Guideline 380300 Outsourcing - Proposal Guideline Web view19-03-2012 · Draft...

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ISO PC 259/ N 00XXDate: 2012-04-09

ISO/ 37500

ISO PC 259

Secretariat: NEN

Guidance on outsourcing

Paris draft status report WG1:

- This document is a 0.52 version, stating its early draft nature. A draft should reach a 0.9 version in order to be submitted to a formal review process.

- All phases exhibit first draft content; no standardization is done on roles and terminology yet- Roles and terminology are not defined, due to withdrawal of co-editors- Phase Transitions was not finished in London- Phase Governance is not reviewed by co-editors, this is the first draft.- Co-Editors struggle for time; a face to face meeting London was very beneficial. In order to reach a

0.9 version we’ll probably require a minimum of 3 sessions like the London meeting-

Draft Version: 0.52

Document type: International StandardDocument subtype: Document stage: (30) CommitteeDocument language: E

STD Version 2.2


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STD Version 2.2

Contents Page

Foreword........................................................................................................................................................... 4Introduction....................................................................................................................................................... 51 Scope.................................................................................................................................................... 52 Normative references.......................................................................................................................... 63 Terms and definitions.......................................................................................................................... 64 Roles (for writing standardization purpose, to delete for final draft)..............................................85 Outsourcing concepts....................................................................................................................... 106 Outsourcing process life cycle.........................................................................................................137 Phase 1: Identify Strategy (Bulgaria)................................................................................................168 Phase 2: Strategic Sourcing Analyses (Netherlands).....................................................................209 Phase 3: Initiation and Selection......................................................................................................2710 Phase 4: Transition............................................................................................................................ 3411 Phase 5: Deliver Value (UK, Jon)......................................................................................................4112 Phase 6: Governance (UK, Paul Hart)..............................................................................................49Annex A (informative) Maturity Model (NL)....................................................................................................63Annex B (informative) Guidance on Outsourcing Agreement Contents.....................................................64Annex C (informative) Service Catalogue Framework...................................................................................67Cross reference phases – ISO standards and detailed processes (WHO?)..............................................71Cross reference phases – ISO standards and detailed processes (WHO?)..............................................7213 Bibliography (Project Editor consolidates input from co-editors).................................................7314 Index of figures.................................................................................................................................. 7415 Index of tables.................................................................................................................................... 75

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Foreword

ISO (the International Organization for Standardization) is a worldwide federation of national standards bodies (ISO member bodies). The work of preparing International Standards is normally carried out through ISO technical committees. Each member body interested in a subject for whom a technical committee has been established has the right to be represented on that committee. International organizations, governmental and non-governmental, in liaison with ISO, also take part in the work. ISO collaborates closely with the International Electro technical Commission (IEC) on all matters of electro technical standardization.International Standards are drafted in accordance with the rules given in the ISO/IEC Directives, Part 2.The main task of technical committees is to prepare International Standards. Draft International Standards adopted by the technical committees are circulated to the member bodies for voting. Publication as an International Standard requires approval by at least 75 % of the member bodies casting a vote.Attention is drawn to the possibility that some of the elements of this document may be the subject of patent rights. ISO shall not be held responsible for identifying any or all such patent rights.ISO 37500 was prepared by Project Committee ISO/PC 259, Outsourcing

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Introduction

In recent years there has been a proliferation of sector specific methods and documents worldwide which have had no overarching standard to set the generic principles and procedures of outsourcing. In addition the outsourcing practitioners have had no common vocabulary on which to base their outsourcing communications.

This International Standard would provide overarching guidance for outsourcing and a vocabulary to enable practitioners to harmonize the principles, procedures and vocabulary in existing and future standards, for the benefit of the organizations engaged in outsourcing. Besides standardization this standard thus provides concepts and procedures to improve the understanding of all parties involved in outsourcing, by providing a common set of practices that can be used to manage the outsourcing life cycle.

The target readership for this standard includes:- all involved parties engaged in facilitating the creation and/or management of outsourcing relationships- decision makers or their empowered representatives - all sizes and types of organizations- all sizes and types of industries- all levels of experience in outsourcing

This International Standard:- Is for those involved in outsourcing, enabling the client and service provider to operate under a common

level of understanding; written from a perspective of delivering and receiving the service in question.- Is covering the entire life cycle and providing a description of the definitions, concepts, and processes that

are considered to be good practices. - Is in the form of an overarching standard, providing common language, lifecycle, processes and their

deliverables;- Is possibly complemented by more detailed application/sector specific documents from ISO or other

organisations- can be used before, during and after the decision making is done- enables mutually beneficial collaborative relationships

1 Scope

1.1 ScopeThis International Standard is intended to cover all aspects of outsourcing activity across all sectors of industry and commerce. It is intended to provide good industry practice to enable organisations to enter into, and continue to sustain, successful outsourcing deals throughout their agreed life. It is expected to embody the experiences and lessons learned for the future from the many outsourcing deals across the globe over the past 20+ years.

It is intended that the standard will focus on:

- Being a stimulus for good management- Flexibility - Simplicity

It will cover all aspects needed to establish successful outsourcing deals including the necessary processes, behavioural and cultural considerations. It will recognise and take account of the range in complexity of outsourcing relationships.

The standard will recognise that the various parties involved act separately in some phases of the lifecycle and together in others, for example the client and service provider work separately during the first two phases (Identify Strategy and Goals & Strategic Sourcing Analyses), they then come together and begin to operate interactively

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during the third phase (Selection and Initiation) before they work side by side in the remaining phases (Transition &Delivery).

The standardrecognises that a joint decision making process governing driving the desired outcome is required in order to create a sustainable outsourcing relationship. Governance is not to be viewed as a phase but as an ongoing stage optimizing value, cost and relationship.

In addition the standard will recognise the funnel process clients go through reaching an outsourcing decision as part of a normal and regular strategic make or buy management process. An outsourcing decision is a result of a sourcing strategy discussion within a client organization. Outsourcing failures are regularly caused by a poor understanding of the risks and organizational implications. This is why in the first two phases a broader term sourcing and sourcing strategy is used. This stipulates the availability of more types of make or buy decisions a client organisation can make, like

- Continue producing services and goods as before; the boundaries of the organizations are not changed- Insource processes from another company into your premises and under your own command- Outsource processes to another company (scope of this standard) , thus changing an organizational

boundariesThe first two phases are written in way that a funnel process is created resulting is an overarching sourcing strategy and different ‘service towers’ that are eligible to outsource in order to create a sustainable competitive advantage.The term ‘Service towers’ reflects the layers people, processes and technology that combined creates complete service packaged that can be transferred to another company.

Furthermore the guideline acknowledges the timescales involved i.e. the first two phases can take weeks, the third phase can take months but the remaining phases last for years (3 years, 5 years, 7 years etc.) depending on the individual agreement between client and service provider.

1.2 Application

The standard aims to be an overarching guideline on outsourcing regardless on industry or size. Therefore the guideline expresses high level processes and process outcomes that require to be tailored by the client and service provider for a specific outsourcing instance. Tailoring also encompasses the identification of local and specific laws and regulations. Laws and regulations might encompass subjects like environment, labour laws, health and safety.

1.3 ObjectivesThis International Standard would provide an overarching guidance for the outsourcing of any type of service and/or process in a way that addresses the responsibility of the decision makers, inform them about risks involved and processes to be implemented in order to obtain the desired outcomes and facilitate sustainable competitive advantage and strong business relations with outsourcing partners.

1.4 Benefits

This International Standard would provide guidance for the outsourcing of any type of service and/or process and the corresponding resources. This International Standard would cover the entire life cycle of outsourcing and provide a description of the definitions, concepts, and processes that are considered to form good practices in outsourcing.

2 Normative references

3 Terms and definitions

For the purposes of this document, the following terms and definitions apply.

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NOTE: The following terms are to be defined yet. The term Outsourcing is defined in Sofia 2011

ISO37500 Definition Synonyms

Outsourcing The process of engaging in having services delivered from an outside service provider, which historically have been operated internally.

Where the: process is based on a strategic decision resources may be transferred to the service provider service is significant to the customer organization service provider is responsible for the service for a

substantial period of time customer organization retains the accountability for

the service

Service provider Service provider; Service Provider; delivery organization, Supply Side

Client Client organization, client, customer, service client, Demand Side

Agreement Contract, Sourcing Agreement

Overarching agreement

Umbrella Agreement,

Service Agreement Service AgreementDemandSupplyOutsourcing Governance

Outsourcing governance consists of the set of processes, customs, policies, laws and institutions affecting the way the joint leadership direct, administer or control an outsourcing arrangement. Outsourcing governance also includes the relationships among the many players involved (the stakeholders) and the outsourcing goals.

Governance structureGovernance principlesGovernance frameworkSourcingStrategic SourcingTransitionTransformationFrameworkEnterprise Strategy Organization strategy,

Corporate strategyFunctional Strategy Functional strategy,

department strategyService catalogue Service catalogue (Service

Provider)

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Requirement specification

Requirement specification, Service Requirements (demand)

ObjectiveGoalsBusiness ecosystemsOrganismEnterprise Enterprise, Business,

OrganizationPrincipleGuidelineRisk ManagementService modelBusiness modelPerformanceValueIndicatorKey performance indicator

Key Success Factor, Key success indicator

Key risk indicatorSourcing Strategy Execution PlanSourcing ApproachService DeliveryRetained OrganizationTarget Operating ModelSourcing InitiativeSourcing MaturitySecurity ManagementCompliance ManagementQuality ManagementProject- & Change ManagementEnterprise ArchitectureData ArchitectureApplication ArchitectureTechnology ArchitectureEnterprise Architecture ReportService TowersContract managementService level management

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4 Roles (for writing standardization purpose, to delete for final draft)

ISO37500 Roles DescriptionAccountability, responsibility

Synonyms

Executive sponsor Appropriate management level, COO, CEO

Executive Committee The Service Client’s Board of Directors / Executive Committee

Financial Sponsor CFO, Executive Officer of Finance Function

Joint Management Team Joint Management TeamContract Portfolio Manager Service Client Contract

Portfolio Manager, Service Provider Contract Portfolio Manager

Contract managerService delivery manager Service delivery manager,

Client Service Delivery Manager, Provider Service Delivery Manager

Quality ManagerRisk ManagerCompliance ManagerEnterprise ArchitectProject ManagerRelationship ManagerAccount Director Account ManagerChange ManagerClient Service Manager

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5 Outsourcing concepts

5.1 Context of outsourcingOrganizations can be perceived as organism, continually adapting to changes in their environment (figure 1). They face many forms of pressure including those from ever changing socio economic, technology and business environment. In order to survive organizations need to constantly update and by changing their strategy and realigning to meet the demands from this complex challenges.

They are in a state of constant flux, adapting to the external environment which are typically underestimated when services are delivered using outsourcing agreements. This guideline reflects the continuous search to stay aligned with the business strategy and being programmed for change from the start of the outsourcing lifecycle.

Figure 1 Contextual model of outsourcing

It is fairly common for organizations to have a business strategy and per department a functional strategy in order to fulfil the overarching objectives and goals of the organization. By adding Sourcing Strategy in this process the organization is enabled to make a strategic choice on whether or not to have particular business functions provided in house or by an external organization. This guideline aims to facilitate all organizations to go through the process of outsourcing successfully and mitigate risk at the same time.

5.2 Key Risk of Outsourcing

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Depending on the size of an organization an outsourcing decision can be made on different levels of an organization. The strategic implication can be quite different too. Outsourcing staff functions or core business processes are not so different from an outsourcing process perspective, but from a business point of view they differ a lot. The following key risks always are always present, but the impact of the risk differs as per service stack that is eligible for outsourcing. Management should assess and weight the associated risks and rewards before reaching an informed outsourcing decision. The following key risks are addressed within the process of this guideline in order to improve the change of success:

1. Absence of a strategy: if no formal strategy and vision of the leadership exists, outsourcing provides a comprehensive risk to the overall effectiveness. Outsourcing should be a means to an end.

2. Poor understanding of environmental dynamics: as explained in the former section an organization constantly struggles to create equilibrium with his surroundings. The more strategic the Outsourced service stack is, the more important it is to acknowledge required flexibility in the outsourcing agreements.

3. Blind focus on cost reduction: Although Outsourcing can lead to cost reduction an organization should pay attention to the overall impact and risks of outsourcing first, before installing an outsourcing project team. Far too often, especially organizations who a new at the outsourcing game, tend to focus too much on cost savings. They run the risk in forgetting to install good governance processes and a retained organization that can be an effective countervailing power.

