Allgovernancegroupshavesomeoperatingmodelcomponents,butmanydon’thavethemall.Andeveniftheydo,theyareprobablynotwellalignedtoreinforcetheothercomponents.Havingallsixcomponentsinplace,andinsupportofacommonobjective,iscriticaltothesuccessofyourinitiative.

THEGOVERNANCEOPERATINGMODELANDITSSIXCOMPONENTS

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1THEGOVERNANCEOPERATINGMODELANDITSSIXCOMPONENTS

THECASEFORGOVERNANCEAsmanyyearsaswe’vecollectivelybeenoutsourcing,it’samazingtohearhowmanyenterprisesorbusinessservicefunctionsstruggletojustifytheinvestmentinservicedeliverygovernance.Whatmakesitevenmoresurprisingisthenumberofreportedoutsourcingfailuresandtheassociateddisruptionthatearlyterminationcreates.Theuntoldstoryisthatmanydealsthatdon’tterminateearlyfailtoachieveanywherenearthelevelofvaluepredictedintheirbusinesscases.

Enterpriseswithoutamaturegovernancecapabilityseverelylimittheirpotentialforoptimizingtheirservicedeliveryenvironment.Theyarenotabletoenforceandmanagethebasicelementsoftheircommercialagreementsmuchlesscollaboratewiththeirkeyproviderstodevelopinnovativesolutions.Sincemorethanhalfofthebusinessservicesinmostlargeenterprisesaredeliveredbyoutsourcingproviders,firmsthatlackgoodgovernanceareatacompetitivedisadvantagewhenitcomestodeliveringtheirbusinessservices.

Solet’smakesuretheWhyquestionisaddressedbeforemovingontodetailthecomponentsofgovernance,becauseifwecannotagreewhyweneedgovernance,thereisnoneedtodiscusswhatmakesitup.

Whiletherearemany,herearefourreasonswhygovernanceshouldbetakenseriously.Theyare:

1. Ifacontracttermisworthincludingintheagreement,thenit’sworthgoverning

2. Agreementscan’tdefineeverything3. Changeisinevitable4. Whileessential,contractsproducenovalueinandofthemselves

OPERATINGMODEL

Whatsetstheinner

workingsofmarket

leadersapartfromtheir

also-rancompetitorsis

thesophisticationand

coherenceoftheir

operatingmodels.

OperatingModelsare

madeupofoperating

processes,business

structure,management

systems,andculture,all

ofwhichare

synchronizedtocreatea

certainsuperiorvalue.

-MichaelTreacy,The

DisciplineofMarket

Leaders

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2ContractTermsAreWorthGoverningThisargumentforgovernanceisthemostbasicandfundamental,yetistoooftenoverlooked.Puttingcomplexoutsourcingagreementsinplacetakestimeandmayinvolveanumberofexpensiveexperts.Thebestthinkingoftheseresourcesbecomeagreementtermsandconditionsthatareintendedtoprotecttherights,andmitigaterisks,oftheirrespectiveparties.

Iffornootherreason,governanceneedstobefundedtoensurecompliancewiththeverytermsandconditionsheavilynegotiatedtoprotectyourinterests.Ifthisisn’tdone,alloftheassociatedtimeandfeesdedicatedtodevelopthesetermsiswasted.

Forexample,manyenterprisebuyersstilldonotimplement,tosaynothingofenforce,theirServiceLevelAgreement.Theindividualservicelevelsnevergettranslatedfromthedescriptionsintheexhibitintolayman’stermsthatdefinethespecificdatasources,whattransactionsareexemptedorexcluded,andlayoutthearithmeticcalculation.Operationalizingservicelevelsrequiressomethoughtandeffort.Itisseldom,ifever,donepriortocontractexecution.GovernancemustimplementtheSLAduringtransition.

SLAsareonlyoneexample.Governanceshouldbeabletoensurecompliancewitheachandeverybusinessandlegalterm–everyexhibitandschedule.

