As more and more direct business effort must be expended toward relationships with customers, as companies feel comfortable with the reach of technology and their need to manage more amounts of highly specific data, and as more companies struggle to satisfy the career and lifestyle priorities of workers, they have warmed to the idea of outsourcing mission-critical functions.
For market leaders who are obsessed with building more company value, outsourcing has actually become a key business strategy.
Unlocking Value - Embrace Governance, Risk, and Compliance Practices
Value:EMBRACE GOVERNANCE, RISK
AND COMPLIANCE PRACTICES THAT
ADVANCE THE POWER OF OUTSOURCING
Organizational value is more than a numbers game
Building a foundation for value creation through a system of record
The vital components of using governance to add value
The qualities of enlightened governance
It is a steady climb for the vast majority of enterprises to achieve
and sustain market relevance today.
Satisfying customers and keeping them in productive relationships are now at the heart
of every measure of corporate value.
The trek is steep because customers have more than buying power; they have
influence over other customers, many of whom they do not even know. Sometimes
these customers do not communicate with one another – they may be simple “likes”
on a social network that shares product and service information. The sources of
product information include customer reviews that are rich with information not just
about the quality but about the use of products.
Then there is the reputation of the company. With the effort to please customers
shifting from things like pricing and packaging to a social and socially responsible
experience, all it takes is negative information from other customers and influencers
to derail what used to be a sure purchase.
The effort to stay relevant through targeted marketing to customers and influencers
is the promontory of the enterprise. Everything behind and around this point is now
measured by its sturdiness as well.
ORGANIZATIONAL VALUE IS MORE THAN A NUMBERS GAME /04
All it takes is
from other customers
and influencers to
derail what used to
be a sure purchase.
As more and more direct business effort must be expended toward relationships with
customers, as companies feel comfortable with the reach of technology and their need
to manage more amounts of highly specific data, and as more companies struggle to
satisfy the career and lifestyle priorities of workers, they have warmed to the idea of
outsourcing mission-critical functions.
For market leaders who are obsessed with building more company value, outsourcing
has actually become a key business strategy.
First, company leaders have better ways to identify and measure the contingent
workforce providers who fit with the organization’s culture and vision for performance.
Second, many providers emphasize more than professional excellence and experience
in their workers; they focus on how their services integrate with the other functions
within the enterprise.
Third, service providers also include programs designed to promote and measure
the effectiveness of the outsourced function. Finally, company leaders fortify their
infrastructures – protect them against any risk inherent in using systems outside their
direct control – by finding ways to turn governance processes into methods that also
sharpen their companies’ strategic focus.
/05ORGANIZATIONAL VALUE IS MORE THAN A NUMBERS GAME
– protect them
against any risk
inherent in using
their direct control.
What binds companies and suppliers together in this effort? Shared priorities and
values articulated in a universal system of record – a system that protects and delivers a
single version of the facts, available in real time, from initial discussions, through supply
chain design, through implementation, to execution.
This single version of the facts pulls everyone toward one version of the truth that
works for all parties, in every step of the supply chain and across every possible vested
interest. Far beyond quality control, this is value control: ensuring that all stakeholders
understand and perform to a shared set of practices and objectives. A system like this
makes an outward focus and agile performance even more possible by multiplying a
company’s capacity to govern itself, manage risk and comply with regulatory standards
while achieving internal economy.
This does not make it easy to find the right suppliers. In the best cases, market leaders
find sources who are better at these mission-critical responsibilities than the internal
functions were – who can deliver management and cost savings to the enterprise.
In every case, the correct approach to outsourcing, from both sides – supplier and
client – works from a philosophy that treats governance, risk and compliance as a
joint effort... where all parties understand that the purpose of these relationships is to
generate value... where all parties use governance practices to create value in ways
that protect the company and every stakeholder.
/06ORGANIZATIONAL VALUE IS MORE THAN A NUMBERS GAME
find sources who
are better at these
than the internal
The capacity to personalize a customer’s experience exists in every realm of
relationship and transaction. Personalization is not just inside a boutique or online
at an artisan’s website. One hundred years of industrialization and thirty years of
advanced computing power have put decades of functional and management
experience within the reach of every enterprise.
