The document discusses the evolution of IT governance strategies, emphasizing the need for a multi-supplier governance model as businesses shift towards a more service-oriented approach. It highlights the complexities involved in managing multiple suppliers, including the necessity for well-defined operational and service agreements to ensure accountability and collaboration among suppliers. Best practices for effective governance are outlined, including the establishment of clear metrics, contractual incentives, and the development of an organizational framework to support supplier management.

1. Across the corporate landscape IT functions are completing their
transformation to a service-orientation. Slowly but surely, “governance”
has become a core mission, if not yet the core competency, of the IT
organization. Governance involves many fronts and addresses many levels
– there is architectural governance, IT finance and projects governance, and
of course, supplier governance. All call for new skills and new structures.
In addition there are other trends that grow the ‘workload’ for governance
such as; more and more IT responsibility is moving to the business units
(a trend accelerated by cloud) and the commoditization and globalization
of IT delivery (see figure 1).
Furthermore, over the past decade, many have found that the conventional
wisdom of concentrating the outsourcing to a few large strategic suppliers
with long term contracts has often worked to the disadvantage of the
client as entrenched suppliers become complacent and dis-incentivized
to innovate or implement best practices for the client’s benefit.
Drive Your Business
Multi-Supplier Governance
Turning Complexity into Value
Strategy Brief | Supplier Governance
1
“As CIOs turn to multiple
suppliers to drive down
prices and obtain best-in-
class services, they would
need to redefine their
supplier governance to
extract the promised value
from this more complex
ecosystem.”
Eric Liang
Principal, WGroup
Fig. 1 Multi-supplier governance must be viewed within the larger
context of IT governance
Source: WGroup

2. Treating suppliers
merely as vendors
– and targets of pricing
squeezes – alone will
not motivate them to
collaborate with each
other or to innovate
for the long term
benefit of the client.
The knowledge that the “strategic” supplier is able or willing to transfer is also
limited. Hence, when the corporations’ first generation major outsourcing contracts
came due for renewal, many opted to re-source and multi-source, fundamentally
altering the dynamics of the supplier-client relationships. But that brings new
risks; none the least of which is increased governance complexity.
The Balancing Act
Paradoxically, as mega-contacts are being broken up and re-distributed
to multiple suppliers, it does not mean that the ‘trusted advisor’ role for
suppliers is no longer relevant. Increasing outsourced productivity requires
increasing competition from among best-of-breed suppliers. But it also
requires collaboration.Treating suppliers merely as vendors – and targets
of pricing squeezes – alone will not motivate them to collaborate with
each other or to innovate for the long term benefit of the client.
Motivation can be structurally built into the system at two levels: mechanisms
for monitoring integrated services, and contractual incentives for collaboration.
End-to-end services, such as the standing up of a server, typically requires
the successful completion of provisioning actions by multiple teams including
security, networking, database, and of course system hardware and software.
What IT’s customers care about are that the end-to-end services, and service
catalog SLAs (Service Level Agreements) represent IT’s commitment to the
customers. Nowadays, however, those activities are increasingly being outsourced
to multiple suppliers each responsible for only one component of the service.
Their contractual obligations are governed by SLAs only at the service component
level.The net result can be that while each individual component SLA is
being met the end customers are still not receiving the service they expect.
To remedy the situation, the hand-offs between suppliers must be rigorously
defined in the form of formal CSFs (Cross-Supplier Procedures) each governed by
an OLA (Operation Level Agreement.) The best practices for OLAs include 1:
• Detailed process steps for end-to-end services must first be mapped,
complete with ‘swim lanes’ (roles and responsibilities) of the players
• There will be numerous handoff points, but not all are equally important. To
reduce resource requirements to a practical level, the handoff points lying along
the critical paths of the processes should be given priority for definition
• The CSFs should be formulated prior to sourcing decisions and signing
of service delivery contracts
• Overall accountability of performing to the OLAs should be retained
within IT; CSF oversight should not be outsourced
• If there are OLAs to which internal teams are a party, those should
be addressed first
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3. Figure 2 illustrates the intertwined relationships among OLAs, component
SLAs, and end-to-end SLAs. Centrally provisioned end-to-end SLAs
(from a shared service center) can be further customized for different end
user groups such as a particular business unit. Mirroring this cascading set
of SLAs which forms the core of service-centric metrics should be a set of
supplier-centric metrics, KPIs and balanced scorecards.Together, the two sets
form a complete, hierarchical ‘metrics tree’ for IT suppliers management.
All these metrics bring transparency to both the suppliers and client that enable
monitoring of integrated services. Clients will be able to root-cause and pinpoint
accountability for failures to meet end-to-end service requirements, and suppliers
will be motivated to perform as a team. But to truly encourage collaboration in
a positive atmosphere, cultural and contractual incentives are also necessary.
Most contracts emphasize the use of penalties (maybe with some earn back
provisions). However, basic psychology tells us that penalties and rewards do not
work symmetrically. Not all rewards need to be formal or financial – it could
be just an award to the supplier who demonstrated the most team leadership
presented in a multi-supplier social event setting. And formal incentive
clauses in contract can take the following forms:
• Savings sharing
• Meeting end-to-end SLAs as a member of a team (above and beyond
meeting individual supplier SLAs)
• Attaining certain metrics for the supplier’s internal operational excellence
related to the service
• Performance incentives for accelerating achievement of long term targets
(e.g. year-over-year cost reductions)
• Innovation incentives
Metrics bring
transparency
to both the suppliers
and the client that
enable monitoring of
and accountability for
integrated services.
Multi-Supplier Governance
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Fig. 2 Illustrative interrelationships among OLAs, service
component SLAs, and end-to-end SLAs
Source: WGroup

