Managing Outsourcing as a Business Relationship

It’s easy for advisors to talk about process, the bread and butter of consulting. When we developed our process model for the business management of outsourcing six years ago, we knew from our collective experience that it was a good approach, but it was untested. After implementing the process with clients – now more than 40 globally – I’ve come to believe that in an entirely different way than I initially expected.

Generally, when clients outsource, they tend to focus on services – especially IT organizations – and believe that the challenge lies in managing service delivery and service levels. The many frameworks for managing different types of services range from COBIT, to CMMi, to ITIL v2 and now ITIL v3. From a service management perspective TPI Top 5 on ITIL, these are very valuable for providing structure to both client services, and service provider standards they are to achieve. However, none of these service delivery management models provide standards or processes for managing service providers (with the small exception of ITIL v3, which mentions the need to manage suppliers). The Carnegie Mellon eSCM for Clients, which TPI co-authored, was the first time the industry had an academic view of the business standards needed to manage outsourcing as a business relationship.

There is no doubt that managing services and service delivery are important, but an entirely new layer of management is required when a third party is providing the services. This often takes client management teams by surprise as they are typically not prepared to execute. There are four major categories of business management processes to note:

1) Contract Management – Ensuring compliance with the contract deliverables and obligations
2) Financial Management – Validate and manage costs, ensure value achieved
3) Performance Management – Ensuring the right work is done – and done right
4) Relationship Management – Governance, satisfaction, and direction setting

What we’ve learned over the years is that these management practices apply regardless of the service outsourced. This model has been implemented in HR benefits, call centers, IT infrastructure, and Application Development & Maintenance engagements and these best practices have applied across the board.

So what was the most surprising thing to me to discover? It is that the introduction of this business management structure was a key element to reducing conflict in the relationship between the client and service providers both at the start of relationships and during relationship remediation. The process model delivers all the other expected business benefits – accountability, cost control, risk management – while adding value around the potential for innovation and creative thinking between the two teams as the relationship between the parties improves.

Why is the business management important? And how is it different from managing services? I’ll answer these questions in an upcoming blog – there’s a lot to discuss!

About the author

Cynthia brings 25 years of experience helping clients develop their sourcing governance and service management design. Having worked with more than 50 organizations to improve business management and service management processes in both single-provider and multi-provider environments, Cynthia has become a recognized expert in sourcing governance, vendor and contract management. She currently serves as the architect for ISG’s service methodology and global integrator of its products and services. Cynthia works to leverage ISG’s accumulated intellectual property resources to help enterprises create effective transformation and governance capability, and maintains a continuing role in the Strategy and Organizational Change Enablement practice.