4. Underestimated business impact: outsourcing, especially when it concerns primary processes, can have a profound effect on an organizations culture, work morale and relationships. Therefore clear leadership is required to guide the organizational change.

5. Poor cultural fit: an outsourcing arrangement generally caters for a 5 year period. During this time frame organizations will collaborate on different levels. If the organizational and management culture differs a lot, conflicts and disputes are not managed in an effective manner. A client organization should understand his social fabric in order to be able to search for an eligible service provider.

6. Poor understanding of the process: transferring responsibility and control are key elements of outsourcing. During an outsourcing deal the client understanding of the process will fade. People will change jobs and changes will be made in the process. Therefor in order to be able to outsource and have an exit, clear understanding of the processes is important.

5.3 Outsourcing Life Cycle

In order to mitigate risk associated with outsourcing and improve the change of obtaining the desiredbusiness value this standard aims to create a high level, easy to understand outsourcing model. This model show in figure 2should be tailored to the specific needs of an organization. The outsourcing model contains five phases and one stage.

The first phase is in fact a high level risk management process in order to assess the outsourcing awareness and readiness of an organization. If no strategy or long term vision is available it will be important to address this, before moving forward to an outsourcing situation. By the end of this phase management should have an understanding that sourcing can be a means to realize the desired strategic outcomes and understands that risks are associated with this process. Organisations should therefore move informed to phase two.

The second phase creates a strategic sourcing analysis that ensures a sourcing strategy continuously meets business requirements and alignment with the broader business strategy. All make or buy decisions are a result of this strategy, imbedding all outsourcing decisions in a broader perspective. The solid analyses, addressing risks and opportunities, infuses the informed decision on which service towers are to be outsourced.

The third phase Initiation and Selection has two fundamental elements. The first is to write service requirements in a detailed fashion. The second is to identify the required governance and relationship model that must ensure a sustainable business relationship. Both elements are required during the selection process, resulting in an outsourcing agreement.11

The fourth phase Transitions is in fact a very specific programme or project that handover processes, personnel and technology to the service organization. In this phase the service organization sets up his delivery process. Tests are performed in order to ensure that processes are delivering the required quality and performance. Test should also show that the governance model is working and all parties have clear understanding of their roles and responsibilities. By formal sign off the responsibility is transferred to the service organization.

Normally the longest phase is reserved for Delivering Value. A divers set of processes are to be run in order to get the result and ensure consistent performance of commitments made in the agreement. During this phase there will be constant requirement changes to the original agreement. Relatively small changes and issues are to be resolved in this phase. Larger changes, investments and innovations should be dealt with in another stage.

The sixth stage is called Governance. This stage is active during all phases of the lifecycle directing the processes to the desired strategic outcome. Within this stage risks are assessed, relationships are reviewed and appropriate measures are taken by a joint management team. This standard recognized the imperative that clients and service organizations work side by side trying to keep an optimal alignment of interest of all parties involved.

Figure 2Outsourcing lifecycle

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6 Outsourcingprocess life cycle

6.1 Overall architecture of the guideline

ISO37500 is set up as a guideline consisting of phases. Within each phase several processes are identified. Each process is written in a similar fashion addressing the purpose of a process, the main activities to be performed and the role that is responsible for the process. Each process mentions the key success factors, the main inputs and outcomes. This set off processes within one phase or stage is in fact a toolbox waiting to be tailored by an outsourcing organization, preferably in conjunction with their service outsourcing.

The following tables give an oversight in the purpose of each phase or stage, the processes that they hold and the key success factors that should be taken into account.

Identify strategyThe purpose of the process Identify Strategic Opportunities is to assess the potential benefits of sourcing to the current organization strategy and current business challenges.

How Key Success factorIdentify Strategic OpportunitiesIdentify Strategic Implications & RisksSet up Sourcing Strategy Project

Leadership understands risk and opportunities of outsourcing.Appropriate leadership is chairing the outsource project

Define Sourcing strategyThe purpose of the phase Strategic Sourcing Analysis is to establish and maintain a sourcing strategy that meets business requirements (for example cost reduction, cost management, risk transfer and management, safeguarding continuity, innovation, quality improvement, getting access to knowledge and skills, flexibility) and is therefore aligned with the broader business strategy.

How Key Success factorAsses current enterprise architectureDefine Sourcing StrategyDefine high level Governance FrameworkDefine business case(s) for sourcingDecide 'go-no go' and define sourcing execution plan.

Insight in enterprise architecture, culture and governanceLeadership commitmentInput of multifunctional expertise building sourcing strategyQuality of data to build business case

Initiation & selectionThe purpose of the phase Initiation and Selection is to outline the requirement specification of the services to be outsourced, to select an adequate provider for the outsourcing, and to establish the outsourcing agreement with the selected provider successfully.

How Key Success factorDetailedservice requirement specificationDetail outsourcing model Define general delivery requirements and agreement structureIdentify potential Service ProvidersSelect Service ProvidersOutline Agreement Final decision and formation of the

Take ample time to specify detailed requirements, governance model and agreements before market solicitation.Perform due diligenceIdentify management culture of preferred service provider

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agreements

TransitionThe purpose of this phase is to implement all services as agreed, to hand over responsibility from the client organisation to the service provider and transfer services to the delivery phase.

How Key Success factorDevelop preliminary transition plans Support the due diligence from a Transition perspectiveFinalize detailed plans, process descriptions, costs and resource models for Transition. Provide support during the final contract negotiation.Complete final agreement documentationUpdate plans and documents

Test delivery capabilityTest adequacy of information & reportsTest joint decision making processes

Deliver ValueThe purpose of the phase Deliver Value is to ensure both parties realise the benefits of the outsourcing agreement. It’s the phase where the ongoing delivery of the outsourced service(s) takes place. It’s about getting the result and ensuring consistent performance of commitments made in the agreement.

How Key Success factorDeliver Service Monitor and Review Service PerformanceManage and Resolve IssuesManage ChangeManage FinancesManage RelationshipsManage the AgreementValue AnalysisEnd of Agreement Preparation and Continuation Decision

Effectiveness of Continuous improvementOpen relationship & communicationSustained alignment of interest (win-win)

GovernanceThe purpose of Governance is to ensure delivering innovation, value and mitigating risk to the business throughout the outsourcing lifecycle in order to provide a consistent and appropriate focus on strategic outcomes.

How Key Success factorRelationship strategyGovernance meetingsOrganizational mappingRetained organizationInnovation governance and value creation centreGovernance control documentGovernance implementation checklist

Joint decision making processes building trustDemonstrate Compliance Oversight and stewardshipClear ownership and controlFoster creation of value and enable flexibility and innovative practise to flourish

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6.2 Main Outsourcing Products

The processes described in the former section result in tangible and intangible results or products. In order to present an oversight of the most important products, this guideline provides the following product model:

Figure 3 Main Outsourcing lifecycle productsApart from phase specific products, the business case is one of the most important documents that exists in each phase or stage of the lifecycle. The business case starts at the first phase by identifying possible strategic opportunities of outsourcing. In the second phase the strategic sourcing analyses takes place identifying the most eligible service towers to be outsourced. The business case is then created on all qualitative and quantitative aspects like quality and financial outcomes. In this phase the business case is still not detailed enough. In the third phase the business cases gets worked out completely. If the business case does not show the required benefits or a to high risk level the outsourcing process should be abandoned. During transition the business case touches reality and must be update to reflect the possible outcomes during the delivery phase. During delivery the business case requires a minimum an update every six months so it incorporates the latest changes and performance results. The business case ultimately plays a vital role in evaluating the outsourcing deal and make a decision whether or not to continue the agreement.

The outsourcing agreement consists of several elements like:- Umbrella agreement- Agreement per service cluster- Service catalogue- Performance& Appraisal system- Governance control document

The agreement document contains the tangible, rational elements of the outsourcing deal. In case conflict arises and escalates between parties the agreements plays a vital role in liability. However such a conflict is better 15

prevented. In most cases all parties involved are affected negatively, might it be financially, discontinuity of business or poor quality. Therefore this guideline stipulates the importance of relationship processes within governance to create a continuous alignment of interest of all parties and deal with business case setbacks.

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7 Phase 1: Identify Strategy (Bulgaria)

The purpose of the phase Identify Strategyis to derive from the business strategy the potential added value created by sourcing activities in alignment with the organisations’ long term goals for sustained development, in response to internal and external change, strategic impacts and associated risks.

The phase starts with aligning the organizations’ long-term strategies with the sourcing initiatives with the aim to fulfil the organizations’ long-term strategic goals and tactical objectives. It should identify expected added value through sourcing and ensure awareness of strategic impacts and risks associated with sourcing.

The phase ends with an articulated vision of the organization’s future and potential targets of opportunity and expected significant results to the organisation.

The phase consists of the following processes: Identify Strategic Opportunities Identify Strategic Implications & Risks Set up Sourcing Strategy Project

The main outcomes of this phase are: Business Strategy & Goals Strategic Opportunities & Benefits Initial Risk Assessment (business & organisation wide, incl. strategic implications and limitations) Governance Principles Sourcing Strategy Project

6.1. Process Identify Strategic Opportunities

The purpose of the process Identify Strategic Opportunities is to assess the potential benefits of sourcing to the current organization strategy and current business challenges.

The potential benefits should SMART goals and objectives in order to be able to construct a sourcing business case that aligns with the overall business strategy.

The process is conducted on behalf of a business strategy board. The process should consist of the following activities:

Identify if business strategy & goals exist. If such document is absent or outdated the sourcing process should not commence. It is suggested that in this case the organisations’ senior management should initiate a process of drawing a business strategy.

Identify the current business challenges mentioned in the business strategy. Identify the future services and markets mentioned in the business strategy Identify the potential benefits of outsourcing for your business:

- Availability of employees- Availability of resources- Flexibility (ramp up and down of production, turnaround time service lines)- Competence and Expertise (a higher expertise and competence is expected externally)- Enhancing innovation strength - Transfer of risk (capital investments, focus on core competence)- Economy of scale - Quality and consistency

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Identify the potential services and process in your value chain where sourcing can create a better competitive advantage.

Within the identified scope specify the outsourcing reasons and benefits in the Strategic Opportunities & Benefits

Process the Strategic Opportunities & Benefits document with the appropriate leadership level

The key success factor of this process is to ensure that An up-to-date business strategy & goals document exists and if not this is addressed at the appropriate

leadership level Business leaders are made aware, understand, accept and support the identified potential opportunities

and benefits of sourcing in relation to their strategy

Table 1 Process Identify Strategic Opportunities

Primary Input (tangible and intangible) Primary Outputs

Business Strategy & Goals Strategic Opportunities & BenefitsBusiness Strategy & GoalsDecision for initiation of business strategy formulation

6.2. Process Identify Strategic Implications & Risks

An organization should identify the strategic implications and risks associated with sourcing before installing a project team that will explore and execute the sourcing decision.

By exploring the strategic implications and risks, the organisation’s leadership evaluates the probability of success of sourcing and how to effectively lead and implement it.

The risk manager is the process owner. The risk manager should ensure installation of a multidisciplinary risk assessment team in order to conduct a corporate risk assessment that addresses the following questions:

Is the business strategy and goals specific enough to identify the expected results through sourcing? Assess the business strategy and identify what kind of benefits the leaders seek to enhance the current

value chain. Determine what kind of strategy is dominant in your organization. Is it focused on cost reduction, innovation, business, operational or customer excellence?

What is the best and worst case scenario impact on the value chain: o Identify and analyse the current and future chain of activities to deliver values to the customer.o Identify the primary and secondary value-adding activities in the chain.o Examine the current and future competitive advantage by identifying the potential value of

separate activities.o Identify the business processes which deliver value and which reconsideration can achieve

drastic improvement of current performance (for example in cost, quality, service, speed, etc.) What is the best and worst case scenario impact on the culture of the organization? What is the best and worst case scenario impact on the core competences of the organizations?

o Determine the possible impact on the core competencies which underline the current organisation strategy and success.

o Determine the unique assets that are and/or can be used to create and offer value to customers. Imagine the required core competences after outsourcing has taken place.

o Assess the impact and determine the future competences in order to create a sustainable competitive advantage.

What is the best and worst case scenario impact on different staff groups:

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o The organization should determine what the employee impact will be by sourcing services to an external organization.

o Assess the impact on hard elements like staff numbers and softer elements like motivation and employee upset.