The foundation underneath and behind the market-facing promontory requires
recognized, actionable direction, support, rewards and consequences; and it must
come from a wider group of players, inside and outside the organization.
/07ORGANIZATIONAL VALUE IS MORE THAN A NUMBERS GAME
is not just inside
a boutique or
online at an
1 2 3 4
Governance, risk and compliance command attention and
resources. Especially in organizations whose leaders are clear in
describing momentous market shifts and the internal change
required to respond.
Market titans are already moving past the leadership and change management
conversations to execution. They are introducing new processes and practices that
build value while they absorb a few aftershocks from organization change. They
are finding ways to keep customer expectations in front of every other company
stakeholder – while protecting the company and those stakeholders.
It turns out that outsourcing continues to deliver opportunities to focus on the business
purpose of the organization – opportunities that were not apparent when outsourcing
became a management topic, sometimes controversial and always intricate. Yet by
categorizing the decision to outsource as a high-level strategy, market leaders have
achieved real results: fully-articulated economics of supplier partnerships; effective
decisions taken efficiently; the advance of value-creators such as lowered cost, faster
production, social responsibility and environmental compliance; more satisfied
workers; and last, but foremost, a full-on move to become customer-centric.
BUILDING A FOUNDATION FOR VALUE CREATION THROUGH A SYSTEM OF RECORD /09
continues to deliver
to focus on the
of the organization.
While the formula must be tweaked for each organization to accommodate maturity,
culture and location, outsourcing is now an established business practice – to a great
degree because the market leaders have learned how to configure governance functions
and processes to inspire every stakeholder to create value, not just enforce responsibility.
Intel, Microsoft, Proctor & Gamble, Jones Lang LaSalle, Dell: all have revisited their
supply chain, risk management, compliance and governance practices to implement
contingent workforce strategies that take care of workers as well as the company.
In one example, the client took a look at the validation labs it runs in various
locations around the world. The employees who work in these labs are valuable.
Highly skilled, these people configure, test and validate semi-conductor chips on
new product platforms. And they possess engineering knowledge of the company’s
legacy products. The client began to notice inefficiencies in its existing contingent
workforce model. These employees were leaving to work elsewhere.
When the client undertook a review of its workforce practices, it decided that converting
the labs to a new model was the best way to actually retain the institutional knowledge
while increasing worker morale. The result is a mix of core and flexible employees
that is out-performing the previous arrangement as well as saving them money. And
enabling them to attract the best candidates for open positions. They now offer a more
stable environment for performance and satisfaction.
/10BUILDING A FOUNDATION FOR VALUE CREATION THROUGH A SYSTEM OF RECORD
Outsourcing is now
– to a great degree
because the market
leaders have learned
how to configure
The key success factor in both the design of the new employment model and its
execution is formal program the client established – specific articulation of desired work
outcomes, a growth plan, career paths, forecasts for operating needs. This program
has established the parameters for success not just in the company’s terms but in the
workers’ terms – by using the contingent model to outsource the process, enable the
company to retain invaluable institutional knowledge and experience, and pull in more
experts as needed. The company can focus on its technology and its customers, knowing
that the professional and lifestyle needs of its workforce are being met.
Is a system of record all a company needs to integrate its governance and outsourcing
models? No. A system of record does, however, make the shift to stakeholder ownership
of governance practices less of a leap – whether the stakeholder is a company manager,
a core worker, a flexible worker or a supplier.
By establishing the parameters of the company-supplier relationship in this much detail,
the parties change the outsourcing paradigm from purely financial and transactional to
a broader value basis – and they pave the way for using essential checks and balances
to expose success factors that everyone can employ. And also essential to governance:
the consequences become more transparent to all stakeholders – by way of clarified
roles, responsibilities and benefits.
/11BUILDING A FOUNDATION FOR VALUE CREATION THROUGH A SYSTEM OF RECORD
The parties change
purely financial and
transactional to a
broader value basis.
