Are you doing a good job watching the store? If you haven’t considered your governance efforts lately, better beef up before it comes back to haunt you.
Being a parent, I’ve come to appreciate the importance of governance. It’s important to address problems early on before they blow up into unmanageable crises. As with children, managing complex outsourcing deals requires undivided attention to ensure you quickly head off problems before they spin out of control. It’s just common sense, right?
Well, my fellow parents will surely agree with me that governance of children—never mind a global, multimillion-dollar contract—is comparable to wrestling an alligator. And despite years of practice, the skills just don’t come easily. Neither do the skills needed to oversee governance for an HRO contract, whether it’s a single-process solution or end-to-end, comprehensive engagement. Buyer organizations must examine the goals of their outsourcing initiative and the skill set of the retained organization and determine what they will need to run an effective governance program. Again, it’s easier said than done.
The fact of the matter is that even though governance—or lack of a robust governance program—is critical to the outsourcing outcome, buyers too often fail to invest appropriately in it. According to Shawn McCray, a partner with sourcing advisory firm TPI, about 80 percent of the deals that fail stem from issues with governance. So for all the attention lavished on pricing, metrics, SLAs, and other top priorities during contract negotiations, they have less impact on the success of the relationship than governance activities.
If you examine HRO’s pioneering deals, governance was one of the most overlooked aspects of these engagements. Buyers simply didn’t invest enough resources in implementing an effective governance program, and providers failed to help elevate governance to its proper stature. This wasn’t a problem as long as the services rolled along smoothly.
But when things went awry, gaps in governance efforts became glaringly apparent. Was payroll delivery meeting contracted service level agreements? Was the provider’s invoicing accurate? Was there substantial escalation in the number of service calls? Without a robust governance program in place, buyers often couldn’t recognize deficiencies until senior level management became involved.
Skip ahead to today. While governance policies remain on the back burners in some organizations, others have improved their efforts. We can attribute this to the maturation of the HRO industry, the impact of Sarbanes-Oxley, and a greater involvement by senior management, as well as other parts of the organization. However, there is plenty of work still to be done. As one HR VP at a large global organization told me, a recent audit of the company’s HRO initiative by a third party showed the firm clearly benefited from having outsourced for years, but the audit also revealed a woefully lacking governance program. Yet this was a fairly progressive enterprise with proven processes.
Fortunately for this company, it had partnered well with its provider, and service delivery was meeting expectations. However, many buyers in this business can easily recount outcomes that went the other way. In these cases, proper governance will be key to resolving the issues quickly.
Of course, governance is just one crucial component that buyers and providers must keep under a vigilant eye. It’s also the part that keeps the peace and helps buyers ensure they are getting all the outsourcing benefits promised to them. It shouldn’t be an afterthought.
As HR organizations reflect on their deals or as they consider outsourcing for the first time, it’s never too late to scrutinize how governance is performed. After all, what you prepare for today may save you countless hours and money—and possibly your existing
relationship—later on.