What is the expected governance impact?o Determine what the impact can be on the current structure and decision-making processes in the

organization.o Sourcing comes with handing over decision making power and inserts interdependence between

organisations. Assess the possible implications. Develop mitigation strategies to minimalize the negative impact and strategies to enhance the preferred

outcomes. Make an informed management decision whether or not the business risks are acceptable and if the

leadership want to go ahead and install a project to develop a mature sourcing strategy

The key success factor of this process is to ensure that: A multidisciplinary risk assessment at the appropriate leadership level is conducted Risks associated with a possible sourcing strategy are understood by the appropriate leadership level

before installing a Sourcing Strategy Project.

The process uses and creates the following inputs and outputs:

Table 2 Process Identify Strategic Implications & Risks


Vision, Mission & ValuesGovernance ModelBusiness Strategy & GoalsBusiness Model – value chain, value propositionStrategic Opportunities & BenefitsOrganization culture & competences

Initial Risk AssessmentGovernance PrinciplesDecision on the setting up Sourcing Strategy Project

6.3. Process Set up Sourcing Strategy Project

The purpose of the process of setting up a Sourcing Strategy Project is to establish a detailed assignment to a project team in charge of constructing a mature and detailed sourcing strategy and communicate the findings, conclusions and recommendations.

The process Set up Outsourcing Project Team should undertake the following activities: Determine the executive sponsor Determine the required business owners and specialists Determine the required IT owners and specialists Determine the required project competences Create a project assignment and determine the project boundaries (costs, scope, time) Define the project acceptance criteria in terms of:

- Specific identification of possible services to source- Added value through a more detailed business case- Improved insight and controlled business risk- Sourcing governance principles and structure- Impact on the organisational culture, competences and human resources.

Appoint a Sourcing Strategy Project team Appoint a Steering Committee with the executive sponsor to chair the committee

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Brief project team and display leadership Assist the sponsor to communicate the setting up of the Sourcing Strategy Project and the project team

assignment to the organisation.

The process is owned by the executive leadership.

The key success factor of this process is to ensure that: The appropriate leadership level is owner of the sourcing lifecycle process The appropriate leadership level shows commitment to the exploration of a new possible strategic

direction.

The process uses and creates the following inputs and outputs:

Table 3 Process Set up Sourcing Strategy Project


Decision on the setting up Sourcing Strategy Project Business Strategy & GoalsInitial Risk Assessment

Sourcing Strategy Project teamSteering CommitteeSourcing Strategy Project briefCommunication Plan

6.3.1. Example of good practise

6.3.2. Normative Reference list (used in this phase)Make a list of all used normative references (like ISO 9000) in this phase.

6.3.3. Bibliography list (used in this phase)Make a list of all books, guidelines and publicationsConvention: < Name, (year), Title, Publisher, ISBN>.Robert S. Kaplan, David P. Norton (1996), the Balanced Scorecard, Harvard Business School Press Boston, MA, ISBN 0-87584-651-3ISO 9004:2009, Managing for the sustained success of an organization - A quality management approachBS 11000 -1:2010 Collaborative business relationships

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8 Phase 2: Strategic Sourcing Analyses(Netherlands)

The purpose of the phase Strategic Sourcing Analysis is to establish and maintain a sourcing strategy that meets business requirements (for example cost reduction, cost management, risk transfer and management, safeguarding continuity, innovation, quality improvement, getting access to knowledge and skills, flexibility) and is therefore aligned with the broader business strategy. This phase will:- establish or confirm directions and goals for the business and the sourcing initiative;- validate that the goals and sourcing objectives are achievable;- assess potential sourcing models (what can be outsourced and why) - determine the sourcing approach (e.g., single sourcing, multi sourcing, domestic sourcing, near shoring or

offshoring, limited tender, open tender);- deliver an initial business case for sourcing to make possible added value transparent;- deliver a decision document and a sourcing strategy execution plan.

This phase starts when either:a) The current agreements and service delivery needs to be reconsidered, for instance when the current

delivery is not / no longer in line with the organisation’s strategy and goals or at least six months before the end of the term of existing sourcing agreements

b) A reconsideration of the organisation’s strategy and goals requires also a reconsideration of the sourcing strategy & goals.

This phase is completed when the sourcing strategy itself and the execution plan for the sourcing strategy are endorsed by the relevant management. The strategy phase delivers input for:- The selection process (Chapter 8)- Transition / Transformation plan (Chapter 9)- Benefits monitoring to manage that the sourcing arrangement will deliver the value that is aimed at (Chapter

10, Chapter 11).

This phase consists of the following processes:- Asses current enterprise architecture- Define Sourcing Strategy- Define high level Governance Framework- Define business case(s) for sourcing- Decide 'go-no go' and define sourcing execution plan.

The main outcomes of this phase are:- Sourcing strategy- Business case for sourcing- Decision document for sourcing- Sourcing execution plan detailed for the next phase and high level for following phases.

8.1 Asses current enterprise architecture

The purpose of assessing the current enterprise architecture is to provide the information necessary for defining a sourcing strategy. This information enables to get the scoping of the sourcing process clear and align it to the business processes and, with that, reducing the risks of misunderstanding the sourcing requirements. Enterprise architecture provides the framework for ensuring that enterprise wide goals, objectives and policies are properly and accurately reflected in decision making related to, in this case, the sourcing strategy.There are four Enterprise architecture domains that are commonly accepted as subsets of overall enterprise architecture:

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- The Business Architecture defines the business strategy, governance, organization, and key business processes.

- The Data Architecture describes the structure of an organization's logical and physical data assets and data management resources.

- The Application Architecture provides a blueprint for the individual application systems to be deployed, their interactions, and their relationships to the core business processes of the organization.

- The Technology Architecture describes the logical software and hardware capabilities that are required to support the deployment of business, data, and application services. This includes IT infrastructure, middleware, networks, communications, processing, standards, etc.

Assessing the current enterprise architecture enables the process of identifying the activities that create competitive advantage. Other activities are candidates for outsourcing. For these activities it is important to assess the quality of them and the costs involved.

Main activities of this phase are:

- Data gathering of the current service delivery (including existing sourcing agreements);- Define what activities are eligible for outsourcing;- Verification and benchmarking of current services (qualitative and quantitative);- Stakeholder interviews and workshop(s) for getting the necessary support and for gathering and validation of

information;- Market analysis to assess high level market capability; - Quick win identification regarding possible outsourcing of services.

Assess the current enterprise architecture isthe primary responsibility of the Executive Sponsor (supported by functional management (for example CIO, CTO, IT manager) and Enterprise Architects.

Key success factors:

- Enterprise architecture is a defined process within the organization - Availability of accurate and objective information - management commitment

Table 4 Process Assessment current business architecture

Primary Inputs Primary Outputs- Business Architecture- Data Architecture- Application Architecture- Technology Architecture

- Enterprise Architecture report including indicating activities that are candidates for outsourcing

08.2 Define Sourcing Strategy

The purpose of Define Sourcing Strategy is to formalize the business objectives and prerequisites for sourcing. The sourcing strategy describes the organization’s overall approach for sourcing, which may result in specific sourcing business cases and supports the organization in the ongoing sourcing lifecycle.The sourcing strategy should include the scope, objectives and requirements for sourcing and the organization’s approach for risk management, selection and change & transition towards the new sourcing arrangement(s). The output of the following activities constitutes a sourcing strategy:- Determine the business objectives and prerequisites for sourcing within a desired scope. The objectives and

prerequisites relate to cost, quality, competition, applicable laws and regulation and other aspects. This activity largely depends on the outcome of the process Assess Current Enterprise Architecture.

22

- Determine the requirements for sourcing models and governance. The sourcing model and governance specify the organizational layout, authority and responsibilities with respect to the applicable service.

- To determine the organization’s risk management and control approach with respect to sourcing. This includes a definition of the risk assessment method and the requirements for risk acceptance and business continuity. Risk appetite differs from organizations to organizations, however in each situation risks that can render a sourcing initiative worthless should be known and managed.

- Determine the organization’s service provider selection approach. This includes the overall service provider requirements and a specification of the methods used by the organization to compare providers for specific sourcing business cases.

- Determine the organization’s transition and transformation approach. This includes a definition of the organization’s HR impact assessment method for sourcing business cases.

- Conduct an opportunity analysis for sourcing resultingin an overview of processes which are eligible for outsourcing, including global definitions of the scope, preferred sourcing models, business requirements and exit strategies.

A sourcing strategy contains the following aspects:- Sourcing objectives: what are the primarily principles for determining the sourcing strategy and what should

the sourcing strategy deliver.- Sourcing model: what can be outsourced (in terms of service towers) and why;- The sourcing approach (for example single sourcing, multi sourcing, domestic sourcing, near shoring or

offshoring, limited tender, open tender);- Detail strategy: determine the consequences, risks and underlying choices to implement the preferred

sourcing model.- Execution plan: the way in which the aspects as listed above can be implemented.- High level Business case: provide insight in the financial and non-financial consequences of the preferred

sourcing model.

The sourcing strategy is the overall company approach to sourcing of its value adding processes, which results in specific sourcing scenarios. Building a sourcing strategy is not a single point-in-time action. Changes to the business strategy need to be translated in the sourcing strategy. The business case is then to be created per scenario.

Before going into other phases of the sourcing lifecycle, formal approval for the sourcing strategy should be obtained from the Executive Committee.

Define Sourcing Strategy is a responsibility of the Executive Sponsor, Related Functional Management and the Steering committee.

Key success factors:- Data availability and quality- Clear long term objectives, clear vision on the future of the business- Management commitment - Clear definition of scope - Formal approval of the sourcing strategy from the highest level possible- Not fast tracking this phase.

Table 5 Process Define Sourcing Strategy

Primary Inputs Primary Outputs

- Business strategy and goals- Relevant functional strategies- Strategic opportunities and benefits

- Sourcing strategy

23

- Initial business wide risk assessment- Governance principles- Business goals, implications and limitations for

sourcing- Current enterprise assessment

8.3 Define high level Governance Framework

The purpose of the process is to define a high level governance framework aimed at managing the sought after value creation with sourcing.

Governance is a mechanism to capture and protect the value delivery out of the sourcing initiative. During this phase and the selection / solution phase it’s imperative to capture the main aspects of the sourcing arrangement that is strived for in order to safeguard that during the delivery phase these aspects are adhered to, for example:- What is the ‘spirit’ of the deal? Is it about cutting costs (needs standardizing and adherence to standards and

procedures of the service provider) or for innovation (which needs investments and a flexible approach)- Culture and principles and values of the service client: in order to be able to set-up a fruitful relationship with

the service provider(s) the cultures should be aligned as much as possible- Sourcing maturity: the maturity of the client and service provider should preferably be on par. In other cases

additional governance is necessary to manage possible friction in aligning both sides- Size of the anticipated sourcing agreement: in general the larger the size of the agreement, the more should

be invested in sourcing governance in terms of resources- Number of service providers: the more service providers are involved the more should be invested in

Governance in terms of resources- Geographic: more near and offshore the more should be invested in sourcing governance in terms of

resources

A high level design of the to-be governance framework is already necessary in this phase because in case of a Go-decision for outsourcing, a governance framework needs to be in place within the time period available for selection of a sourcing solution and implementing the solution.

Please note that the orchestration and governance process block is a process by itself. Therefore, it’s not intended that this process is to be fully described at this moment.

A high level governance framework consists of at least:

A high level design of the retained organisation and target operating model. Processes to take into account are at least: Strategic level: annual planning cycle, portfolio management (innovation) and architecture, organisation

development Tactical level: security, compliance and quality management, project- and change management, contract-

and service level management, financial management Operational level: operation control

Roles and responsibilities. Roles are for example: Strategic level: Enterprise architects, service client contract (portfolio) manager(s), risk and compliance

managers Tactical level: demand- en supply managers, change manager, programme / project managers, service

level and contract managers Operational level: service coordinators, service support

Sizing parameters

In certain circumstances the organization that is outsourcing processes has to demonstrate that it exercises sufficient control to ensure that this process is performed according to the relevant requirements of ISO

24

9001:2008, and any other requirements of the organization’s quality management system. The nature of this control will depend on the importance of the outsourced process, the risk involved, and the competence of the service provider to meet the process requirements. Based on the nature of the control, it should consider the processes referred to quality management system for management activities, provision of resources, product realization and measurement, analysis and improvement. The outsourced organization does not necessarily have to have a certified Quality Management System, but it has to demonstrate the capability of the previously mentioned processes (ISO/TC 176/SC 2/N 630R3). There are other factors that are necessary inputs for designing the appropriate orchestration and governance model, for example organizations have to able to show sufficient control over outsourced processes in line with their own risk management guidelines, external clients, supervisory bodies etc..

