When to Think Governance

In this month’s column, we delve deeper into what it takes to adequately address governance.

by Marianne Bays

HRO governance is defined as the means by which buyers and service providers mutually assure that expected value is actually attained from outsourcing. Our question for this month is: At what point in the HR outsourcing life cycle should your attention turn to governance?

First, an understanding is needed of key components of outsourcing governance. TBI’s best practice model of outsourcing governance is shown in Figure 1. This is used early in the outsourcing life cycle (e.g., during assessment) to help our clients better understand challenges faced in designing and implementing outsourcing governance processes and organizational structures.

Organizational structures needed for governance include an outsourcing program office and staff positions to manage day-to-day operations, business support processes, and the contract. Service delivery “lead” jobs also are needed in the customer organization to assure that business requirements are understood and met. Additionally, joint committees consisting of service providers and customers are part of the structure.

Governance processes that customers use to request, prioritize, and gain approval for needed services are in the model’s demand management category. Other governance processes are part of program management and operational control—those needed to monitor performance, modify the contract, and escalate issue resolution, for example. Still other processes need definition to support risk management and pro-active management and strategic planning activities.

While governance focus is on process and structure needed to manage after the deal is signed, you cannot afford to wait until then to organize and develop all needed governance mechanisms. As outsourcing advisors, we often find that customers get different messages on this issue from us than they get from the service providers with whom they negotiate outsourcing deals. Why?

Typically, the service provider is motivated to defer complicated analyses to keep its pre-contract investment low. The danger for the customer, though, is that important aspects of scope of services and performance requirements may be left unclear. This can lead to performance problems or, because requirements weren’t documented and included in base pricing, to service providers unwilling to provide needed service without additional funding.

Other times, service providers agree with us about what governance elements need completion when, but we find customers ill-prepared to tackle issues at the optimal time, having not understood the need or failed to plan or staff up before contracting. Structuring the program office often falls in this category. Service providers are typically prepared to describe their program management organization and jobs and introduce their proposed key account staff before contracting. Customers are often slower to recognize the value of accomplishing this early. These customers miss the opportunity for early engagement of their program management staff in planning and implementation of the governance model. Continuity between contracting intent and actual outsourcing implementation can be compromised as a result.

Sometimes, unavailable resources make it impossible to get needed information to build governance mechanisms before going to contract. When this occurs, missing governance elements should be documented, along with contractually agreed-upon process and timeframe for the additional due diligence needed to complete them. For example, a baseline evaluation of customer satisfaction with the HR services to be outsourced may be desirable prior to contracting so that minimum service level standards can be preestablished. However, if a survey needs to be developed to do this and time is short, it will be more practical to wait until after transition to tackle this.

Best practice involves conducting comprehensive governance planning prior to contracting—tackling the most important aspects of its design and implementation immediately and developing specific plans for later development of governance mechanisms with less immediate importance. The test of whether a governance mechanism can be delayed until after contracting is the extent to which its lack of definition has service cost and performance implications. For example, the service level agreement, including measures, standards, reporting requirements, and “penalty” process is a governance priority. Even where some details are still unknown, the SLA is a critical element of HRO governance and, along with the statement of work, your best bet for assuring in advance that services purchased will meet organizational requirements.

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