Free: Bilateral Governance for a Successful Partnership

A MATTER OF TRUST

GOING BEYOND THE CONTRACT WI TH B I LATERAL GOVERNANCE FOR A SUCCESSFUL PARTNERSHI P

A MATTER OF TRUST

Setting up modern outsourcing contracts involves a long list of mandatory processes, from creating SLAs to charting operational agreements like KPIs, timeframes, rewards and penalties, regular reviews, and exit strategies. There are all these caveats and clauses that imply a high possibility of failure in the partnership—and this is just at the beginning. These contracts become self fulfilling prophecies as a lot of heavily negotiated agreements fail to deliver the desired results. It’s the usual play that’s been running since the advent of outsourcing: save money, squeeze the vendor, and put a contract in place. If the provider underperforms, it’s on them—bring on the penalties and send out the RFP! Contracts are pretty much focused on purely transactional activities and don’t touch on how the people involved are meant to work together. Despite the clauses and caveats covering every possible scenario, when complications arise, neither side knows how to communicate or handle difficult situations.

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A MAT T E R O F T RU S T

There are no mechanisms to work through trust and real communication. Client and vendor typically spend more time reviewing indicators and arguing language rather than constructively finding the right solution to solve the problem or crisis. This is not to say that reference libraries, SLAs and KPIs are not necessary. There is also the need to promote a collaborative environment where responsibilities are shared and discussed, and where manageable continuous improvement solutions are defined and tracked. What is the best way for the buyer-supplier relationship to evolve, particularly with the onset of more collaborative relationships such as agile or DevOps? These may be buzzwords but they convey an important notion: working well together at all levels and throughout the lifecycle of a project or contract is key to success. Communicating and collaborating in every which way allow for better results. And there must be a solid foundation of trust. According to the International Association for Contract & Commercial Management (IACCM) 1 , organizations that invest to enable better relationships experience contract value deterioration of less than 4% while the worst performing suffer 6%+. London School of Economics professor Leslie P. Willcocks and outsourcing expert and author Sara Cullen analyzed over 1,200 organizations and found that outsourcing arrangements with well-managed relationships are more likely to be successful: “Relationship management can create a 20%-40% difference on service, quality, cost, and other performance indicators. Globally, organizations investing most in developing successful relationships consistently perform better than competitors or agencies in the same sector. 2 ”

1 “Maximizing ROI from Effective Contract Management,” International Association for Contract & Commercial Management. March 2015. 2 Cullen, S. and Willcocks, L. “The Outsourcing Enterprise: The Power of Relationships.”Logica and London School of Economics Information Systems and Innovation Group, 2012.

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A MAT T E R O F T RU S T

This strategy brief proposes to move the IT world away from stringent contract conditions and promote the fostering of a collaborative environment, one in which the buyer-provider relationship can thrive and be effective throughout the lifecycle of the deal. As Willcocks and Cullen found in their 15-year study of IT and business process outsourcing, the nurturing of a partnership is just as crucial to success as is establishing targets.

An ideal and effective relationship generated by trust will:

/ Enable you to work through risk and uncertainty

/ Help you gain greater insight into hidden costs and the development of innovative solutions

/ Lead to more open and collaborative communication

/ Enable you to resolve conflicts constructively

It’s time to work outside the realm of contracts and approach your outsourcing partnerships differently to unlock greater value for each party and your organization as a whole. Set the parameters on how to work together and establish the roles that would be needed to govern the contractual relationship. Use a different set of values to drive the IT function and positively support the business.

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SETT ING THE RELAT IONSHIP AGENDA

Long before the digital age, a deal was sealed with a handshake. It was known as a gentlemen’s agreement—informal and therefore not legally binding, it relied on the integrity of the parties involved to achieve success. In today’s world, what is not written in the contract is not due. There is a tendency for opportunism. Beyond the day-to-day, there is the economy and the marketplace—both unpredictable and volatile. Both parties are accountable to their respective stakeholders and accountable for their respective businesses. There are change and trust issues at play.

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S E T T I NG T H E R E L AT I ON S HP AG E NDA

Author Sara Cullen identified several types of management be- havior on both sides that often get in the way of an effective and strategic outsourcing relationship 3 :

NON-EFFECTIVE MANAGEMENT BEHAVIOR

CLIENT SIDE

/ Managers who are far too passive or over-dependent on the supplier to make all the decisions. / Managers who will only manage what is familiar, or get too involved in technical detail rather than accept their broader management remit. / Managers who simply see themselves as administrators, interpreting their role as a passive one of processing, filing and disseminating. / Those who see the supplier as basically untrustworthy and immediately blame them for anything that goes wrong in a deal. This only entrenches opposition and over time becomes a self fulfilling prophecy.

SUPPLIER SIDE

/ Managers who focus entirely on profit, no matter what was agreed. / Those who are more concerned with selling new work than delivering what has already been stipulated in the contract. / At the other extreme are managers that are prepared to promise whatever the client wants and end up at odds with their own management as a result. / Managers who resist change and are prone to routine. / Managers who wait to be caught out and have recourse to apology as their main weapon, only to find that in outsourcing this is not a strategy that can be sustained for long.

3 Sara Cullen, “Towards Reframing Outsourcing: A Study of Choices in Process, Structures and Success”. (PhD diss., Melbourne University, 2005).

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S E T T I NG T H E R E L AT I ON S HP AG E NDA

So how do we influence positive behavior?