Preferably the persons to be managing Sourcing orchestration and governance during the delivery phase are involved in this phase. It is the responsibility of the Executive Sponsor.

Key success factors:

Involvement of sourcing governance expertise Earmarking of personnel for staffing the Governance bodies and safeguard minimal staff turnover

Table 6 Process Define Orchestration & Governance Model


- Sourcing strategy - High level design of the orchestration and governance model

8.4 Define business case(s) for sourcing

The purpose of Define business case is to help management in deciding whether potential sourcing options will meet the organization’s goals and determine to what degree these are in line with the organization’s strategy.

The business case should be refined at each onward sourcing lifecycle phases and serves as an important management instrument aimed at managing value delivery in the following sourcing lifecycle phases. Define business case is the process aimed at delivering a documented deliverable called the ‘business case’ per sourcing alternative. The true value of this process lies in the process itself towards this document, as it helps understanding to what degree the individual sourcing options will deliver value to the organization. Value can be yielded from both financial as also other qualitative aspects:

Financial aspects are for example: Financial performance; Avoidance of lost sales; Non-Financial Aspects are for example: Improve employee morale; Improved customer satisfaction; Positioning the organization for acquisitions; Reduced risk (e.g., improved control over processes); Gain of new competences through partnership Access to knowledge and skills

These may include negative factors, primarily risks to be mitigated: Loss of control25

Loss of data (e.g. offshore) Negative Employee morale Continuity risks.

Define business case(s) for sourcing is primary the responsibility of the Financial Sponsor.

Key success factors of this process are: Involvement of relevant stakeholders Availability and quality of data as input for the business case Ability to develop a proper cost model.

Table 7 Process Define Business Case


- Sourcing strategy - Costing data- Benchmarking data- High-level market or vendor cost data- Service-level data - Current enterprise architecture

- Business Case(s)

8.5 Evaluate and Decide & define Sourcing execution plan

The purpose of Evaluate and Decide and & define Sourcing execution plan is to decide whether or not to proceed with the sourcing initiative and to define a plan to execute the sourcing strategy.

The decision should be on the basis of the facts presented in the business case and the information gathered in the previous phases and includes quantitative and qualitative arguments. The decision should adhere with the organizational and sourcing strategy and goals and be a solution to ‘the problem’ to be solved. In case the analysis shows a negative outcome based on the preceding analysis, the decision for outsourcing should be reconsidered and possibly abandoned. Future events should be closely monitored since these can impact the business case and can result in a future Go-No Go decision.

It is strongly preferred to prepare a decision making document. It is required to create a decision document in line with the organization’s specific requirements. Stakeholder management is an important aspect of the decision making process and they are to be involved in the drafting of the decision making document.

If the decision is to proceed with one or more sourcing initiatives an execution plan is to be drafted. The plan needs to align with the defined strategy and the new orchestration and governance model. The plan needs to include:

set-up of a multidisciplinary project organization consisting of subject matter experts, sourcing experts, procurement and legal experts, PMO-support staff, change management experts, audit and quality control staff)

funding Detailed planning for the selection phase and a milestone planning overall.

The execution plan can also be a detailed plan for the full implementation of the sourcing solution. In any case the plan needs to be revised where necessary and further detailed for each subsequent phase of the sourcing lifecycle.

Guidelines for making such plans are for example PrinceII and DIS ISO 21500 Guidance on project management.

26

The decision is the responsibility of the Executive Committee

Key success factors:- Involvement and alignment of stakeholders- Decision based on quantitative and qualitative arguments

Table 8Evaluate and Decide & define Sourcing execution plan


- Sourcing strategy- Business case

- Decision document- Execution plan

8.6 Example of good practise

Strategic sourcing is primarily the responsibility of the Executive Committee. However other levels need to be engaged as well depending on the sourcing options and processes and activities to be sourced, such as financial experts, IT-specialists, legal export representatives of the respective processes and controllers.

Building a sourcing strategy is not a single point-in-time action. Changes to the business strategy need to be translated in the sourcing strategy and vice versa.

Risk management (as in all other sourcing life cycle phases) should be an integral part of the start of an outsourcing initiative. It is advised to categorize risks, for example: Legal, HR (for example retention), change management, security and compliance, sustainability and corporate social responsibility. In general risks increase as the number of processes, service providers and locations (i.e. offshore) increase.

Preparation of the outsourcing initiative is everything. Fast tracking the strategy phase strongly increases risk of failure.

8.7 Normative Reference list (used in this phase)PrinceII(PRojects IN Controlled Environments 2)is a structured project management method. The methodology encompasses the management, control and organisation of a project. Its approach can be adopted for setting up a project for the outsourcing initiative and for drafting and managing the Execution plan.DIS ISO 21500 Guidance on project management.Make a list of all used normative references (like ISO 9000) in this phase.

8.8 Bibliography list (used in this phase) The Open Group, 2009, TOGAF version 9, The Open Group, ISBN 978-90-8753-230-7

(http://pubs.opengroup.org/architecture/togaf9-doc/arch/ ) Guidance on 'Outsourced processes' , Document: ISO/TC 176/SC 2/N 630R3, October 2009

27

http://pubs.opengroup.org/architecture/togaf9-doc/arch/

9 Phase 3: Initiation and Selection

NOTE 1Check if external and/or internal audit of sourcing process have to be considered, due to transparency.

The purpose of the phase Initiation and Selection is to outline the requirement specification of the services to be outsourced, to select an adequate provider for the outsourcing, and to establish the outsourcing agreement with the selected provider successfully.

The phase starts following a positive decision on the outsourcing project. The outsourcing objects are identified. Risk analysis and profitability evaluation for the outsourcing objects have been made and continuing the outsourcing project has been decided.

The phase ends when the outsourcing agreement with the Service Provider is successfully established.

This phase consists of the following processes:1) Detail required services in a requirement specification2) Detail outsourcing model 3) Define general delivery requirements and agreement structure4) Identify potential Service Providers5) Select Service Providers6) Outline Agreement 7) Final decision and formation of the agreements

The main outcomes of this phase are: Requirement specification Detailed outsourcing model Draft agreement RFI List of potential service providers RFP Record of Down-Selection (audit trail) List of preferred service providers Signed agreement

9.1 Detail required services in a requirement specification

The purpose of this process is to develop a detailed description of all requested outsourcing services based on the defined outsourcing objects. These descriptions include all necessary information for providing the services, e. g. input, output, required results, and responsibilities. The result of this process, the requirement specification which provides the basis for the subsequent request for proposal, should to be an essential part of the future outsourcing agreement.

The process should at minimum consist of the following activities: Create template for detailed and consistent service description from a business point of view (see

ANNEX for an example) Description of the service by therefore assigned people Assess the quality and quantity structure of the requested services (see ANNEX for an example) Quality assurance of the descriptions of the services in order to assure adequacy Quality assurance of the quality and quantity structure

28

The service description should focus rather on services with a repetitive character than on services with extensive project character.

The manager of this process is responsible for the creation of a standard framework for the requirement specification, the intercompany coordination of the preparation of the requirement specification and the verification of the completeness and uniformity of the service descriptions.

<State critical success factors :>

Table 9 Detail Services in a Service Catalogue


List of outsourcing objects Enterprise Architecture report including

indicating activities that are candidates for outsourcing

Requirement specifications Description of requested quantity and quality

of services

9.2 Define outsourcing model

The purpose of the process is to detail the high level outsourcing model from phase 2 into a specific tailored outsourcing model for the scope and assignment at hand.

The process should at minimum consist of the following activities: Definition of a specific outsourcing model that refers to the general outsourcing model from phase 2 Definition of primarily static aspects of the outsourcing relationship that need to be determined in order to

manage the services, e. g.: Roles and responsibilities The governance structure and associated accountabilities Degree, structure, internal and external interface of retained organisation Joint decision making processes Change management process Incentive framework Performance framework Compensation framework Compliance framework Monitoring framework

The manager of this process is responsible for developing a specific outsourcing model for the scope and assignment of the contemporary outsourcing project that bases on the general outsourcing model derived from phase 2. The manager needs to include business management in order to define the requirements and contents of the specific outsourcing model.

Table 10 Define outsourcing model


High Level Outsourcing Model Sourcing strategy High level design of the orchestration and

governance model

Governance model

29

Execution plan

<Literature references>

DIN SPEC 1041

9.3 Define general delivery requirements and agreement structure

The purpose of this process is to define the structure of the prospective agreement as well as stating general delivery requirements which are essential for the future business relationship.

The process should at minimum consist of the following activities: Create a list of all business units and departments (see ANNEX for examples) which are affected by the

outsourced services Create a list of all units and departments which affect the outsourced services Coordination and primary contact for service providers should be defined within the departments Define legal, general (e.g. quality and environmental) and/or company regulations to be compliant with Assurance of defined legal, general and/or company regulations Define the agreement structure and its components

See Annex B for an overview of agreement components.

The contract manager of this process is responsible for the completeness and accuracy of the outsourcing agreement structure and the general delivery requirements.

Table 011 Define agreement requirements and agreement type


Business organogram Requirement specifications Description of requested quantity and quality of

services Information about legal, general (e. g. quality and

environmental) and/or company regulations Governance model

Draft version of outsourcing agreement


9.4 Identify potential Service Providers

The purpose of this process is to identify all potential providers that are suitable to the requested outsourcing services, the outsourcing strategy, the business culture and company type. Identifying adequate providers is the key to a successful selection process.

One or all of the following methods should be considered for identifying potential providers (legal requirements affecting or restricting identification methods should be taken into account (e. g. public procurement law, purchasing regulations) :

Company internal request and enquire business networks Market research and studies

30

Request for information (RFI)

The process should consist of the following activities: Create a high-level decision making matrix to weight the different information aspects Identify potential providers among methods mentioned above Compare offered services and general conditions with requirement specification and requirements of the

defined outsourcing model Report to the steering committee in order to make an informed and supported decision on service

providers that may participate in the next process Perform down-select by defined criteria

The Contract Manager of this process is responsible for defining the identification criteria, the coordination of the information gathering and the identifying of suitable providers according to the defined criteria.


Table 012 Identify Service Provider


requirement specification Description of requested quantity and quality of

services Draft version of outsourcing agreement Governance model

List of potential Service Providers


9.5 Select Service Providers

The purpose of the process Select Service Providers is to make an informed decision on which service providers are considered to be the most optimal provider given the context of:

required services cultural fit balance of power and leverage business risks (process, financial, continuity) and given transparency quality

The process should minimally consist of the following activities: Detail decision making matrix to represent the relational and cultural fit, business criticality, the financial

impact, and the overall process importance of the services Create the RFP Carry out the RFP with the identified potential Service Providers Handling information requests to clarify requirements and intentions Analyse and rank the proposals received and make a short list for further participation in the selection Service Provider Pitch Meetings Due diligence investigation Update the ranking of the proposals Advise of the preferred service provider by the steering committee Decision by the appropriate board level

Note: It might be necessary by law that selection criteria and weighting is outlined in the request for proposal. 31

The result of this process is the selection of a preferred provider. It is also possible that there are several selection cycles, during which a pre-selection takes place.

<State Role of manager that is responsible for the process>


Table 013 Evaluate and select Service Providers


List of potential Service Providers Template non-disclosure agreement Description of requested quantity and quality of

services Draft version of outsourcing agreement Requirement specification

Non-disclosure agreements List of preferred service providers


9.6 Outline Agreements

The Purpose of this process is to outline and discuss all agreements for the outsourcing relationship with the preferred service providers.

The process should minimally consist of the following activities: Designing the structure of the agreement Defining RACI and a time schedule for the outsourcing of each component of the agreement Outlining and discussion of the components, especially the service agreements according to the

requirement specification Consideration of targets, against which the delivered service should be measured Consideration and clarification of restrictions from the provider side Review and legal assessment of the designed agreement

The project manager should be responsible to define the SLAs based on the defined service catalogue and outsourcing model. Business management should be consulted to define adequate service levels.


Table 014 — Define Service Level Agreement


List of preferred service providers Requirement specification Description of requested quantity and quality of

services Draft version of outsourcing agreement Specific outsourcing model

Master agreement Service agreements Transition agreement Additional agreements

32


ISO 20000:1, 20000:2

9.7 Final decision and formation of the agreements

The purpose of this process is to negotiate the agreements and sign them by involved parties.

