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Outsourcing Fundamentals

Independent guide to Outsourcing: BPO strategy, Service Provider selection, contracting and implementation projects. Assessing and improving your current service.

Implementation > Governance

Setting up Governance for the BPO Services

This page describes governance needed for BPO services, primarily the client part. The objective is to provide a description of what is needed rather than how it should be carried out. Much of governance will need to be aligned and integrated with your company's business processes and agreed with your provider. And of course the overall design and choices with provider obligations need to be made in Contracting and some even considered as part of your Strategy.

The importance of Governance

Just as internal organisations need managing to give ongoing performance, so do outsourced services. The difference being that the management is split between provider and client, and has the additional challenge of keeping the organisations aligned across a contractual boundary.

For the client, Service Management needs to focus on ensuring the services are an optimum solution to meet current and future demand; that the service customers are aware of the services and how to use them; Issues are identified and dealt with; and that contractual and commercial obligations are met.

Governance can be described in terms of its activities, governance organisation and roles, the committees and meetings required, and governance information and reporting.

Governance Activities

I have split the governance activities into 5 areas: Service Performance, Improvement and Change, Finance and Contractual, Operations and Users, and finally Strategy. For each of these areas, I have listed the main activities below.

Service Performance

The purpose of Service Performance is to ensure that the service is performing, that deviations from good performance are resolved, with escalation and penalties applied as appropriate.

Service measurements should be made as agreed in Service Level Agreements. The governance activity is to ensure that the right measurements are made and reported on, with failures identified.

Issue Management covers the activities to identify and deal with problems with the services. These include:

  • Providing a service to accept and log fault reports.
  • Taking on issues reported to other service desks (e.g. IT helpdesk), and handing off issues that should have been reported elsewhere.
  • Tracking all problems from reporting to resolution, ensuring all get a timely response.
  • Communicating updates and resolution to users.
  • Escalating more serious issues.
  • Providing regular reports of problem volumes and response performance.

Escalation processes ensure that issues which cannot be dealt with by the first level responses receive increasing levels of attention appropriate to severity and time. There should be a discipline of tracking and reporting to tiers of authority to ensure decision to bring resources to bear and deal with implications can be made.

Managing emergencies covers the situations where problems are impacting the business and the service cannot be restored normally. The emergency management process should include bringing business continuity and disaster recovery plans into action.

Issue Analysis includes the activities to reduce the incidence of issues. All issues will be reviewed to identify repeated causes of problems. Significant problems, either due to repetition or impact will normally be subject to root cause analysis. The deliverable should be a report on the cause of the issue and a plan for avoiding the problems in future. Good providers will have a strong process for root cause analysis, but they may need encouragement to be open with the results. The agreed process should deal with issues that are a mix of responsibilities and those that end up having been caused by the client. It should also define client and provider involvement and how cost is covered. Proposals from Root Cause Analysis should become a change request.

Service Credits: Where the contract includes having financial penalties for poor performance, then this process monitors for defaults and applies the terms of the contract feeding into the invoicing process.

Improvement & Change

This area of governance deals with the desire for improvement and the need to change the services in line with business requirements and external factors. The objective of having a defined process is for only well defined and planned changes being carried out, with the implications understood and agreed in advance.

Change Request & Authorisation describes the way in which change requests can be made, the analysis and planning required, and how and by whom the request is authorised or rejected.

Continuous Improvement may be an obligation on the provider to raise efficiency or quality during the term of the contract with the benefit already accounted for in pricing. In this case, the provider will expect reasonable requests, those which do not raise other costs or cause disruption, to be accepted.

Fundamental Change covers the situation where there would be a significant impact on the services or service terms. The process should recognise the need for higher level authorisation and potentially involvement of legal and procurement for negotiations.

Finance and Contractual

The most significant difference between having internal shared services and outsourcing is the need to manage the contract and commercial arrangements. This process ensures compliance with and integrity of the contract.

compliance covers the audit and testing of service aspects within the contractual agreements. There will be a need to align with corporate audit frameworks. In addition there may be some aspects of the service that may not be included in the corporate framework which also need to be tested, such as information and physical security, systems resilience and disaster recovery. Compliance should also include a process to review changes in legislation and company policy that have implications on the services. Where appropriate a change request will need to be submitted.