4. Granted, each of these types of incentives require careful crafting of the
contractual language and corresponding measurements. Some suppliers may
balk, at least initially, at being held accountable for the failure of a team
over which they have no full control. Others may be nervous in letting the
client peek into their internal operations. Still others may disagree with
what qualifies as an “innovative’ idea and who does the judging. Significant
innovations also require IP protection. Yet all these hurdles can be overcome. It
represents the next level of outsourcing sophistication. It is outsourcing 2.0.
Implementing A Multi-supplier Governance Model
Figure 3 represents a Supplier Governance Capability Framework developed
by WGroup.There are five relevant capability dimensions: 1) Articulating
supplier governance goals and guiding principles; 2) governance model –
the governance meeting cadences, structures and artifacts; 3) IT organization
skills in supplier governance; 4) tools for supplier governance; and 5) the
governance processes, of which there are ten.
While this framework applies regardless of the number of suppliers involved,
the more fragmented and fluid multi-supplier environment adds complexity and
challenges to all the dimensions. Examples:
• Strategy Alignment – Tracking ROIs for a multi-supplier outsourcing deal
over the lifecycle of a contract becomes even more daunting than before. Clients
typically track the year by year performance of the major (strategic) suppliers
only. Also to handle a larger supplier ecosystem, some form of segmentation
for more differentiated relationship management strategies is required.
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Fig. 3 Supplier Governance Organization (SGO) Capability Framework
Source: WGroup

5. • Governance Model – Forums for the supplier community to interact should
become a cornerstone governance activity. Which supplier gets invited to
what and at what frequency must be clearly articulated. In a multi-supplier
environment, such forums should focus on forward-looking, collaborative
problem solving rather than on backward-looking performance reviews.
• Organization & Skills – The ratio of IT resources dedicated to supplier
governance should increase. Such skills are often in short supply, especially from
an internal IT team traditionally focused on technical work.There also
needs to be clarity on who ‘owns’ the supplier relationships at executive,
contractual and operational levels – is it corporate, the business units, IT,
corporate procurement, or even legal?
• Processes – In order to contain ‘contract leakage’ (client getting billed for
services not rendered) and calculate SLA achievement, accurate, real-time and
near real-time reporting of metrics is a must. Detailed OLAs are a must
in order to characterize each handoff action between 2 suppliers including
hand-off timings and quality of data transfers.
• Tools & Technology – With numerous end-to-end SLAs, OLAs and rolled
up KPIs and scorecards added to the tracking list, automated tools for metrics
monitoring and auditing will be almost indispensable. Also knowledge capture
and knowledge transfer from the supplier can be greatly facilitated with
formal knowledge bases and repositories.
Yet the rewards for overcoming these challenges are many. Figure 4 summarizes
the benefits one can expect for a methodical approach to multi-supplier
governance:
Multi-Supplier Governance
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Fig. 4 The Benefits of Adopting Multi-supplier Governance Best Practices
Source: WGroup

6. Contact Us
WGroup
301 Lindenwood Drive, Suite 301
Malvern, PA 19355
610-854-2700
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About WGroup
Founded in 1995, WGroup is a boutique management consulting firm
that provides Strategy, Management and Execution Services to
optimize business performance, minimize cost and create value. Our
consultants have years of experience, both as industry executives and
trusted advisors, to help clients think through complicated and pressing
challenges to drive their business forward.
For more information on WGroup, visit http://thinkwgroup.com
How WGroup Can Help
WGroup collectively brings decades of hands-on experience in IT supplier
management to assist our clients with the multi-supplier challenge – from building
the governance structures to defining sourcing strategies to facilitating contract
reviews to transition management. Figure 5 highlights our approach in a typical
360 degree review. We also recognize the importance of the closely related need for
innovation in order to take IT services to the next level of productivity, and have
developed unique processes and frameworks to cultivate supplier-driven innovation.
For more details please contact WGroup:
Fig. 5 The Three Phase Approach for a Multi-supplier Governance Review
Current State
Discovery
Future State
Recommendations
Identify
Mitigation
Actions and
Future
Roadmaps
Compile
Discovery
Data
Identify
Gaps
Identify and Prioritize
Opportunities for
Best Practices
Reveiw
and
Analysis
Governance
Framework &
Processes
Governance
Capabilities
MLSredivorp-itluM
Framework
Contractual
Change
Opportunities
Transition Plan
Operational
Performance
Current SLAs &
Key provider
Contracts
Operating Model &
Key Provider
Services
Governance Model
sessecorP&
Stakeholder Needs
& Objectives
Source: WGroup