AgreementsCan’tDefineEverythingInareasonablycomplexagreement,thecontractingprocesscandrawoutformanymonths.TheSourcinggroup,theaffectedbusinessservicefunction,internalandexternallegalcounsel,andpotentially,sourcingadvisoryfirms,pooltheirbestthinkingregardingtheagreementterms.Scopeisdefined,assumptionsaremade,andbusinesscasesaredevelopedtomodelthedesiredenvironment.

Butasanyonewhohaslivedthroughanoutsourcingtransitionknows,thingsareforgotten,errorsaremade,andtheagreementmaynotadequatelyreflectthedeal’sintent.We’renoteventalkingaboutchangesyet.Thesearesolelyerrorsandomissions,orrepresentsituationsthatwerejustnotanticipated.

TheIssueManagementprocessisoneofthegovernanceprocessesthatneedstobereadyondayone.Thisisbecauseasmuchtimeasthetwopartiesspentaligningtheirunderstandingoftheservicesandhowtheyaretobedelivered,issuesarise,clarificationsareneeded,andresolutionsarerequired.

Justlikeatestpilot,orsoftwaretester,seektoidentifythelimitsofanaircraftorsystem,transitionisatimewhenthegrayareas,orboundaries,ofanagreementarediscovered.Sonomatterhowmuchtime,effort,andbrainpowergoesintoit,agreementswon’tdefineeverything.Governanceisrequiredtoresolvepost-contractissuesastheyareidentified,andresolvetheminamannerconsistentwiththedeal’sintent.

ChangeisInevitableThephrasehasbecometrite,butistruenonetheless.Changeisinevitable.Outsourcingagreementshavemultiyeartermsthatincludebestguessestimatesforwhatmayhappen.Eithertheclient,orsourcingadvisoryfirm,preparevariousscenariosbeforeselectingthescenariowhichbestmatchestheirexpectationsgoingforward.Forecastsareset,andbecomeakeyelementofthebasecase.

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3Despiteassigningprobabilitiestoscenarios,noonecananticipatechangestobusinessrequirements,regulatoryguidelines,technologydevelopments,marketconsolidations,theeconomyoranynumberofotherfactors.Theagreementitselfcannotaddressthesechanges.Butwhatitcandoisoutlineagovernanceframeworkthataccommodatesandmanagestheseinevitablechanges.

Oneglobalagreement,withwhichIamfamiliar,recordedmorethan500contractchangerequestsinitsfirst18months.That’sanaverageofmorethanonerequestperday.Isthatabitexcessive?Yes,butnoonecanknowhowmany,orhowfew,ofthesechangeswilloccur.

Additionally,agreementswithtransformationalintentassumeasignificantamountofchange.Theyarebuiltonthepremisethatthecurrentstateisinadequateandmustbeimprovedthroughcollaboration.

Soevenifanagreementwasdevelopedthatperfectlycapturedthecurrentstate,itwouldbeinadequateifitdidnotputinplaceamechanismtodealwithchange.Governanceisthatmechanism.

Agreementsdon’tcreatevalueAgreementsareabsolutelyessentialtothesuccessofanycommercialrelationship.Theyareevenmorecriticalformorecomplexandtransformationalagreements.Andbecausetheyarecomplex,capturingthedetailsinadocumentisrequiredtoensureeveryonehasaconsistentunderstandingofthearrangement;especiallysincethevastmajorityofthosewhocontractandnegotiatetheagreementwillnotbetheoneswhogovernordeliverservices.

Theproblemisthatthecontractingprocessisperceivedmoreasanendthanabeginning.It’salltoocommonforexecutivestogatherforthe“photoop”whentheagreementissignedthenthinklittleaboutituntilaproblemarises.Thereisastrangeandunfoundedexpectationthatthingswilljustworkwithminimalmanagement.Therealityisthatoutsourcingishardwork.Itrequiresthededicatedeffortofanumberofskilledresourcesfrombothpartiestooperationalizetheagreementandproducethevalueanticipatedinthebusinesscase.