Financial processes are required to deal with invoice verification and payment, allocation of service costs to areas of the business.

Contract Management maintains the integrity of the contract. Where the service needs to be adapted to business requirements or other external changes, the contract needs to be amended to reflect the changes to avoid contract no longer reflecting the reality of service practice. Approved Change orders are by definition part of the contract and must be managed as part of it. The contract management process should ensure that all proposed changes to the contract are reviewed, authorised and documented.

Client Responsibilities: Most BPO contracts include obligations on the client, typically where delivery of the services rely on something from the client, such as information, decision, system availability or even completion of a related project. This process monitors the client obligations and ensures that they do not interfere with service delivery or give the provider any reason to avoid its own commitments.

Operations & Users

This area of governance ensures that users are taking advantage of the service and the service flexes to capacity requirements

User communication & Training is required throughout the term of the contract and not just at the introduction of the new service. This process should ensure that new users can learn how to take advantage of the services. It should also manage communication of changes to the service that will be noticed by the user community.

Demand & Consumption Depending on the nature of the services, demand management may need to collate forecasts of usage in order that the provider can schedule resources. You may also wish to constrain or smooth demand to avoid triggering limits.

Service Take up: The benefits from implementing services are, of course, only realised by its full use. It is often necessary to plan activities to ensure the take up.

Strategy

I have grouped under strategy those activities needed to ensure the longer term requirements and objectives of the business are met.

Service Knowledge: The objective of this activity is, that in case of termination of the services, to have the capability to either bring services back in-house or to transfer them to an alternative provider. Clients should maintain an appropriate mix of knowledge, expertise and access to documentation covering the services. Note that this may not include proprietary work management or service centre management systems, but should include all that is required to achieve the objective. As part of this activity, validate and update an exit plan making sure that your provider is obligated to provide necessary support at reasonable cost.

Risk Management: It is good management practice to carry out a risk review periodically. The "Implementation > Managing Risks" page provides a process and structure that can be adapted to apply to the operational phase.

Market Awareness: There is value in knowing whether other providers and clients are making use of innovations, how pricing is moving and when there are new entrants into the market. Many companies are very willing to share and compare experiences, and usually both parties take away useful learning. Where insight from the market indicates you are not receiving a competitive service, this may be time to initiate a benchmarking exercise.

Sourcing Strategy Businesses change and develop. It is likely that yours has a periodic review of strategy and long term planning. Sourcing strategy should be part or an input into that process. This activity area covers reviewing whether the sourcing strategy resulting in the services needs to change. The sorts of questions are covered in the Strategy section of this site.

Organisation & Roles

I have described operational roles on the BPO Roles page linked here: BPO Roles

Depending on your organisation and the size and complexity of the services, some these roles may be full time, some combined and some provided by the appropriate corporate function. A sensible organisational grouping of the roles is:

  • Operations Management: covering performance, operations and users.
  • Commercial Management: covering financial and contractual matters.
  • Project Management: dealing with improvement and change.

You will need to consider the geography and structure of your business as well as the services in designing the governance organisation.

Committees & Meetings

Having a framework of scheduled meetings is essential to maintain the information flow, the decisions and the relationships needed for good governance and healthy services. They are typically organised by a combination of level of authority, geography and areas of activity and decisions covered.

Typical Meetings

  • Annual review / Strategy, Executive Management Committee
  • Monthly review - Service Delivery Oversight
  • Monthly planning - Services Planning
  • Weekly operational
  • Project Specific meetings

Reporting

One of the keys to effective governance is having reliable information in a timely fashion. The service design should include having the provider produce and make available reports required for managing the service. These will cover:

  • Volumes and rates of usage
  • Performance measurements
  • charges and costs
  • Issues reported, resolution and analysis
  • Changes and plans

Some providers make information available using a tool and there are governance tools available for clients to make collation and analysis of information more efficient.

Do pay particular attention to the timeliness of information. Make sure that you have performance and issue related reports in time to act on them.

Transition Governance

One of the challenges of putting in place governance for BPO services is in the relationship between governance of the implementation project and of the ongoing operations. There is benefit in keeping the two sperate, especially to ensure that the initial operations receive full attention while the project remains underway. However, some of the capability required is common to both and there it is beneficial to resource some of the operational roles with people having had experience of the project.