Laying the groundwork for a system of record
Vested Outsourcing began as a project for the US Air Force as directed and executed
by University of Tennessee researchers. Centered in a confirmed arrangement among
all parties, a Vested Agreement articulates shared goals for innovating, creating value
and rewarding success. The model spread rapidly to business, largely because it enables
all stakeholders to forge solutions out of common bonds – bonds they might not have
known they had without the process of identifying the advantages to all stakeholders in
a proposed relationship.
A Vested Agreement is designed to generate wins for every stakeholder based not on
special circumstances but upon an idea from relational economics: the more success a
company enjoys via an outsourcing strategy, the more success for the supplier as well.
To establish a Vested Agreement, all parties follow five rules.
/12BUILDING A FOUNDATION FOR VALUE CREATION THROUGH A SYSTEM OF RECORD
1. Focus on outcomes, not transactions.
Instead of calculating costs on a per-task or per-person basis, the company defines the
desired outcome and the supplier can account, upfront, for complexity, variability and
mutual dependency. While pricing may never be completely precise, centering the
agreement on outcomes requires more analysis going into the agreement. The level
of detail helps to focus the conversation on results – including the financial value for
2. Focus on the what, not the how.
Drilling down into the desired outcome, the company can truly act as the customer –
exploring what it wants and needs out of the arrangement. The supplier gets to focus on
its expertise, demonstrating its value through it – and quite possibly through the upfront
process of getting the information it needs from the company.
3. Clearly define and measure the desired outcomes.
Besides articulating the specific outcomes, the stakeholders address the monitoring
and measuring processes they will use to evaluate their progress. This yields an even
deeper understanding of each stakeholder’s role and responsibilities – making it easier
to communicate over the random events that inevitably will test the agreement.
/13BUILDING A FOUNDATION FOR VALUE CREATION THROUGH A SYSTEM OF RECORD
4. Build incentives into the pricing model that optimize for tradeoffs.
There are no longer one-size-fits-all prices, so a fair structure requires flexibility and fresh
thinking. The stakeholders build a pricing structure that accounts for differentiated needs
and priorities, with markers that inform them about changes, for the better and worse,
along the way.
5. Govern with insight to downplay oversight.
The role of governance has never been to transform a company – only to protect it
and enforce consequences for bad behavior. The latter is still essential, yet a strong
governance team and practice actually gives stakeholders a framework for maximizing
/14BUILDING A FOUNDATION FOR VALUE CREATION THROUGH A SYSTEM OF RECORD
THE VITAL COMPONENTS OF USING GOVERNANCE TO ADD VALUE /16
Corporate governance now includes the participation –
and contributions – of virtually every business function.
Whether due to the significant change in the corporate regulatory requirements of the
past decade or the questions Main Street has for Wall Street, every stakeholder has
become accountable for satisfying its responsibilities as set forth and managed through
a governance process.
Even customers participate. The governance spectrum ranges from internal risk
management and regulatory compliance to the company’s social impact, from
employment to environment and everything in between. This puts governance at
the center of the organization’s community.
As customers have become more wired into the story of a product or service – whether
learning from influencers or evaluating a company’s sense of responsibility – they have
become stakeholders in the company’s ability to manage risk and comply with both
regulations and social norms. Governance is now a progressive, not just a reactive,
process. Outsourcing providers can create leverage for client companies in balancing
a multitude of complex, interwoven and at times conflicting areas. No need to leave
opportunity, growth or money on the table.
now a progressive,
not just a reactive,
For example, the Statement of Work [SOW] has become a tool of governance.
As businesses continue to change workforce dynamics before losing institutional
knowledge, the SOW process can give them greater visibility into what they are
actually outsourcing and spending. The well-defined, well-executed SOW also
mitigates risk and helps align outsourcing strategy with the entire supply chain.
Another example: Technology. While it is fueling the flow of information and forcing
transparency, technology is also a primary tool for identifying and mitigating risk.
Companies can visualize scenarios and teach stakeholders, especially employees and
suppliers, how to anticipate them as well as handle them. Decisions about problems
and opportunities can be set and disseminated throughout the company’s ecosystem
much more efficiently and quickly.