Additionally,it’sverycommonforgovernancegroupstofocusoncomplianceratherthanthevalueproducingaspectsoftherelationship.Complianceisrelativelyeasy.Servicelevels,issueslists,regulatorycompliancerequirements,andreportsarealltangible.Theprovideriseitherdoingsomethingortheyarenot,andreportscanbegeneratedtodemonstratethatstatus.

Creatingacollaborativeenvironmentinwhichnewsolutionsaredevelopedandinnovationoccursismuchharderbycomparison.Fortransformationalagreementstobesuccessful,thegovernancecapabilityneedstobemoresophisticatedandrobustwithadifferentmixofprocesses,skills,andenablingtoolsthanitstransactionalcounterpart.

Insummary,thereisamplejustificationforfundingagovernancecapabilitycommensuratewiththeintentofthedealandrequiredtypeofrelationship.Thetermsofanagreementareimportantandshouldbeenforced.Butthereisnowayanagreementcandefineeverythinginacomplex,commercialrelationship.Governanceis

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4absolutelyneededtocorrect,resolve,andadjustasthingschange.Itisonlywhenthiscapabilityisputinplaceandmaturedthatmeaningfulinnovationandtheassociatedvaluecanberealized.

INDUSTRYTRENDSMuchhaschangedoverthepast5-10yearswhenitcomestoservicedelivery.Manyenterprisesareadoptingahybriddeliverymodelthatincludesmultipleserviceprovidersaswellassharedservicescenters;As-a-Servicesolutionshavealsocomeintovoguewithrapidimplementation,operatingexpensealternativestolegacysystems;andbusinessservicefunctionsareincreasinglyinterestedintransformationalchangeratherthansettlingfortransactional,laborarbitragearrangementswiththeirserviceproviders.

Inadditiontotheseinternalchangesandtrends,environmentalchangesarealsohavingasignificantimpactonhowwemanageourkeysuppliers.Thenewregulatoryguidanceissuedattheendof2013byvariousU.S.federalregulatoryagenciesforthebankingindustryarenowbeingauditedandenforced.Morethananythingwe’veseeninthepast20years,theseregulatoryrequirementsaredrivingtheadoptionofmorerobustgovernancecapabilities.

TheimpactoftheseregulatoryrequirementsisbeingfeltfarbeyondtheU.S.bankingindustrywheretheyoriginated.Theseguidelinesarebeingadoptedinwhole,orinpart,byregulatoryagenciesinCanada,Europe,andaroundtheglobeasthedefactostandard.Additionally,companiesthataresupplierstobanksandotherfinancialserviceenterprisesarebeingheldtothesamestandardsintheirsupplierrelationships.Theresultisthatthesestandardsarerapidlypermeatingmanyotherindustries.

Tobemorespecificaboutthosestrategicsuppliersthatprovideoutsourcingservices,theFederalReserveBoard(FRB)describedtheirconcern,withthefollowingstatementasjustoneexample.

“Financialinstitutionsshouldensurethatpersonnelwithoversightandmanagementresponsibilitiesforserviceprovidershavetheappropriatelevelofexpertiseandstaturetomanagetheoutsourcingarrangement.”

-FRB’sGuidanceonManagingOutsourcingRiskdtdDec5,2013

Againstthisbackdrop,theneedforagreementsthatestablishcollaborativerelationshipswithselectedsuppliershasneverbeengreater.Businessservicefunctionsthattrytoaccomplishtransformationalchangeusingtraditionalapproachestostructuretheagreementswithkeyprovidersarestartingwithahugedisadvantage.

Theidealselectionprocesspromotesalignmentbetweenthetwopartiesduringtheselectionandcontractingprocesstoensuretheagreementisinsyncwiththetransformationalintentandobjectives.Buttoprovidecontinuity,anongoinggovernancecapabilityshouldbeimplementedthatwillupdatetheagreementasrequirementschange,fostercollaborationandnewsolutiondevelopment,andkeepexpectationsandprioritiesalignedoverthetermoftheagreement.

