entrantsCopyright © 2012 Information Services Group, Inc. All Rights Reserved 23
  24. 24. Best Of Breed At Ground LevelLarge, experienced Companies understand what governance processes can besourced, and which to keep in-house……. CONTRACT MANAGEMENT FINANCIAL MANAGEMENT Contract Compliance & Deliverables Invoice Management Contract Change Request Performance Credits & Earnbacks Contract Interpretation Contract Pricing Adjustments Issue Management Value Assurance Governance Library Financial Analysis & Planning Third Party Contracts Management Service Provider Procurement Oversight Service Provider Audit Chargeback Consumption Management Contract Financial Performance Relationship Management Management Management Management PERFORMANCE MANAGEMENT RELATIONSHIP MANAGEMENT Service Level Management Governance Administration Work Requests & Authorization Spend Pool Management Consumption Management - Operational Compliance Customer Survey Management Service Provider Asset Management Oversight Forecasts & Demand Management Architecture & Standards Management Regulatory & Tax Compliance Risk Management Workplace Services Security Management Communications Management Service Delivery Management Performance Analysis Incident, Problem, Change Management Sourced Selectively sourced Retained in-houseCopyright © 2012 Information Services Group, Inc. All Rights Reserved 24
  25. 25. The Philosophy Behind Best Of Breed GovernanceSeparating decision making and relationship management from the operationalgovernance tasks. ► Decision making Clients generally ► Approvals retain… ► Relationships with the service providers ► Process management and tracking ► Contract change management Third Parties ► Data collection and validation ► Record keeping perform… ► Performance and payment analysis ► Reporting ► Scope Agreements are ► Specific division of responsibilities on a task-by-task level tailored and detailed for … ► Agreement on relative level of effort by task ► Specific deliverablesCopyright © 2012 Information Services Group, Inc. All Rights Reserved 25
  26. 26. The Result of Best of Breed GovernanceA Day in the Life” examples of how a third party can support and enablegovernance processes. Instead of… Internal Governance Team focus on…become… Working with the service providers on service Collecting data and calculating performance credits delivery issues, continuous improvement, and clearing root cause analysis reports Uncertainty regarding roles and responsibilities Helping to clarify roles and operating in accordance with the process flows Focused on working with service providers to Debating data accuracy and completeness improve service quality Finance Team validating invoices Finance Team working on higher-value items - ensuring full value being obtained Service Level Team checking service level Service Level Team working with service providers calculations to improve service level performance Governance Manager collecting and logging issues from service delivery, billing & performance Governance Manager is focused on issue resolution governance meetings Governance teams are focused on higher-value Collecting various contract-related artifacts for filing items such as relationship improvement and in the Governance Library transformational projects Lower value, best efforts Higher value, best practicesCopyright © 2012 Information Services Group, Inc. All Rights Reserved 26
  27. 27. Why Companies Decide To Source Some Of Their Governance Minimize Value Leakage Retain value from outsourcing transactions by reducing value leakage through improved governance oversight Increase control and lower risk of failure through use of best- Risk Mitigation in-class capabilities, processes, tools and people Timely, fact-based recommendations allow the organization to Focus focus on policies, approvals and service provider relationships Utilizing proven world-class processes, accelerates the Accelerated Savings organization through the learning curve Provides a cost effective platform that can easily scale as Scalability additional sourcing activity occurs Minimize the number of employees required for governance Headcount Costs Relationship Fact-based governance execution fosters an environment that Improvement focuses efforts on performance and relationship improvementCopyright © 2012 Information Services Group, Inc. All Rights Reserved 27
  28. 28. 28 1. Moving from an Art to a Science 2. Measuring the Effectiveness of Outsourcing Governance End-to-End 3. Minding both the P’s and Q’s 4. Choices in execution 5. The changing role of softwareCopyright © 2012 Information Services Group, Inc. All Rights Reserved 28
  29. 29. Changing Role Of Software ToolsSoftware remains the missing link in outsourcing management excellence….► Only recently have we seen some comprehensive functionality evolving► Other software solutions have:  Disappeared  Were acquired and are poorly positioned in the market  Price, depth…..  Remains under funded and under developed► The market is poised for significant change in outsourcing governance through a new generation of software that:  Is functionally comprehensive  Addresses all aspects of workflow, intelligent storage and interrogation, reporting and ease of interfacing  Is very affordable at all levels in the industry  Integrated with a managed serviceCopyright © 2012 Information Services Group, Inc. All Rights Reserved 29
  30. 30. In Conclusion…… “Fact-based Governance execution fosters an environment that focuses efforts on performance improvement rather than debates on whose data is right and whose data is wrong.” “Poor Governance is the silent killer of results.”Copyright © 2012 Information Services Group, Inc. All Rights Reserved 30
  31. 31. www.isg-one.com

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