There are many advantages to governance at the grass roots, but the most significant
is its role in positive engagement and acceptance of enforcement. Transparency works
both ways: By engaging workers and suppliers, the company’s leaders also enable them
to understand the purpose of governance plans and reminds them of their roles and
responsibilities. Stakeholder knowledge of consequences, based in irrefutable data and
analysis as well as open communication, strengthens enforcement.
/17THE VITAL COMPONENTS OF USING GOVERNANCE TO ADD VALUE
How to encourage
grass roots governance.
THE VITAL COMPONENTS OF USING GOVERNANCE TO ADD VALUE /18
1. Establish personal accountability
as a key success factor.
2. Understand your current situation
and define your desired state.
Scope the gap and map the process
for bridging it.
3. Chart the universe of available and
4. Establish the rules of engagement.
5. Make risk an open book.
6. Get into the regulatory weeds.
7. Embolden the Statement of
Work [SOW]. Incorporate a clear
depiction of the company’s need,
the supplier’s role and the risk
mitigated by outsourcing the
project or process.
8. Articulate the role of governance in
the outsourcing decision and the
consequences for not participating.
& SOW Templates
The role of the
oversight & day-to-day
Clear & agile
Continuous linkage to
strategy & objectives
maturity & outcomes
Many variables affect the construction of an organization’s governance functions,
the most significant being the outsourced functions. Yet across the board, every
governance office, whatever the organization, whatever the industry, has five
core responsibilities: managing risk; maintaining an accurate inventory of supplier
relationships, documented through SOWs; ensuring proper approvals have been
obtained and recorded; exposing opportunities for collaboration among stakeholders;
and evangelizing the importance of compliance.
To execute these responsibilities, it is essential to centralize the SOW process – to
introduce and maintain standards and protect all stakeholders. Yet the office must be
able to act as a neutral party in evaluating management priorities, internal needs and
supplier capabilities – monitoring their intersection and pursuing integrity.
When a company has a strong, effective governance process, it produces more than
records and achieves more than compliance, operating efficiency and cost reduction.
The company addresses a business need, it accelerates the delivery of a product or
service, and it reduces risk. Past shortcomings are revealed and can be converted to
improvements. Theoretical ideals become universal standards for evaluation.
/20THE VITAL COMPONENTS OF USING GOVERNANCE TO ADD VALUE
The office must
be able to act as
a neutral party
needs and supplier
How to manage
grass roots governance
THE VITAL COMPONENTS OF USING GOVERNANCE TO ADD VALUE /21
1. Wrap governance into the company’s
communication and change management
plans, emphasizing collaboration, transparency
2. Establish a System of Record to serve as the
framework for continual enhancement and
value creation; build the System to identify
and reinforce measurements that check truth
3. Develop objective, quantitative criteria for
4. Build detailed guidelines for contracts
5. Use technology designed expressly for
managing projects and delivering information
in real time.
6. Conduct orientation programs for every
stakeholder group that take them through
design, going live, and ongoing process.
7. Provide resources for answering questions
about every aspect of governance, especially
the formation of SOWs.
8. Regularly conduct audits and stability tests.
9. Collect data from every step of every
Market leaders have raised the profile of outsourcing as a strategic,
appropriate corporate tool. Yet negative perceptions about
governance, risk and compliance remain difficult to turn around
in some corners.
Governance can be code for “rules and regulations to make jobs harder.” Risk
management is perceived as “setting up systems and processes to find ways to avoid
new product development.” Compliance is construed as “finding out what’s wrong,
not what’s right.”
Some organizations will never reach a state of enlightened governance. They are
locked into command-and-control mode and are resolved to, if not comfortable with,
managing compliance as they always have. They are far less likely to realize the benefits
of enlightened governance: more predictable and scalable product development; an
engaged workforce; financial advantage; a palpable corporate ethic; higher rates of
compliance; a vivid social reputation. Any associated failures and missteps may not be
catastrophic, but their cost is not just financial; aspects such as competitive position,
employee motivation and customer satisfaction often suffer.
/23THE QUALITIES OF ENLIGHTENED GOVERNANCE
missteps may not
but their cost is not
Companies that embark on creating a governance structure which incorporates
outsourcing can expect to heighten their productivity and market presence. They
can expect maturity because they are diligent. Teams spend extra days in product
development with suppliers, before production and launch, to plan for random
scenarios that might interrupt an otherwise well-designed process. They outline
potential failures because they know it increases the chances of success.