The process should at minimum consist of the following activities: Negotiate the master agreement Negotiate the service agreements Negotiate the transition agreement and arrangements (personnel, hardware, software) Negotiation on the volume and price Negotiate additional agreements (if applicable) Conduct a legal, compliance and risk review Renegotiate if required Make an informed decision to select the appropriate service provider

The Contract Manager of this process is responsible for the outsourcing and has to be authorised to sign the agreement.


Table 3.7 — establish the outsourcing agreement


List of selected/ preferred service provider Aligned agreement

Signed Agreement



9.9 Normative Reference list (used in this phase)

Make a list of all used normative references (like ISO 9000) in this phase.

9.10 Bibliography list (used in this phase)

Make a list of all books, guidelines and publications. Convention: < Name, (year), Title, Publisher, ISBN>.

33

10 Phase 4: Transition

The purpose of the phase Transitionis to implement all services as agreed, to hand over responsibility from the client organisation to the service provider and transfer services to the delivery phase.

The phase starts following a selectionof the service provider. The agreements for the transition of the requested services have been signed.

The phase ends when all services are transferred to the service providerand test results shows the client confidence in order to grant a sign off to the service provider so that the delivery phase can start.

The organization should implement the following transition processes:

1. Install a project management team for Transfer (PMO) (Transition project team)2. Service process design and knowledge transfer and Design the outsourcing solution3. Detailed (iterative) Transition plan – for Phase 34. Implement the appropriate governance structure & processes5. Transfer of people, processes & technology6. Install monitoring and auditing framework7. Test service delivery processes and delivery capability8. Formal handover (to service organisation and retained organisation)

The main outcome of this phase is the formal agreement between the parties upon finishing the transition process.

10.1 Install project management transition team The purpose of the process is to define the needed roles and responsibilities for the transition phase.

The process should at minimum consist of the following activities:

- Manage the execution of transition plans after the agreement signature:- Developing the preliminary transition plans - Support the due diligence from a Transition perspective- Finalizing detailed plans, process descriptions, costs and resource models for Transition. - Providing support during the final agreement negotiation.- Completion of final agreement documentation- Updating plans and documents

- During the transition period, the Transition team will be responsible for:- Availability of facilities (such as offices..)- Access to the Service Provider infrastructure (if the team is located in a customer site)- Resource availability- Formation of the team and the start of project execution must line with required lead times: all necessary product and services can be procure, infrastructure can be set-up and deliverable are completed- Clear roles and responsibilities defined to ensure productivity and effectiveness (Plan and monitor activities; Coordinate training activities; Ensure the clarity and correctness of documents and procedures, Ensure a smooth knowledge transfer; Prepare a consolidated weekly reports that will contain the details of the work completed, in-progress and planned for the next period).- Access to accurate customer data.- Acceptance of accomplish the project, including the knowledge transfer before the disengagement of transition team

<State role><State critical success factors>

34

Table 11 Install project management transition team

Primary Input (tangible and intangible) Primary OutputsFunctional documentationApplication description Roles descriptionsStaffing plan and proceduresEnvironment descriptionTraining plans

Updated plans and documentsCommunication mechanism (Distribution list)

10.2 Service process design and knowledge transfer

The purpose of this phase is to transfer the needed knowledge for the service provision from the client to the provider. Therefore a process for knowledge transferring has to be designed and implemented.


Define relevant application / systems / business processes Define methodology for knowledge transfer (see ANNEX for examples) Mapping of planned processes and workflows to the current process as they exist Analyse mapped processes and identify the possible improvements Transfer of knowledge

Knowledge, in the context of this ISO standard, could be defined as the information elements necessary for Service Provider to execute work and meet clients` expectations.

Outsourcing partners shall define the methods to achieve knowledge-transfer effectively.

Some of these methods may include (the list is not complete):

Formal Presentations/Training Informal discussions Q&A sessions Review of Documents Review of Documents (all business/system knowledge) that the Service Provider will document during the

transition phase.

The knowledge manager is responsible for the effective and complete transfer of the needed know-how.

<State critical success factors>

Table 12 Service process design and knowledge transfer


All knowledge acquired during the transition phase about the systems and applications.

Induction ManualSystem descriptionSystems InventoryBusiness overview

35

Configuration detailsTechnical operation and details of programsStandardsGlossary of terms usedMaintenance manualTechnical manuals

10.3 Detailed (iterative) Transition planThe purpose of this process is to set up a road map and clear up questions as well as potential misunderstandings of the transition phase by identifying tasks to be performed within the transition phase.


Define responsibilities and compose required transition team Identify metrics to be reported, e. g. performance evaluations, process indicators Define milestones, critical steps, roll-back points, decisions to be taken Define communication and escalations procedures

<state role><State critical success factors>

Table 13 Detailed (iterative) Transition plan

Primary Input (tangible and intangible) Primary OutputsAssumptions madeInformation about composition of new teams (incl. Shift details, performance evaluation measures)ReportingEscalation proceduresPlan release date and deployment dateWorkflow description Times to roll back

Detailed transition plan

10.4 Implement the appropriate governance structure & processes

The purpose of this process is to implement the governance model according to the outsourcing agreements.


Review the agreed governance model and derive the according roles Assign people to the required roles Setup and develop communication and escalation templates and channels Train people according to their roles Clarifying if roles and responsibilities are understood and can be performed Describe the mechanism to assess the compliance of the completed project to its original objectives Describe the process for quality review of the key project documents and deliverables.

For further information please refer to the Governance section.

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Roles (from the Project Management point of view)

A key role in project governance is that of the project sponsor. The project sponsor has three main areas of responsibility which are to the board, the project manager and the project stakeholders.

For the board, the sponsor provides leadership on culture and values, owns the business case, keeps the project aligned with the organisation's strategy and portfolio direction, governs project risk, works with other sponsors, focuses on realisation of benefits, recommends opportunities to optimise cost/benefits, ensures continuity of sponsorship, provides assurance and provides feedback and lessons learnt.

For the project manager, the sponsor provides timely decisions, clarifies decision making framework, clarifies business priorities and strategy, communicates business issues, provides resources, engenders trust, manages relationships, supports the project manager's role and promotes ethical working.

For other project stakeholders, the project sponsor engages stakeholders, governs stakeholder communications, directs client relationship, directs governance of users, directs governance of service organizations and arbitrates between stakeholders.


Table 14 Implement the appropriate governance structure & processes

Primary Input (tangible and intangible) Primary OutputsRelationship description Scope description Transition planInformation about stakeholders Business level agreements Review of issues and risks Roles and responsibilitiesReporting processesEscalation procedureCommunication model Quality review processes

Permanent governance model

10.5 Transfer of people, processes & technology

The purpose of this process is insuring a secure, complete, and effective transfer of required people, processes and technology in order to assure that the services is installed in time, in budget and in quality.


Coordination and communication between the clients teams and the Service Provider`s team to ensure that each one is performing the tasks assigned to them

Ensuring all facilities and resources required for service delivery are available Ensuring all responsibilities have been transferred and relevant HR procedures have been followed

properly Ensuring that access to the Service Provider infrastructure is provided Ensuring that all procedures, manuals, standards, and instructions are “put in place”. Ensuring that all systems, applications, technical and IT infrastructure are available. Ensuring that all user rights, access levels, restrictions, etc. are fully implemented on the provider`s site

37

Ensuring that knowledge transfer is completed and all training activities are planned and available Management of transferred employees by the Service Provider Management of transferred processes and procedures

The project manager co-ordinates between facilities, IT, infrastructure, technology, HR, legal, donor teams and the outsourced team to ensure that each is performing the tasks assigned to them.

Transition Team (or Transition Team Leader) is accountable for executing the agreed plans and transferring responsibilities to delivery and close the Transition Program (plan). (also: Preparing documents and leading transition reviews, Participate in Test Runs, manage the transition plan, monitor the transition, cost, risk)

Transition manager:

Evaluate:

Strategic importance of the process Level of complexity of the process Domain knowledge required for executing it


Table 15 Transfer of people, processes & technology


10.6 Install monitoring and auditing framework

The purpose of this process is to describe the methodology for monitoring and auditing of quality, performance and risks of service provision. This process gives directions for risk assessment, self-assessment and process improvement activities.


Define the key project metrics (KPI) for tracking e.g. quality, project progress, customer satisfaction Describe the methodology of quality monitoring and risk assessment according to the defined KPI Set-up audit criteria, e.g. company standards, relevant external standards, legal requirements Set-up mechanism for getting information from both customer and provider`s quality teams Set-up feedback mechanism to service owners according to the provided feedback Implement self-assessment procedures to determine strengths and weaknesses of the organization in

terms of its performance as well as its best practices Implement risk identification risk assessment, risk analysis, and risk evaluation Develop and implement plans with periodic intervals for auditing, monitoring and risk treatment Implement procedure and team for analysis of results provided by auditing, monitoring and risk treatment

to identify opportunities for improvement, innovation and learning Implement communication model for reporting all findings of monitoring, auditing, and risk assessment to

relevant people in the organization Set-up regular status-update meetings attended by both provider and the customer

38

Install a “Plan-Do-Check-Act” (PDCA) methodology for ensuring continuous improvement

NOTE: ISO/IEC 31000 Risk management — Principles and Guidelines provide guidance on risk management.

<State role>

<State key success factors>

Table 16 Install monitoring and auditing framework

Primary Input (tangible and intangible) Primary OutputsStatus-update meetings Other inputs from Quality teams Audit results;Risk assessmentFeedback from outsourcing partners;Results of independent reviews;Status of preventive and corrective actions;Results of previous management reviews;Process performance;

Client Satisfaction reportsProcess for continual improvementAudit reportsRisk treatment planBenchmark AnalysisResource AnalysisProcess improvement activities.

10.7 Test service delivery capabilityThe purpose of this process is to describe and ensure a complete and effective testing of all delivery processes and delivery capability.


-<state role>

<state critical success factors>

Table 17 Test service delivery capability


10.8 Formal handover <state purpose>

<state activities>

<state role>

<state success factors>

39

Table 18 Formal handover



10.10 Normative Reference list (used in this phase)Make a list of all used normative references (like ISO 9000) in this phase.

10.11 Bibliography list (used in this phase)Make a list of all books, guidelines and publicationsConvention: < Name, (year), Title, Publisher, ISBN>.

40

11 Phase 5: Deliver Value (UK, Jon)

The purpose of the phase Deliver Value is to ensure both parties realise the benefits of the outsourcing agreement. It’s the phase where the ongoing delivery of the outsourced service(s) takes place. It’s about getting the result and ensuring consistent performance of commitments made in the agreement.

The phase starts when the parties have formally agreed that the transition phase has been completed. Deliver Value marks the culmination of the other phases of the outsourcing lifecycle.

The phase ends when the relationship is terminated and either the client agreements with another service provider or the client may decide to bring the operation back in-house.

This phase consists of the following processes: Deliver Service Monitor and Review Service Performance Manage and Resolve Issues Manage Change Manage Finances Manage Relationships Manage the Agreement Value Analysis End of Agreement Preparation and Continuation Decision

The main outcomes of this phase are: Delivery and management of service performance Delivery against the outsourcing business case Analysis of the value delivered against goals, expectations and the business case Preparation to make the continuation or exit decision

11.1 Deliver Service

The purpose of the Deliver Service process is to ensure the continued and consistent delivery of service according to the agreed service levels and other commitments made to the client in the agreement. The Deliver Service process was created from the service design which was implemented during the Transition phase of the life cycle.

The service provider is responsible for installing and managing the Deliver Service process to ensure the achievement of the agreed service levels and other commitments to the client organisation.

The process should at a minimum consist of the following activities: Planning and tracking service delivery activities. This should cover the management of the physical assets

(such as equipment and buildings), the technology infrastructure and the people (personnel structures and competencies required to deliver the service). Service delivery plans should be refreshed as an ongoing management activity.

Demand management and management of capacity to ensure the effective allocation of resources to meet the day to day client needs in line with the agreed service levels.

Ensuring service personnel are clear on the service expectations committed to the client. Delivering the service in accordance with the service delivery plan and in line with the agreed service

commitments. This includes managing requests for service from the client organisation and modifying service delivery based on agreed changes to the services.

Establishing processes to maintain the continuity of service.

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Verifying that the work is being performed consistently and effectively against the service level agreements and making changes as required.

Providing training to help support end users in getting the best out of the service or product provided. Obtaining and analysing stakeholder feedback.

Whilst this process primarily focuses on the service provider, the client needs to consider how delivery from the service provider integrates into its own operation. This is particularly relevant as many organisations operate in a multi-sourced environment which makes the integration of multiple service providers with its own team a key success factor.

