Sourcing Governance and Change Management: Elusive Enablers of Outsourcing Success
Stan Lepeak, Managing Director, EquaTerra Global Research
EquaTerra released the results of its 1Q10 EquaTerra advisor and service provider global Pulse Survey via a webcast on April 20, 2010. This quarter’s Pulse covered the usual topics of third-party business and IT services market demand trends, and market and deal characteristics, and took a deeper dive into buyer issues and challenges with sourcing governance and change management.
EquaTerra has long preached on the value and importance of outsourcing governance and change management to success in outsourcing and shared services efforts. These efforts and capabilities ensure the intent of the sourcing strategy is delivered, and protect against risk of failure.
Change management is especially critical to enabling a success outsourcing transition, and transition failure is a far too common outcome in outsourcing efforts (see 2Q09 Pulse for more on outsourcing transitions). Failure in many cases can be linked back to lack of adequate change management capabilities, initiatives or commitment. Common and consistent change management inadequacies across organizations include lack of active management support, and lack of leadership’s recognition of the importance of outsourcing governance and change management. Further, budgets are often insufficient or spent on the wrong things, such as too expensive staff with the wrong skills, and lack of formal change management programs, policies, procedures and related training, especially for change management. And specific to outsourcing governance, too much time and effort is spent on administrative tasks better automated through the use of supporting software tools.
The figure below identifies what service providers and EquaTerra advisors polled in 1Q10 feel are the key means to improve buyer change management capabilities. These needs are similar to those typically cited to improve outsourcing governance.
The major problem, however, is not acknowledging that outsourcing governance and change management capabilities need improving, or even how to do so. Rather, it is selling to management the need for change, garnering the investment to do so and then executing. As the use of outsourcing and related alternative service delivery models continues to grow, it is the organizations that can master outsourcing governance and change management and make them core competencies that will get the most from their sourcing efforts and ultimately gain competitive strategic advantage.
For the full 1Q10 Pulse survey report and related material, please click here.
Stan, thanks for bringing up this crucial topic in your blog and for your insightful views on the same. Based upon published research and our own experience of working with clients, I would like to develop this thread further by highlighting some of the softer aspects that can help in the success of a client’s outsourcing initiative.
When a client moves from an in-house IT department or T&M model to a Managed Services model, there is a huge shift in the way services are delivered. Management, especially middle management that have built their careers on managing and controlling the process have to move to managing outcomes. A significant shift that all managers will not be able to easily make. It is of utmost importance to effectively address this organizational shift by managing expectations of all stakeholders. Some of the additional measures that can help improve buyer change management would be to:
• Identify all stakeholders and prepare detailed communication plans, processes and the messaging. The communication should be such that it leads to an internal consensus prior to embarking on the outsourcing initiative.
• Designing a retained organization structure that is reflective of the new “way to manage”
• Ensure that inputs of all key stakeholders are reflected in the governance structure. This will enable the client’s retained organization and the service provider to perform their duties in the best possible manner. It is very important that both the client leadership and the vendor have a clear understanding of what the expectations are and how to manage together.
• Ensure that the governance structure clearly lays out the procedures for escalation and conflict resolution.
• Assist the retained organization in developing skills which would be required to perform their new role.
We believe that implementing the above measures in association with the ones you mentioned in your blog, clients will have a better chance at succeeding in their outsourcing initiative. I look forward to further discussions on this topic.