Oneofthebigchallengesthenbecomeshowtocustomdesignagovernancecapabilitythatmeetsthespecificobjectivesofeachoutsourcingagreementwhilestillmaintainingalevelofconsistencyacrossaportfolioof

©2016GovernanceAcademy

5supplierrelationships.Thisisparticularlycriticalforcompaniesinhighlyregulatedindustriesthatmustdemonstrateaprogrammaticapproachtotheirriskandcompliancemanagementinitiatives.

GovernanceDesignApproachAlthoughchangeistheonlyconstant,thereisanapproachtogovernancedesignthatisjustasvalidtodayasitwas15yearsago.Thisapproachstillworksbecauseitfollowsthetime-testedprinciplesoforganizationaldesignandtheage-oldadage--FormFollowsFunction.Itprovidesastructuredandrepeatableprocesswhileacknowledgingandaccommodatingdifferencesindealintent.Thisdesignapproachhasbeentestedandprovenacrossbusinessfunctions,acrossindustries,andacrosstheglobeinhundredsofengagements.

Thereareaninfinitenumberofagreementtypesonacontinuumrangingfromtheacquisitionofcommodityproductsandservicestoagreementsappropriateforapartnershiporjointventurebetweentwoorganizations.Justlikethetermsandconditionsofatransactionalagreementshouldbeverydifferentthanatransformationalagreement,thegovernancecapabilityrequiredtomanagethesediversedeal,andrelationship,typesisverydifferentaswell.

Thisdesignapproachstartswiththeintentofthedeal–theFunction,thenbuildsoutacustomizedgovernancecapabilitythatsupportsit--theForm.Butbeforewedelveintohowthedesignapproachdoesthis,let’sbetterunderstandtheimplicationsongovernanceoftwoofthetrendslistedabove–thedesirefortransformationandtheneedforregulatorycompliance.

Thedesiretoaccomplishmorestrategicobjectives,andtransformationalchange,requiresadrasticallydifferentandmorerobustgovernancecapabilitythanthatrequiredofatransactionalagreement.Forone,itrequiresaphilosophicalshiftfromatraditionalbuyer-supplierrelationshiptocollaboratorswithacommonobjective.Notonlyisitmuchmoredifficulttocollaboratethantotellasupplierwhattodo,itrequiresadifferentsetofprocesses,skills,attributes,andpossiblytechnologyenablement.

Regulatorycompliancecanbeonerousandcanconsumeaninordinateamountofthegovernancegroup’stime.Whenenterprisesgetaudited,eitherexternallyorinternally,auditorslookforaconsistentframeworkacrossservicedeliveryenvironmentsaswellasevidencethatthatframeworkisbeingexecutedandenforced.It’sonethingtohaveadocumentedprocessandquiteanothertobeabletoshowanauditablereportthatprovidesacomprehensivelistoftransactionsatvariousstageswithinthatprocess.

Soascalable,butconsistentGovernanceOperatingModel,orframework,isrequiredtoadequatelygovernmultipleagreementtypesaswellasforregulatorycompliance.

©2016GovernanceAcademy

6GovernanceOperatingModelInTheDisciplineofMarketLeaders,MichaelTreacyandFredWiersemadefineanoperatingmodelas,“thespecificways…companiesstructuredtheiroperationstodeliverontheirproposition.”1Theygoontosay,

“Whatsetstheinnerworkingsofmarketleadersapartfromtheiralso-rancompetitorsisthesophisticationandcoherenceoftheiroperatingmodels.OperatingModelsaremadeupofoperatingprocesses,businessstructure,managementsystems,andculture,allofwhicharesynchronizedtocreateacertainsuperiorvalue.”2

Inthiscontext,theGovernanceOperatingModelhighlightsthekeycomponentsrequiredtoeffectivelyandefficientlygovernanytypeofagreementorrelationshipanddeliveronwhatevervaluepropositionwasusedtojustifytheinitiative.Thedegreetowhichthesecomponentsarepresent,andtheirlevelofsophistication,willvarybasedonthedeal’sintent.ButtoTreacy’spoint,thesecomponentsarealignedtoacommonobjectiveandaresynchronizedtoreinforceeachother.