The Service Delivery Manager is responsible for the process. The Service Delivery Manager is a key role within the service provider organisation which should be part of the Joint Management Team. The Service Delivery Manager will typically work closely with the Account Director (or Manager) and interface with the Client Service Manager or Contract Manager.

The key success factors of this process are:

Achievement of the agreed service levels A positive service experience for the client end user Service delivery processes remain current and keep pace with client demand Resources are managed and utilised efficiently and effectively Delivery processes are integrated effectively into the client organisation

Table 023 Process Deliver Service


Service design Service delivery planService levels and agreed service commitmentsResources (physical, technology, people)

Service performance End User experienceA current service delivery plan

11.2 Monitor and Review Service Performance

The purpose of the Monitor and Review Service Performance process is to verify that the agreed upon service commitments are being met, to take appropriate action when commitments are not met or at risk of being missed and to provide appropriate information to enable continuous improvement of the management of the relationship and its performance.

The Service Provider should install a Monitor and Review Service Performance process that results in joint monitoring of results and performancein order to draw conclusions and make decisions based on realistic current data.

The process should at a minimum consist of the following activities: Defined reports should be produced to an agreed schedule which allow for weekly and monthly assessment

of performance. These should be supported with a series of scheduled meetings including a formal meeting to review

operational performance and the progress of change which should take place at least monthly at the appropriate level.

Actions arising from these meetings should be recorded and performance against them reported back at the next meeting

Performance reporting should include areas such as:

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o Performance against contractual obligations;o SLA / OLA reporting;o Financial management;o Risk and Compliance monitoring

Performance reporting is shared and reviewed with all relevant stakeholders

The Quality Manager is responsible for the process and feeds the obtained information and improvement suggestions back to the Joint Management Team and /or responsible managers. They should decide on any necessary actions to ensure the service is delivered in line with these agreements. The joint management team will examine the results to discover what is going right and why, what is going wrong and why and comparing these with previous results and on-going remedial actions. They will then validate the results to establish the current position. The next step is to agree a new action plan comprising those on-going change projects to be continued unchanged, projects that will need to be modified and new projects, and terminating any projects no longer required.


Performance is reported and reviewed on a regular basis to track actual performance against agreed commitments

Performance is actively managed to ensure consistent delivery of agreed commitments to the required quality with actions taken to address and improve performance as necessary

Table 024 Process Monitor and Review Service Performance


Performance dataPerformance expectationsService levels and quality expectations

Actionable Performance reportEvidence of actual performanceIdentification and agreement of improvement areas

11.3 Manage and Resolve Issues

The purpose of the Manage and Resolve Issues process is to ensure that issues and problems can be resolved in a timely and professional manner. It is inevitable that issues and problems will arise during the Deliver Value phase of the life cycle and it is important that the processes established in the governance framework are effectively implemented and managed to address the issues and problems that can arise.

The Service Provider should install the Manage and Resolve Issues process which was established within Governance. Issues or problems in outsourcing will include day to day operational problems (such as service disruption) as well as more far reaching occurrences which will have financial, commercial, relationship or strategic impacts.

The process should at a minimum consist of the following activities: Clearly defined and jointly accepted objectives should form the foundation of the outsourcing relationship and

as such should be the bridge to a resolution in the event of issues and problems. Issues and problems should be resolved taking into account the established joint objectives of the relationship.

A documented process for logging, classifying, escalating and communicating issues and problems based on their severity.

An Issues Register/Log should be maintained which will be reviewed by the Joint management Team or an appropriate designated body. The parties should work together to correct issues and problems and agree the appropriate response.

Issue resolution if often connected with Risk Management. The avoidance of Issues is managed by using the strategy, plan and process for identified issues and risks logged in the Risk Register.

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Risk Registers should be updated and published with the same frequency as performance reporting and reviewed at the same time – where each has an agreed mitigation strategy and action plan and timetable for completion.

The Service Delivery Manager is responsible for the process.


Issues and problems are identified at an early stage and proactively managed Communication and escalation is appropriate to the severity of the issue and dealt with at the appropriate

level of management Issues and problems are resolved in a timely manner

Table 025 Process Manage and Resolve Issues


Issues log / Problem record Resolved Issue

11.4 Manage Change

The purpose of the Manage Change process is to establish and implement procedures to manage modifications to the services provided. It is inevitable that things will change in either (or more likely both) the external and internal environment during the life of the outsourcing agreement. Effective control of change helps ensure the client, internal stakeholders and the service provider(s) maintain a common agreement and understanding around the services and the performance levels to be provided.

The Joint Management Team should install a Manage Change process which results in joint control changes to the services or the infrastructure which underpins it.

The process should at a minimum consist of the following activities: Documented procedures to record, classify, assess and approve requests for change. Establishment of a Change Management process or Change Control Board to manage change proactively at

all levels. Decision making should take into consideration the risks, the potential impacts to services, the customer,

service requirements business benefits, technical feasibility and the financial impact. The Joint Management Team should meet on a regular basis to review and manage all changes. It is

important that both parties remain consistent with the spirit of the outsourcing agreement and principles agreed in the Relationship charter or code of conduct.

The Change Manager is responsible for the process.

The key success factors of this process are: A change process which encourages adopting joint responsibility for the service Changes are well managed ensuring service stability

Table 026 Process Manage Change


Change log / register Common agreement

11.5 Manage Finances

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The purpose of the Manage Finances process is to establish and implement procedures to ensure the financial aspects of the agreement are well managed and controlled.

Both the client and service provider should install a Manage Financesprocess.These procedures are important in enabling the client and service provider to manage and control cost and revenue, effectively evaluate the impact of changes to the agreement, ensure appropriate mechanisms are in place to invoice accurately for services and for the client to verify the invoice, consumption and ensure the timely payment to the agreed terms.

The process should at a minimum consist of the following activities: Documenting and implementing the procedures required to manage and control the financial aspects of the

agreement Identifying the financial attributes which need to be controlled. Understanding the drivers which create

variance and determining a range of acceptable performance for each financial attribute Creating the financial management reports to be reviewed Tracking and monitoring financial budgets and determining appropriate corrective action to take if variances

occur Managing the assets of the agreement Performing the financial administration for the agreement. Creation, validation and processing of invoices.

Managing payment problems and managing pricing and Auditing the agreement finances to ensure compliance with agreement objectives and accounting rules

The Finance Manager is responsible for the process and feeds the obtained information back to the respective Management team and / or responsible managers. They should decide on any necessary actions to ensure the finances continue to be well managed and controlled.

The key success factors of this process are: Cost and revenue is managed in line with expectations and budget with variances acted upon and addressed

in a timely manner Invoices raised are accurate and timely, easily verifiable and paid to agreed terms Enables effective financial evaluation of changes to the agreement

Table 027 Process Manage Finances


AgreementFinancial goals and objectivesBudgetsAccounting rulesAssets (equipment, people, facilities etc.)Consumption data

Financial reportsInvoices Costs / Revenues managed and tracked to budget

11.6 Manage Relationships

The purpose of the Manage Relationships process is to ensure relationships with all stakeholders are actively managed in accordance with the practices outlined within the overarching Governance section. Managing and maintaining realistic performance expectations (often referred to as Expectations Management) are a key ongoing requirement throughout the Deliver Value phase of the life cycle.

Establishing and maintaining an effective, collaborative business relationship, with all key stakeholders, is a critical success factor in successful outsourcing. The importance of this activity should not be underestimated.

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The Joint Management Team should install the Manage Relationships process which should be embedded in line with the relationship management plan and governance model created within the Governance section of the lifecycle.

The process should at a minimum consist of the following activities: Implementation of the agreed governance model with clear roles and responsibilities for all parties. Building confidence and trust with all stakeholders Ensuring all parties are clear on the behaviours expected of each other, in particular ensuring openness,

transparency and honest communications at all times. Processes should also cover the onboarding of new team members.

A method of relationship assessment which should be used on a regular basis to monitor the strength and quality of the relationship. Both the outputs and the corresponding maturity of the collaborative behaviours should be assessed.

Ensuring realistic expectations of performance are maintained through regular stakeholder interactions and expectation setting.

A process to review and implement improvements agreed by the joint management team.

Both the client and service provider should designate an individual who is responsible for managing the relationship and ensuring customer satisfaction. Typically this will be the Relationship Manager or Account / Service Provider Manager.

The key success factors of this process are:• A collaborative and effective business relationship which enables the parties to work successfully together• Aligned stakeholders with realistic performance expectations

Table 028 Process Manage Relationships


Relationship planGovernance modelStakeholders

An effective relationshipRelationship health assessment

11.7 Manage the Agreement

The purpose of the Manage the Agreement process is to establish and implement procedures for managing the outsourcing agreement throughout the Deliver Value phase.

Both outsourcing partners should install a process to Manage the Agreement which ensures compliance is maintained, the agreement remains current with a common understanding across stakeholders of the terms and obligations within the agreement.

The process should at a minimum consist of the following activities: Protecting your organisation by monitoring compliance with the agreement Ensuring the agreement remains current and up to date. Managing organisational understanding of the agreement. It’s important to ensure all stakeholders maintain

an appropriate understanding of the agreement.

Both outsourcing partners should designate a Contract Manager who is responsible for managing the agreement.

The key success factors of this process are:• An outsourcing agreement which remains current and up to date• Compliance with the terms and obligations under the agreement• Aligned stakeholders who understand the agreement

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Table 029 Process Manage the Agreement


Outsourcing agreementContract Manager(s)Stakeholders

Outsourcing agreement remains current and up to dateCompliance with the agreement A common understanding of the agreement

11.8 Value AnalysisThe purpose of the Value Analysis process is to establish and maintain procedures for assessing the value realised from the outsourced service.

The Client should install the Value Analysis process. The original business case created a value proposition and an expectation around the level of service and value which would be received. Progress against these goals should be tracked and measured throughout the Deliver Value phase. The measures here may be broader than those defined in the outsourcing agreement.

The process should at a minimum consist of the following activities: Maintaining and reviewing the business case Establishing a baseline upon which to assess performance against Documenting the results of the value analysis and sharing them with the service provider to help drive

performance improvement. Both parties should be looking to extract maximum value from the relationship Identifying improvement areas Participating in service improvement programmes to address identified improvement areas

The Contract Manager or other designated responsible individual should manage the Value Analysis process. It is helpful to ensure that value is clearly defined with outcomes quantifiable and measurable. The Contract Manager should ensure consensus is gained across the various stakeholders within the client organisation on the value delivered.

The key success factors of this process are: A grounded assessment and record of value delivered against goals Analysis and outcomes which are bought into and accepted by all key stakeholders Improvement areas identified which can be addressed with the service provider

Table 024 Process Value Analysis


Business casePerformance metrics and measuresStakeholder expectations

Value analysis resultsIdentified improvement areas and service improvement programmes

11.9 End of Agreement Preparation and Continuation Decision

The purpose of the End of Agreement Preparationand Continuation Decision process is to ensure the client can: 1) make an informed decision about whether to continue with the outsourced services; and 2) is well prepared for when the relationship ends at some future point with a clear exit strategy which minimises the disruption and impact for both parties.

The client should install the Endof Agreement Preparation and Continuation Decision process. Outsourcing agreements are complex and the decision to continue, exit or change the agreement is a complex one. It is likely that both parties will have embedded assets in the relationship (be they particular skill sets or hard assets) and these have a value to either or both parties. The importance of this process should not be underestimated.

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The process should at a minimum consist of the following activities: Identifying the criteria for making the continuation decision. Collecting data to evaluate performance against expectations over time(the output from the Value Analysis

and Monitor and Review Performance processes will be inputs into this activity) Understanding the constraints and barriers which exist to continuation of service Maintaining an up to date exit plan which is well understand and has been tested for completeness. Understanding and defining the objectives for continuing the service Maintaining the business case, as required, for service continuation. Establishing and implementing procedures for making decisions about continuing the outsourced service

The Contract Manager is responsible for the process and will need to collaborate with a number of internal stakeholders to manage and co-ordinate this process. The output will be shared with the Executive Committee.

The key success factors of this process are: Clear procedures and criteria for making the continuation decision based on fact-based data An up to date exit strategy which is relevant and complete

Table 205 Process End of Term Preparation and Continuation Decision


Performance dataOutsourcing agreementExit Plan

Up to date exit planUpdated business caseAgreed continuation criteria


11.11 Normative Reference list (used in this phase)ISO / IEC 20000BS11000 Collaborative Business Relationships.

11.12 Bibliography list (used in this phase)eSourcing Capability Model for Client Organizations (eSCM – CL)eSourcing Capability Model for Service Providers (eSCM – SP)Convention: < Name, (year), Title, Publisher, ISBN>.

