Seven Challenges of Outsourcing Governance


In an increasingly global marketplace, the decision to outsource, and more than often than not, to offshore based service delivery centres, has become a strategic choice for many organisations. These offshore service delivery centres could be external vendors or company owned shared services centres.

Larger organisations, with bigger workloads typically, have a multi-sourcing strategy. While this has merit, multi-sourcing does add significantly to the complexity. These complexities may arise simply from challenges of managing multiple vendor relationships, but often from the need for risk mitigation required as vendor responsibilities and scope boundaries overlap, and mind you scopes boundaries always overlap, however minimally.

But here, the aim is to discuss the key challenges of Governance, as it relates to Outsourcing. The merits and the strategic need for outsourcing make a compelling case, but the results delivered can fall short. In several analyst surveys CIOs have confessed their disappointment with the efficiency results obtained from outsourcing programmes.

The key issue is Governance.

The common challenges faced in the Governance of an Outsourcing programme could be categorized into the following broad areas:

Control – Multiple teams across multiple organisations may have different service level commitments for delivering into an integrated business service.

Coordination – There could be multiple go-to-contacts for individual components of a service causing confusion to business.

Process – Each participating organisation could be working with different delivery processes and process maturity levels, resulting in the absence of a common understanding of delivery expectations

Trust – Participating organisations may not be transparent across work streams because they do not trust working with their competition.

Legal and Regulatory – Ensuring compliance of outsourced offshore vendors to additional regulatory requirements, for instance, data protection laws, immigration laws, employment regulation, tax regulation and the like.

Operational – Ensuring operational compliance to requirements related to offshore service delivery such as, availability of personnel, reporting, reviews and the like.

The seventh challenge requires a picture to be painted. Most outsourced operations are technical or technology assisted, hence, the responsibility for the seamless functioning of the operation falls squarely on the (user) organisation’s own IT team, either directly or indirectly, for managing the efficient and effective delivery of the service. The CIO therefore typically assigns an IT team or engages the services of a specialist independent entity, to oversee the multi-sourcing initiative, managing the relationships for the overall outsourced operation.

In addition, of course, each IT project managers responsible for an individual project, works directly with the outsourced vendor and his team. This is a very typical scenario. However, the risk of an information gap is very real, between the project teams and team overseeing the overall outsourced operation. In extreme situations this gap in communication can get perceived as a conflict within the user organisation, especially in a complex multi-vendor situation, when multiple on-going projects are being delivered.

The key of course lies in treating outsourcing as an ‘IT programme’, and maintain a formal  ‘outsourcing programme office (OPO)’, aligned closely to the organisation’s project management office (PMO), creating a matrix structure that supports projects as well as the outsourcing programme.

Hence the seventh challenge of outsourcing governance is Management Structure.

Contributor: Sudha Iyer

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