Enlightened governance offices define problems well. They know what they mean
when they label something a risk. They invite and make use of diverse opinions from
every stakeholder group. They define outcomes in terms of what they can actually
measure. They enforce consistently and communicate incessantly. They maximize their
use of technology without losing their humanity.
/24THE QUALITIES OF ENLIGHTENED GOVERNANCE
because they know
it increases the
chances of success.
THE QUALITIES OF ENLIGHTENED GOVERNANCE /25
The most significant benefit is that a well-tuned governance model actually can protect
the outsourcing strategy. The governance office accelerates the outsourcing process so
that all stakeholders remain informed of opportunities and their responsibilities, freeing
them to focus on their roles and performance.
In the right hands, governance is no longer a chore. It is a path to value. There are
intangible benefits that make a better work environment, especially after leadership
and change management models have been implemented. Yet the true value of
governance is, through processes that articulate accountability and inspire personal
responsibility, organizations clear the path for workers and suppliers to improve
processes, manage finances and innovate.
process so that
Toward a mature
THE QUALITIES OF ENLIGHTENED GOVERNANCE /26
Stage 1: Awareness.
Understanding that current governance
practices do not serve stakeholders.
Benchmarking organizations that have
adopted optimized practices. People are wary.
Stage 2: Transition.
Either as a standalone effort or as part of a
corporate change management initiative.
The decision has been made but teams are
identifying opportunities and charting strategy.
People are stressed.
Stage 3: Acculturation.
The organization adopts enlightened
governance and invites engagement from all
stakeholders. A period of hyper communication.
People are attentive.
Stage 4: Optimization.
The governance model begins to serve
stakeholders. The defined outcomes appear and
are measurable. People feel safe.
Stage 5: Transformation.
All systems go. Stakeholders endorse and
participate in governance. Insights are captured
and fed into the model. People are energized.
governance model. Stage 3: Acculturation.
People are attentive.
Stage 4: Optimization.
People feel safe.
Stage 5: Transformation.
People are energized.
People are wary TRANSITION
People are stressed
• Intel’s Contingent Workforce Philosophy
• Vested Outsourcing: How P&G Brought Its Focus on Innovation to Facilities Management,
by Kate Vitasek and Joseph Tillman
• Vested: How P&G, McDonald’s, and Microsoft Are Redefining Winning in Business Relationships,
by Kate Vitasek and Karl Manrodt with Jeanne Kling, 2012
• Outsourcing Business Processes for Innovation,
by Mary C. Lacity and Leslie P. Willcocks, MIT Sloan Management Review, 2013
is the Outsourcing and Consulting Group of workforce solutions provider Kelly Services, Inc. KellyOCG is a
global leader in innovative talent management solutions in the areas of Recruitment Process Outsourcing (RPO), Business
Process Outsourcing (BPO), Contingent Workforce Outsourcing (CWO), including Independent Contractor Solutions,
Human Resources Consulting, Career Transition and Executive Coaching, and Executive Search.
KellyOCG was named in the International Association of Outsourcing Professionals®
list, an annual ranking of the world’s best outsourcing service providers and advisors.
Further information about KellyOCG may be found at kellyocg.com.
For more thought leadership go to talentproject.com
ABOUT THE AUTHOR
CHRISTOPHER P. JOCK is vice president and practice leader of Kelly Outsourcing and Consulting
Group. Appointed to his current post in 2009, as global leader for KellyOCG’s Center of
Excellence (CoE) for Global Managed Solutions, Jock works with his team to assist companies
with the operational management of their core and non-core functions, ensuring and increasing
efficiency, productivity and quality. No stranger to effecting and leading organizational change and
transformation of varying size and complexity, he has been involved in well over thirty such projects while engaged
in various roles over his career. He is well-suited and suitably experienced to be a trusted advisor to organizations
that might find themselves in similar situations. He is responsible for strategy, brand relationship management and
business development and support for Managed Solutions worldwide.