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12 Phase 6: Governance (UK, Paul Hart)

12.1 Introduction

In the outsourcing contextGovernance should be considered as an enterprise wide, overarching subset of the corporate management function aimed at delivering innovation, value and mitigating risk to the business. Governance should provide the senior management continuum throughout the outsourcing life-cycle to provide a consistent and appropriate focus on strategic outcomes. In this respect governance is quite distinct from pure operational management which focuses on the ‘deliver value’ phase of outsourcing. Operational management can be described as the day-to-day management of services being delivered and as such is very much process based to ensure appropriate information flows, consistency, and repetitive rigour driven by commitments to service performance and quality.

‘Good’ governance is critical to the success of any outsourcing venture and can be described most simply as an appropriate formal decision making framework to ensure alignment of the services provided with the business, technical and sourcing strategies of the client. The actual governance model implemented will be ultimately determined by a number of factors including:

Complexity of the services contracted Criticality of the services contracted (e.g. strategic vs commodity) Geographical coverage Corporate Management structure of client/provider organisations (e.g. divisions, business units, regions

etc.) Relationship between client and provider Commitment to collaborative working

Governance will also mature over time to reflect developing mutual levels of trust and confidence together with the changing aspirations and the nature of the client and provider relationship.

The client/provider relationship between client and service provider is equally important and should be considered as a key enabler of good governance. Outsourcing agreements will rightly focus on precise solution definition and scope, term, performance metrics, commercial models and contractual terms and conditions but should also clearly articulate the relationship intent and mutual expectations between client and service provider. These very real and often personal expectations will have been formed during the ‘initiation and selection’ phase and will influence perceptions of success, irrespective of actual delivery performance. It is crucial from the outset for everyone involved to establish and clearly communicate jointly agreed expectations and objectives which can be described within a relationship strategy. Such a strategy provides the business context for driving appropriate behaviours and attitudes, and should influence the governance orientation i.e. the manner in which governance is conducted.

12.2 Purpose

Governance is the formal, disciplined, hierarchical and sustainable management framework with clear objectives, which functions to:

Maintain focus on the business strategy and imperatives; Enable the delivery of quality services to meet business needs; Nurture and enhance the relationship between client and service providers; Drive appropriate behaviours and attitudes; Satisfy the expectations of the stakeholders;

Enable effective decision making and mitigate risk; Foster the creation of value and enable innovative practices to flourish;

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Enable effective communication; Establish ownership and control; Demonstrate compliance Build trust and confidence between all parties; Provide oversight and stewardship.

Mission

Organisation& meetings

Roles &Responsibilities

Life CycleProcesses

Measures

Policies &Standards

Organisation & meetingsA joint governance structure and formal reporting mechanisms to provide focus at the right level with the right stakeholders


Roles & ResponsibilitiesWho is responsible for what, and to whom they are accountable (both Customer Retained Organisation & Service Provider)

MeasuresMetrics to foster informed executive decision making e.g. KPIs & CSFs

Policies and standardsTo drive service integrity, quality, excellence and compliance in line with business objectives

Life Cycle Processes To provide the day to day management, rigour, discipline and information accuracy/currency required to support effective decision making


MissionClear strategy, intent and direction for the relationship between Customer and Provider

Mission

Organisation& meetings

Roles &Responsibilities

Life CycleProcesses

Measures

Policies &Standards



Roles & ResponsibilitiesWho is responsible for what, and to whom they are accountable (both Customer Retained Organisation & Service Provider)

MeasuresMetrics to foster informed executive decision making e.g. KPIs & CSFs

Policies and standardsTo drive service integrity, quality, excellence and compliance in line with business objectives



MissionClear strategy, intent and direction for the relationship between Customer and Provider

The key components of ‘good’ governance

12.3 Scope

Section 11 addresses governance as it specifically relates to outsourced services and solutions and not the internal Corporate Governance of either client or provider. This scope is therefore confined to:

Key enablers for good joint governance between client and provider Governance as it relates to each of the outsourcing lifecycle phases:

- Phase 1: Identify Strategy- Phase 2: Strategic Sourcing Analyses- Phase 3: Initiation and Selection- Phase 4: Transition- Phase 5: Deliver Value

Innovation Governance Governance Control Document Overall governance performance and effectiveness

Ideally governance should be defined at an early stage in the outsourcing lifecycle, the timing determined by ‘Sourcing strategy analyses’ and ‘Initiation and selection’ phases.

12.4 Key enablers

12.4.1 Relationship Strategy

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Outsourcing agreements will rightly focus on precise solution definition and scope, performance metrics, terms & conditions and commercial models. The agreement should also address the wider aspirations or expectations of the key stakeholders. These very real expectations will have been formed during both Phase 2: ‘Strategy Sourcing Analyses’ and Phase 3: ‘Initiation & Selection’ processes and are expressions of the value the stakeholders expect to receive from outsourcing and the association with a given selected Service Provider i.e. value and benefit above the actual contracted scope.

The nature of the relationship will be determined by these expectations. AService Provider may have been selected on its proven ability to deliver a specific solution or service but also the opportunity to access the provider’s wider capability and industry experience in other business areas. The drivers for outsourcing will also play a part in determining the shape of the relationship and governance between client and provider. A cost sensitive commodity service will require a different governance emphasis from, say, a complex high value business critical service which will be typically more ‘partnership and trust’ oriented.

Expectations will influence personal perceptions of success, irrespective of actual performance during Phase 5: ‘Deliver Value’. It is crucial from the outset for everyone involved to establish and clearly communicate jointly agreed aspirations and expectations which can be formally described within a relationship strategy. Such a strategy provides the business context for driving appropriate behaviours and attitudes, and should be reflected in the governance design.

Behaviours, attitudes and the manner in which everyday interactions are conducted impact the health of the relationship on a daily basis as they directly affect the ‘experience’ between individuals of both organisations. The client and service provider should work together to agree on acceptable norms or protocols for working together which can be socialised throughout both organisations as behavioural expectations or guidelines. This relationship ‘charter’ should be directly supportive of the relationship strategy.

The relationship strategy between client and provider is a key enabler for successful outsourcing and should set the overall direction for those involved in managing and delivering the service. Consider the implementation of a Strategic Relationship Board to provide appropriate executive focus. The following example meeting template illustrates the scope of such a governance meeting.

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Table 19 Example governance meeting – Strategic Relationship Board

Updated Strategic Relationship planBroad business direction and opportunities to jointly exploreMinutes of the meeting

Presentations from Management / Industry SMEs/ Service provider / Academia as driven by agendaActions from the previous meeting

OutputsInputs

•Business strategy (including specific business unit goals, drivers, challenges and objectives) – both client and service provider;

•The relationship strategy and alignment between client and service provider (relationship performance);

•Market trends, Business outlook;

•Stakeholder management;

•Business continuity;

•Investment portfolio

•Benefits realisation;

•Balance of business and service risk between client and service provider.

Client:•Chief Operating Officer•Chief Financial Officer•Chief Information Officer•Executive sponsor for the outsourcing agreement

Service provider:•Senior Executive (e.g. GM, MD) •Service Delivery Executive•Client Executive

Standing AgendaKey Attendees

Meets every six months by mutual agreement at an off site venue

The Strategic Partnership Board focuses on the strategic business relationship and alignment between client and service provider. This meeting provides an opportunity for the client and service provider to exchange views on strategic matters, business outlook, market challenges, and substantive opportunities to create value for competitive advantage.

Strategic RelationshipBoard

ArrangementsDescriptionMeeting

Updated Strategic Relationship planBroad business direction and opportunities to jointly exploreMinutes of the meeting

Presentations from Management / Industry SMEs/ Service provider / Academia as driven by agendaActions from the previous meeting

OutputsInputs

•Business strategy (including specific business unit goals, drivers, challenges and objectives) – both client and service provider;

•The relationship strategy and alignment between client and service provider (relationship performance);

•Market trends, Business outlook;

•Stakeholder management;

•Business continuity;

•Investment portfolio

•Benefits realisation;

•Balance of business and service risk between client and service provider.

Client:•Chief Operating Officer•Chief Financial Officer•Chief Information Officer•Executive sponsor for the outsourcing agreement

Service provider:•Senior Executive (e.g. GM, MD) •Service Delivery Executive•Client Executive


Meets every six months by mutual agreement at an off site venue

The Strategic Partnership Board focuses on the strategic business relationship and alignment between client and service provider. This meeting provides an opportunity for the client and service provider to exchange views on strategic matters, business outlook, market challenges, and substantive opportunities to create value for competitive advantage.

Strategic RelationshipBoard


Managing the relationship at a day by day operational level is discussed further in Phase 5: ‘Deliver Value’.

12.4.2 Governance meetings - framework & disciplines

Think of governance as a hierarchy of management meetings which should reflect the need to provide a clear and unambiguous translation of business and sourcing strategy into operational execution. Consider the following levels when developing a governance framework:

Strategic > Relationship: Intent, Strategy, Stakeholder expectations, Innovation, Investment

Tactical > Management: Oversight and control, alignment with business needs and goals

Operational > Service: Consistent service performance, quality and excellence

In broad terms all governance meetings will be interconnected by information flows - the cascading of corporate and management direction, approvals and decision making and the flow back up the governance chain of information relating to performance, issues to be resolved, achievement and value delivered.

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Operational

Strategic

Tactical

• Business Strategy• Relationship Strategy• Communication strategy• Business outlook• Investment Portfolio• Direction• Policy• Standards• Planning• Approvals• Issue resolution

• Value• Benefits realisation• Relationship performance• Achievement• Customer satisfaction• Programme performance• Compliance• Requests for approval• Escalated issues• Service performanceOperational

Strategic

Tactical

• Business Strategy• Relationship Strategy• Communication strategy• Business outlook• Investment Portfolio• Direction• Policy• Standards• Planning• Approvals• Issue resolution

• Value• Benefits realisation• Relationship performance• Achievement• Customer satisfaction• Programme performance• Compliance• Requests for approval• Escalated issues• Service performance

Figure 4 Information flows – direction and reporting

The governance meetings framework should define the joint meetings between client and service provider. The precise nature of these meetings will be determined by the outsourcing scope and the relationship between client and service provider but a basic framework should at least include formal and scheduled decision making fora to enable effective management oversight, decision making and intervention where required. Good governance requires the right people to come together at the right time to fulfil their obligations to each other. An example meetings structure follows:

Strategic Relationship Board

Management Board

Service Review Board

Innovation Board

Compliance Review

QA Review

Risk Review

Commercial Review

Change Control BoardChange Control Board

Programme Management Board

Transition BoardTransition Board

Strategic Relationship BoardStrategic Relationship Board

Management BoardManagement Board


Innovation BoardInnovation Board

Compliance Review

QA Review

Risk Review

Commercial Review

Change Control BoardChange Control Board

Programme Management BoardProgramme Management Board

Transition BoardTransition Board

Figure 5 Example governance meetings structure

Meeting disciplines are important to maintain timely, productive and constructive discussion. Each meeting should be ideally ‘face to face’ and conducted as a demonstrable and willing commitment to each other. There are some basic disciplines which should be considered:

Administration – An individual should be responsible for all governance related administration. Governance can only work effectively when the management cycles and flow of management information

are clearly understood and the decision making meetings structured and sequenced accordingly. All inputs, minutes and outputs should be lodged centrally.

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Meetings should be locked down in calendars for at least two months ahead and a meetings calendar should be published including meeting logistics.

Preparation – Every attendee should be well briefed before a meeting. Ideally the meeting agenda and supporting information should be communicated two days beforehand as

a pre-read providing attendees with the opportunity to absorb the salient facts and prepare any groundwork.

Agenda & Attendees – The meeting agenda should reflect business priorities and objectives All outstanding actions and decisions should be clearly identified. The right people should be attending the meetings and or an authorised deputy as an exception. Responsibilities and decision making rights should be clearly defined to ensure appropriate empowerment

of individuals and their counterparts. Good governance depends on face to face commitment.

Meeting discipline (running the governance meeting) – Keep to the agenda People should arrive on time Every should be well prepared The meetings conducted in an orderly and productive manner Be clear about what decisions need to be made Launching the odd missile or ‘ambush’ is rarely conducive to pragmatic decision making and should be

avoided Jointly agreed minutes should be taken and subsequently published. Decisions and agreed actions should be quickly communicated to those who need to know.