Nurture confidence in the other’s goodwill. You can do this by creating a relationship charter—in other words, a charter of trust outside of the outsourcing contract at the start of the deal’s lifecycle. It should be a statement of a shared set of goals between vendor and client to set a benchmark for behavior and values and promote a continual alignment of interests. Developing a charter such as this is equally as important as the contents of your contract—know that the success of your outsourcing strategy depends on the people involved and how well they work together throughout the duration of the agreement.

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The contract is a great support tool for the business, but a strong relationship governance astructure could be the difference in whether the partnership is successful in producing the outcome you want or not. It will be a bilateral governance involving the lead roles from both the client-side and vendor-side. FORMING YOUR BI LATERAL GOVERNANCE CHARTER

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ASSEMBLING YOUR TEAM

You’re assembling a winning team to jointly develop and implement the policies you’ll need to achieve the shared goals, so you’ll want the best-in-class players.

There are six underlying people attributes that contribute to positive roles on both sides of the deal 4 .

People attributes

How they contribute to the governance channel

Monitoring and protecting

Ensure the organization is secure, that risks are addressed and compliance comprehensive

1

Facilitation and problem solving

2

Break down barriers to make things happen

Plan and control processes and maintain records and audit trails

3

Organizing

Relationship development

4

Build trust, respect, and good personal relationships

Create innovation, find better ways of doing things, and unleash the long-term potential in the relationship

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Entrepreneurship

Skilled and well-connected networkers, born explorers who delve into the details of other agreements and relationships and act as natural benchmarkers on issues such as contracts, practices, and costs and risks

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Scanners

Figure 1: Positive Role Models

Identify all relevant stakeholders involved in the process, including top management, external advisors, procurement and sales managers, etc. Establish clear roles to enable proper focus and position each member specifically as you would players on the football field.

4 Cullen, S. and Willcocks, L. “The Outsourcing Enterprise: The Power of Relationships.”Logica and London School of Economics Information Systems and Innovation Group, 2012.

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FORM I NG YOUR B I L AT E R A L GOV E RNAN C E C HA RT E R

As this whole exercise is about bringing client and vendor together to play and win as one team, a coach-like figure is required. Jointly appointed by the members of the charter, the coach will be responsible for unifying and integrating the team and will lead the discourse in the creation of the charter of trust, which will document:

The shared vision for your partnership

The best governance structure that can enable both sides to achieve the shared vision and strategic objectives

The best mechanisms to deal with change and unforeseen events

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FORM I NG YOUR B I L AT E R A L GOV E RNAN C E C HA RT E R

The name of the game is to focus on creating a communication process that inspires improvement rather than blame. On top of that, the vendor must be given the level of autonomy required to perform contracted services. Below are a few plays you can begin with. Put in place peer-to-peer communication protocols Communication lines should be shortened for more efficient and effective collaboration. Ensure that the right people on either side connect and communicate directly without an account or contract manager.

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Develop and maintain momentum Set a regular cadence for meetings at operational, tactical and strategic level to maintain continuous alignment.

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Build trust and respect

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Ideally, nothing should remain hidden under a strong governance of trust. However, both sides often need to safeguard sensitive information based on their operating models. Both client and vendor, for example, wouldn’t want competitors knowing their proprietary methodologies and trade secrets. Vendors may also have operating models they cannot deviate entirely from; clients should be aware of the non-negotiables and decide if they can live with it or consider how they can adjust their approach accordingly.

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FORM I NG YOUR B I L AT E R A L GOV E RNAN C E C HA RT E R

Understand the pain points on both sides It is vital to understand pain points from both sides. In the world of IT, we have the client—usually a CIO, CTO or IT leader—who has to handle the demands of internal clients such as the business units and users. The other entity, the supplier (generally a delivery manager), also has much on their plate handling internal management and ensuring fi- nancial performance on the contract.

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Deal with conflicts efficiently and avoid the blame game

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Aim to work out conflicts before they escalate. Set up guidelines for the best way both sides can resolve conflicts.

Work on value and not task delegation

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Develop the framework and mechanisms to enable continuous improvement.

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The following table details the outline of a relationship governance charter you can use as a reference to draft your own playbook.

BILATERAL GOVERNANCE CHARTER OUTLINE

1. What is the charter: The mission statement 2. Objectives and outcomes of the charter

Introduction

1. List client and vendor’s respective business objectives For example: Client – reduce cost over time and have competitive pricing Vendor – achieve reasonable profits 2. Detail the key success factors and specifics of the sourcing initiative and how to achieve business objectives 1. List members and describe their roles and responsibilities as well as respective contributions throughout the lifecycle of the relationship 2. Describe the role of the coach 3. Detail the action plan 4. Define the governance structure and work groups 5. Escalation and conflict resolution

Vision

Rights and Responsibilities of Charter Members

Draft out a timeline visual with Transition, Transform and Run Steady State as milestones to align all partners

Timeline

Use a Balanced Score Card format to define: / Critical success factors / Drivers to measure success of the charter / Management of change items / Visual management

Dashboard

/ Introduction of new players or new roles, scope change, roadmap / Pulse measures, collective evaluation

Continuous Improvement

All parties to sign the charter to signify adoption

Validation

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CON C L U S I ON

A contract alone is not going to bring you any closer to your transformation goals. For the partnership to be successful, you need to provide the input, direction, and support that the other needs to carry out the program. Inspire rather than manage penalties. At the same time, listen to feedback on the realities of what can or can’t be done. In the end, it comes down to trust; both sides must trust each other as competent and work as one team to achieve the transformation goals.

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