GOVERNANCEOPERATINGMODELThefigurebelowdepictsthesixcriticalcomponentsofagovernanceoperatingmodel.

1 Treacy, Michael and Wiersema, Fred. The Discipline of Market Leaders. Addison-Wesley Publishing Company, Inc. 1995. p. 23 2 Ibid. p. 32

©2016GovernanceAcademy

7Charter–PrinciplesNotonlydoestheIntent,asdocumentedintheCharterandPrinciples,provideoverallguidancefortheagreementstructure,italsoprovidesthefoundationalrequirementsforthedesignofallgovernanceoperatingmodelcomponents.TheIntentrepresentsthe“Function”in“FormfollowsFunction.”

PrinciplescomplimenttheCharterbyestablishingbehavioralparametersanddescribinghowthetwopartieswillinteract.Principlesguidehowdecisionswillbemade.Forexample,aprincipleinacollaborativerelationshipmightbethatthefullcapabilitiesoftheserviceproviderwillbeconsideredandleveragedasappropriate.Thistypeofprinciplewouldbeunnecessaryandmeaninglesswhenacquiringcommodityproductsorservicesinatransactionalagreement.

RelationshipTypeSinceallbusinessrelationshipsarenotcreatedequal,wemustdeterminewhattypeofrelationshipisrequiredinordertobuildagovernancecapabilityconsistentwiththedeal’sintent.Justlikeyourexpectationsandbehaviorsatafastfoodrestaurantareverydifferentthanatanicesteakhouse,yourexpectationsofyourserviceprovider,andtheirexpectationsofyou,areverydifferentwhenthedealintentistransformationalratherthantransactional.

RELATIONSHIPSPECTRUMSummarizesthefourtypesofbusiness-to-businessrelationships.

InaTransactionalrelationship,abuyertellsthesupplierWhattodoandHowtodoitbecauseitspurposeistheacquisitionofcommodityproductsorservices.ButinaSpecializedrelationship,thebuyerhiresthesupplierbecausethesupplierhasskills,experience,orothercapabilitythatthebuyerdoesnothave.Inthiscase,thebuyertellsthesupplierWhattheyaretryingtoaccomplish,butnotHow.Instead,thetwopartiescollaboratetodevelopsolutionsthatmeetrequirementsbycombiningtheexpertiseoftheproviderwiththebuyer’sspecificneedsandcircumstances.

©2016GovernanceAcademy

8Sohavingafirmunderstandingofthedesiredrelationshiptype,aswellasthecorrespondingbehaviorsandexpectationsofbothparties,becomesanimportantinputtotherequirementsaroundwhichthegovernancecapabilityisbuilt.Aswe’lldiscusslater,itwillinfluencethedesignofgovernanceprocesses,theskillsandattributesoftheteam,andthefunctionalityofenablingtechnology.

DecisionRightsDecisionRightsdefinetheroleandauthorityofthenewgovernancegroup.Thisisacriticalelementinthedevelopmentofagovernancecapabilityattheonsetofanewagreementandrelationship.Toooften,thelackofdecision-makingclarityresultsinconfusionandfrustrationforbothparties.Thisisespeciallytruewhenagovernanceorganizationisbeingcreatedwhereonedidnotpreviouslyexist.

Anexampleofthisiswhenabusinessservicefunctionisoutsourcingforthefirsttime.Priortooutsourcing,everythingfromstrategythroughoperationalexecutionwasdonewithinternalresources.Now,withaserviceproviderdoingmuchoftheservicedelivery,wemustdeterminewhatdecisionstheymake,whatdecisionsaremadebytheretainedorganization,whodevelopsthestrategyandpolicies,andwhatdecisionsfalltothenewgovernancegroup.

Additionally,it’snotjustaboutdesignatingadecision-makerforeachdecision;it’saboutdeterminingtheroleeachinvolvedstakeholderwillplayineachdecision.Thegraphicbelowdepictsadecisionrightsmatrix.Itidentifieskeysteady-statedecisions,identifieskeystakeholders,anddocumentstheroletheyplayineachdecision.

Determining,anddocumenting,decisionrightsisverysimilartodevelopingaRACImodeloraresponsibilitymatrix.Thedifferenceisthatitisfocusedondecision-makingrolesratherthandesignatingwhoisresponsibleoraccountableforatask.TherolesinaDecisionRightsexerciseareDecision-Maker,whohasvetoauthority;Negotiator,astakeholderwithavote;Consultant,asubjectmatterexpertwithoutavote;andInform,forthoseimpactedorinfluenced.

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9Therearemanysteady-stategovernancedecisionsthatshouldbeincludedintheexercise.Theyincludedecisionsrelatingtoaddingordeletingscope,changingservicelevels,changingpricing,resolvingpolicyissues,approvingdeliverables,approvingprojects,changingdeliverylocations,etc.Thereareaseparateanddistinctsetofdecisionsfortransitionthatfocusonthepreparationandtransferofresponsibilitiestotheproviderasservicesmoveintoproduction.

MeasurementModelHistorically,theextentofgovernancemeasurementhasbeenaboutservicelevelperformanceandbasicfinancialreporting.Butnon-transactionalagreementsrequireamorecomprehensiveandrobustviewtoprovidethenecessaryinsight,notjustoversight.TheBalancedScorecard,madepopularbytheNolanNortonconsultancy,isonesuchmodelthatforcesalookatgovernancefrommultipleperspectives.ThesedifferentviewsrepresentInnovationandLearning,Internal,Customer,andFinancialperspectives.

Theimagebelowdepictssomemeasuresineachofthefourareastoconsiderwhiledevelopingameasurementmodel.

Agoodmeasurementmodelalsolooksatthebehaviorsandactivitiesthatsupportdesiredoutcomes.Forexample,iftransformationisdesired,collaborationisacriticalbehaviorthatsupportsthatobjective.Whynotmeasureandmonitorthenumberofjointplanningsessionsconductedbetweenthegovernanceteamandserviceproviderand/orbetweenthegovernancegroupandeachindividualbusinessunit?Thedesiredfrequencywoulddependonthetypeanddegreeoftransformation.

“Whatyoucan’tmeasureyoucan’tmanage,andwhatyoucan’tmanageyoucan’timprove” --PeterDrucker

Onceagain,thepurposeofamoresophisticatedMeasurementModel,andtheassociatedreporting,istoprovidetheinsightsrequiredtocreatevalueaswellastheoversighttoensurecomplianceandmitigaterisk.Just

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10focusingonoversightisacommonmistake,andputsthegovernancegroupinareactive,ratherthanaproactive,mode.

ProcessesGoalsareimportant,butsystemsaretheday-to-daymechanismtoachievegoals.Processesarethemaingearthatdrivesthegovernancesystem.Theydefinehowtheworkofgovernancegetsdone.Theyaddressthefunctionalityrequiredofthegovernancegroupthatemergeasaby-productoftheDecisionRightsexercisethatdefinestheroleandauthorityofgovernance.Forexample,ifthegovernancegroupwillbeheldaccountableforachievingthebusinesscaseandistheDecision-makerforadding/deletingscope,theremustbearobustContractChangeManagementprocess.

Ingeneral,processesmustbecomemorerobustastheintentofanagreement,andcorrespondingrelationship,movesfurtherrightontheRelationshipSpectrum.Thisisparticularlytrueforgoverningtransformationaldealsthatinvolvecollaboratingonsolutiondevelopmentinadditiontomonitoringcontractualcompliance.

Transformationalagreementsaredynamicbynature.Becausewedon’tenterintothistypeofagreementassumingthatweknowwherewewillbein,say3years,ourprocessesmustaccommodateandfacilitatechange.Forstarters,thereneedstobeasolidprocessforcontractchangemanagement,butseveralotherprocessesaresimilarlycriticalaswell.

Asanexample,innovationdoesn’thappenbyaccident,especiallywithinthecontextofacommercialrelationship.Arobustjointplanningcapabilityisrequiredifthepartiesexpecttoconsistentlydevelopnewandinnovativesolutionstogether.Forcollaborationtooccur,thetwopartiesmusttrusteachother.SothereneedstobeaRelationshipAlignmentprocesstoperiodicallyrealignexpectationsandprioritiesasthingschange.Good,two-waycommunicationisalsocriticaltomaintaintrustandfacilitatecollaboration,soaCommunicationprocessneedstobeincluded.

Theprocessesrequiredforatransformationalagreementneedtoberobust,facilitatechange,andmaintainalignmentnotonlybetweenthegovernancegroupandtheserviceprovider,butwithinternalcustomersaswell.Ifatransformationalagreementisaboutredesigningordevelopingnewsolutions,thentheseprocessesneedtoincludethestakeholderswhoarecustomersoftheseservicestoensurenewsolutionsareactuallyadopted.

Forinstance,HumanResourcesfunctionstransformbyimplementingEmployeeSelf-Service(ESS)andManagerSelf-Service(MSS)solutions.HRbusinesscasesincludeassumptionsaroundtheadoptionofthesemoreefficientservicedeliverymechanismsandtheredeploymentofHRGeneraliststootherduties.Governancegroupswhoseprocessesdonotadequatelyaddresscommunication,alignment,andchangewithinthebusinessunitswillnotsucceed.Ifnewservicesarenotadopted,generalistscannotberedeployed,andthebusinesscasewillnotberealized.

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11Thisgraphicdepictsthecoresetofgovernanceprocesses.Howrobusteachprocessshouldbe,orwhetheritisrequiredatall,willdependontheintentofthedealanddesiredrelationshiptype.

OrganizationAswe’vementioned,oneofthecommonprinciplesinhigherorderrelationshipsistomanagetheWhat,butnottheHow.TheHowisdeterminedcollaborativelywiththeserviceprovider.Afterall,theserviceproviderinthistypeofrelationshipisselectedbecausetheyhavecapabilitiesandexperiencethatthebuyerislacking,oronwhichtheychoosenottoexpendtheirownresources.Theobjectiveistoleveragetheprovider’scapabilityandknowledge,notmandatehowtheydowhattheydo.

Instead,thesizeofthegovernancegroup,theirskills,attributes,experience,andseniorityshouldflowfromthedeal’sintentthroughtheselectedrelationshiptype,decisionrights,goals,andprocessdefinitions.Alignmentoftheseoperatingmodelcomponentsiscriticaltogovernanceeffectivenesstosaynothingofitsimpactonachievingthedesiredoutcomes.

Staffingthegovernanceorganizationtooearly,andwiththewrongresources,isthemostcommonmistakeinthedesignprocess.Toomanywell-meaningexecutivesfindjobsingovernanceforgoodemployeeswhodon’thaveadefinedroleduringtransitionorafterthedealgoeslive.Whenthisoccurs,thegovernancefunctionality,andresultingcapability,isdefinedaroundtheirskillsandexperience.ThisapproachputsFormbeforeFunctioninsteadofstaffingtheteamtomeetrequirements.

Findingahomeforqualitystaffinthegovernancegroupisn’taproblemaslongastheyhavetherightskillsandexperience.Butwhatmanygroupscanpainfullyattesttoisthatgoodmanagersdon’tnecessarilymakegoodgovernanceteammembers.Somecanmaketheshiftfrommanagingtheirownstafftoworkingcollaborativelywithaserviceprovider,butmanycannot.

SKILLSANDATTRIBUTESAswemoverightontheRelationshipSpectrumtomorecollaborativeagreements,differentandadditionalskillsetswillberequired.Forexample,aFinancialManagermustnotonlytakecareofthebasicslikeinvoice

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12verificationandfinancialreporting,theymustalsohaveenoughbusinessacumentocraftfinancialarrangementsfornewsolutionsthatmeettheneedsofthebusinessaswellasthoseoftheserviceprovider.Thisisamuchmorecomplexandthoughtfulactivityrequiringahigherlevelofreasoning,experience,andbusinessacumen.

Anotherexampleistheneedforgovernanceresourcesthatareskilledinaggregatingdatafrommultiplesources,automatingthecalculationofoutcome-basedservicelevels,anddevelopinganalyticsthatprovideinsight.

EnablingTechnologyInthepast,havingenablingtechnologytosupporttheoverallgovernancecapabilitywasanafter-thought.Transactionalagreementswererelativelystraightforwardandcouldbemanagedwithaseriesofspreadsheetsandpresentations.Buttransformationalagreementsaremuchmoresophisticatedandcomplex.Additionally,highlyregulatedindustriesrequireproofthattheiroutsourcinggovernanceprocessesandproceduresareinplace.Auditorsrequirereportstodemonstratecomplianceandconfirmenforcement.

Thequestionthenis,“Howdogovernancegroupsmanagethiscomplexenvironment,andmeetcompliancerequirements,withlimitedresources?”Theanswerforagrowingnumberofenterprisesistheuseofenablingtools.Toolsenablegovernanceresourcestomakethebestuseoftheirtimetodrivevalue.Therealityisthatmuchoftheworkofgovernanceisroutineandcanbemundane.BasedontheexperienceandanalysisoftheGovernanceAcademy,halfofgovernanceactivitiesfallintotheroutinecategory.

Thesetasksandactivitiesareprimecandidatesforautomation.WhetherwecallthisRPAortheuseofbots,thisamountstoautomaticallyaggregatingdata,calculatingoutcome-basedservicelevels,verifyinginvoices,enablingworkflow,providingalertsandnotifications,aswellasproducinganddistributingreports.Byinvestinginthistypeoftechnologyenablement,thelimitednumberofskilledgovernanceresourcescanfocustheireffortsonvalue-addedactivitiesincludingcollaborating,facilitating,andanalyzing.

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13ToolsalsoenabletheConsultativeandStrategicworkofgovernancebyprovidingdecision-supportandanalysis,includingdescriptive,predictive,andprescriptiveanalytics.

OperatingModelConclusionSothesearetheprimarycomponentsofaGovernanceOperatingModel.Theyprovidethestructureandrigornecessarytomanageandoverseeanygivenrelationship.Usingatop-downdesignapproachensuresalignmentwiththeintentofthedealthroughtheorganizational,process,job/performer,andenablingtechnologylevelsandassociatedelements.

Ifthesecomponentsaredevelopedindependentofeachother,theywillnotalignandsupporteachother.Theresultwillbeaninefficient,ifnotineffective,governancecapability.

Theapproachwe’vedescribedisscalableforuseinconstructingagovernancecapabilityforanytypeofagreement.Butaddressingeachofthesecomponentssystematicallyisparticularlyimportantfornon-transactional,collaborativeagreements.Adeal’sintentwilldeterminehowrobusteachoperatingcomponentneedstobe.

Governance Self-Assessment Checklist

© 2016 Governance Academy. All Rights Reserved

1. Do you have a documented charter and principles that can help align priorities and provide behavioral guidance? (Yes or No)

2. How might having a charter and principles improve your effectiveness?

3. Using the Relationship Spectrum figure above, make a checkmark where you assess the

current relationship with a key provider or internal business unit customer. 4. Place a star where you would like the relationship to be given the current intent of the deal.

List three actions that will bridge the gap, or move you toward the desired relationship. 5. Do you have decision-making clarity among your key stakeholders? (Yes or No) 6. Do you have a holistic measurement model that addresses more than service level and

financial performance? (Yes or No) 7. List how having a completed decision rights matrix and holistic measurement model would

improve your effectiveness and ability to proactively manage. 8. Referencing the graphic below, assess the maturity of your governance processes. Is their

design consistent with the intent of the deal and type of relationship required? (Yes or No) If No, identify the 3 most deficient processes and list one corrective action for each.

9. Does your governance team possess the skills, attributes, and experience required to accomplish your charter? (Yes or No) If No, what areas are the most lacking and what kind of training, or staffing activity, should you consider?

10. Do you leverage enabling technology to improve the efficiency and effectiveness of your governance team members? (Yes or No) If No, what can you do to research and acquire these tools?