Reporting – Current and relevant information should be presented clearly and concisely Scorecards should be considered as the best way to present information – providing the focus on highs

and lows, key achievement and issues to be resolved

12.4.3 Organisational ‘mapping’

Good governance depends on well-defined roles and responsibilities, decision making rights and appropriate empowerment. Consider who should interact with whom and why when services have been outsourced. For both organisations to work effectively, individual relationships between client and service provider should be structured to ensure ‘level setting’ of authority and empowerment. Success will come from people being confident in their position, capable of making commitments to each other and above all being clear on their respective obligations.

Develop a ‘map’ of key roles within both client and service provider organisations and ensure each one to one relationship is described in terms of responsibilities and accountability. Understanding these individual relationships and their roles within each organisation will help in developing the client (retained) organisation for the outsourced services.

At a senior management level this may be reasonably easy to develop but the mapping between two or more organisations becomes more complex at an operational level where ‘many to many’ relationships need to be addressed. The simplest way to complete the organisational mapping is to develop a RACI matrix for each step of each joint process in Phase 4: ‘Transition’ and Phase 5: ‘Deliver Value’.

RACI = R – Who is Responsible, A – Who is Accountable, C – Who should be Consulted, I – Who should be Informed

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For each process step the client and service provider should agree on the RACI definition which not only makes it clear as to who does what, but helps to formulate the client (retained) organisation based on an identified need for an individual to perform a certain role. Note that only one person can be Accountable for any given activity or deliverable.

This ‘mapping’ exercise will deliver a comprehensive view of how the client and service provider organisations (and individuals) will interact and ensure clarity for defining specific roles within the respective organisations.

12.4.4 Client’s (Retained) Organisation for an outsourced service

Many organisations fail to address the fundamental and pivotal relationship between a client (retained) organisation and an Service Provider. Effective governance can only be achieved when:

The relationship strategy is clear, communicated and understood Client and provider roles and responsibilities are jointly agreed and documented Process ownership and control mechanisms are clearly defined Individuals have the authority to fulfil their roles, obligations and commitments to each other

The client’s organisation should be a ‘lean’ and empowered management group for protecting stakeholder investment, mitigating risk and driving value from outsourced services. The client organisation will focus on:

Meeting strategic objectives Satisfying stakeholder expectations Maintaining alignment of service to business need (and the dynamics of change) Exploring opportunities to enhance business capability Demonstrating business value from the outsourced services Maintaining effective decision making

The size of the client retained organisation (as it relates to a given outsourcing arrangement) will be influenced by the client management style, scope of the outsourced services and the level of trust and confidence between client and Service Provider. Ideally the client organisation should be a small but highly effective team (often referred to as ’lean’) and should provide, as a minimum, the following functions:

Contractual and financial management Liaison between business units and the Service Provider (s) Effective communication and means for consultation Maintain process integrity Clear and effective decision making processes and approvals A ‘Fast path’ for issue and/or conflict resolution Audit and Compliance

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• Strategy

• Relationships

• Stakeholder Management

• Value

• Business Alignment

Head ofClient

Organisation

FinancialManagement

ContractManagement

DemandManager

Service Management Lead Architects

• Business Requirements

• Demand optimisation

• Prioritisation

• Business Case

• Liaison with businesses

ProjectManagement

ChangeManagement

• Performance (SLA, KPI)

• Service Continuity

• Security

• Quality

• Incident Management

• Service Change

• Enhancement

• Risk mitigation

• Contract Change

• Governance

• Scope

• Enterprise

• Strategy

• Standards

• Policy

• Compliance

• Financial Reporting

• Budgets

• Investment

• Change definition

• Solution sign-offs

• Implementation planning

• Test & compliance

• Scope & deliverables

• Planning & approvals

• Prioritisation

• Quality

• Programme/project management

• Benefits realisation

• Approvals

Head of DesignAuthority

PortfolioManagement

• Strategy

• Relationships


• Value


• Strategy

• Relationships


• Value


Head ofClient

Organisation

FinancialManagement

ContractManagement

DemandManager

Service Management Lead Architects

• Business Requirements

• Demand optimisation

• Prioritisation

• Business Case

• Liaison with businesses

ProjectManagement

ProjectManagement

ChangeManagement

ChangeManagement

• Performance (SLA, KPI)

• Service Continuity

• Security

• Quality

• Incident Management

• Service Change

• Enhancement

• Risk mitigation

• Contract Change

• Governance

• Scope

• Enterprise

• Strategy

• Standards

• Policy

• Compliance

• Financial Reporting

• Budgets

• Investment

• Change definition

• Solution sign-offs

• Implementation planning

• Test & compliance

• Scope & deliverables

• Planning & approvals

• Prioritisation

• Quality

• Programme/project management

• Benefits realisation

• Approvals

Head of DesignAuthority

PortfolioManagement

Figure 6 Example Client (Retained) Organisation

12.5 Phase 1 – Identify Strategy

Governance for this phase is client only and represents a subset of the client’s corporate governance function. The strategy for sourcing should address the opportunities for increasing derived value from investments in sourcing models aligned with business strategy and corporate goals, whilst mitigating risk on behalf of investors. Corporate governance has to demonstrate efficacy and integrity and decisions made during this phase will be subjected to close scrutiny.

A governing body should be established to oversee the entire ‘Identify Strategy’ phase to ensure that all processes are conducted in a thorough and diligent manner and that each process is compliant with agreed terms of reference.

12.6 Phase 2 – Strategic Sourcing Analyses

Governance for this phase is also client only. A Strategy Sourcing Project Board, reporting to an Executive Sponsor, should be establish to oversee all strategic sourcing processes and ensure that all potential sourcing options have been pursued rigorously. Meeting regularly within an agreed project timetable the Strategic Sourcing Project Board will ensure thorough consultation with stakeholders, integrity of the business case for sourcing and mechanisms for protecting investments made in sourcing options.

12.7 Phase 3 – Initiation & Selection

There are two aspects to governance for this phase. Firstly there’s the governance of the phase itself:

Client internal only – A governing body should be established to oversee the entire ‘Initiation & Selection’ end to end phase and to ensure appropriate consultation, process integrity, diligence and efficacy in all decision making processes. The governing body will establish control mechanisms for each process to ensure all requirements,

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evaluation, selection and negotiation processes directly support business objectives and do not undermine (or run contra to) business expectations.

Joint – The degree to which governance can be jointly implemented largely depends on the commercial stance of the client and the role of advisors during the phase but there are significant benefits to be gained from direct collaborative working with ‘down selected’ service providers i.e. the final two or three selected potential providers. Consider the advantages of allowing closer working arrangements during the final selection process to:

Ensure absolute alignment of proposed solutions with requirements Run joint workshops to reach agreement on specific points of interest Identify opportunities for additional value Establish clarity of roles and responsibilities Manage deliverables against agreed timelines and milestones Elimination potentially costly misinterpretation Facilitate assured recommendations Mitigate against risk during contractual negotiation

The second aspect of governance during this phase is the jointly agreed definition of the post contract governance of the services outsourced. This may be described by the client in their requirements definition process and/or reviewed during the evaluation/selection process but it is crucial that post contract governance is thought through carefully by both client and service provider - and defined clearly within the agreement (see 11.12 Governance Control Document, including the implementation plans for all agreed governance activities during transition).

12.8 Phase 4 – Transition

Transition governance provides the robust management of all projects and programmes related to the successful transfer of services from the client to the Service Provider. This critical phase should be subject to close oversight and scrutiny to ensure:

Mitigation against possible business disruption during service All transition programme and project activities are resourced appropriately Services are transitioned on time and to budget The viability, quality and integrity of services transitioned into the ‘Deliver value’ phase The on-going governance is implemented and proven

This phase should be governed by a formal Transition Management Board, jointly staffed by Client and Service Provider. The individual roles and mandate of the Transition Board should be defined before agreement to provide continuity of management focus. All transition process inputs and outputs (as defined in Phase 4: ‘Transition’ Phase) will be subject to direction from, or review, by the Transition Management Board.

12.9 Phase 5 – Deliver Value

This phase ensures that both parties realise the expected benefits from the outsourcing agreement. Governance in Phase 5 will be jointly staffed and has a key role to play in providing oversight and control for outsourced services. The objective of governance here is to provide formal and regular management mechanisms for reviewing performance, resolving issues and making effective service related decisions based on current and relevant information.

The outputs from the Phase 5: ‘Deliver value’ processes should be input to a number of governance meetings addressing specific aspects of service delivery. Such meetings will of course vary with scope and the industry legislative or regulatory requirements but should at least include:

Service Review Board Commercial Review Board Financial Review Board Compliance Review Board Security & Compliance Review Board

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Quality & Risk Review Board Change Control Board

The following example illustrates a typical governance meeting template for the Service Review Board:

Table 20 Example ‘Deliver Value’ governance meeting - Service Review Board

Updated Service Delivery Plan & Report PackUpdated Risks and Issues LogApprovals, decisions and directives Minutes of the meetingEscalations and Summary report for Management Board

Service performance report packService Improvement PlanValue analysis report Risks and Issues log: for mitigation and resolution Minutes of the previous meeting

Outputs include:Inputs include:

Summary of previous months serviceSLA/KPI performanceServices performance review (high/lows by scorecard)Service management performanceClient satisfaction feedbackCapacity & resource reviewChange managementSecurity and ControlsRisks & issuesService acceptanceService improvementValue analysisManagement Board report & escalations

Client:•Head of Service Delivery (Chair)•Service Delivery Principal•Change Manager

•Managers as required for the following:

- Quality, Risk, Security, Compliance

Service Provider:•Service Delivery Executive•Lead Services Manager•Change Manager




Every month for 2 hours

The Service Review Board monitors and assesses service performance delivered by the outsourcing provider. It also manages and monitors the services portfolio, service changes, improvements to service quality and the risks and issues which may impact service delivery.



Updated Service Delivery Plan & Report PackUpdated Risks and Issues LogApprovals, decisions and directives Minutes of the meetingEscalations and Summary report for Management Board

Service performance report packService Improvement PlanValue analysis report Risks and Issues log: for mitigation and resolution Minutes of the previous meeting

Outputs include:Inputs include:

Summary of previous months serviceSLA/KPI performanceServices performance review (high/lows by scorecard)Service management performanceClient satisfaction feedbackCapacity & resource reviewChange managementSecurity and ControlsRisks & issuesService acceptanceService improvementValue analysisManagement Board report & escalations

Client:•Head of Service Delivery (Chair)•Service Delivery Principal•Change Manager



Service Provider:•Service Delivery Executive•Lead Services Manager•Change Manager




Every month for 2 hours

The Service Review Board monitors and assesses service performance delivered by the outsourcing provider. It also manages and monitors the services portfolio, service changes, improvements to service quality and the risks and issues which may impact service delivery.



12.10 Innovation Governance and the Value Creation Centre

The nature of any given outsourcing arrangement will be determined by the client sourcing strategy. The specific drivers may vary from service optimisation and cost reduction to delivering increasing and demonstrable value to the business by applying innovation for competitive edge. If the cornerstone of the sourcing strategy (or indeed a specific outsourcing agreement) is value through innovation then both client and service provider need to be clear about what those value expectations are, the alignment with business strategy and their respective roles in making it happen. Phase 3: Initiation and Selection should provide clearly express the client’s vision and expectations in this respect and prospective service providers’ innovative track record, in depth industry knowledge and transformational capabilities should be assessed against appropriate innovation criteria.

Innovation is a business led agenda and will require strong leadership, determination, commitment, creativity and collaboration. Business strategy will change over time and the innovation process needs to be refreshed to maintain relevance and consistently deliver benefit. Innovation can be described as “driving significant positive change through new or different ways of thinking i.e. being creative to deliver additional value.”

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The nature of the client/service provider relationship (the relationship strategy) will need to reflect the desire for collaborative working and the expected outcomes from such a way of working. A closer, more partnership style of working together is essential if traditional norms are to be challenged by the exploration and exploitation of innovative ideas. Both parties should jointly agree a set of guiding principles which clearly describe the working principles, rationale and behavioural mind set behind collaborative working.

The governance of the ‘innovation funnel’ is therefore of great importance to both client and service provider. Decisions on innovation investment and the pursuit of specific and viable innovation opportunities will typically be joint as both parties should benefit.

Innovation Governance

Innovation Portfolio Management

Ideas Develop Pilot Deliver

• Ideas generation• Ideas capture• Identify innovation candidates

ExplorePotential

Qualify &Sponsor

Select initiativesto pursue

Appoint initiativeProject sponsors

Developinitiativesvia projects

Trial initiativesDevelop benefit proof points

Approve & launchInitiatives intodelivery

BusinessBenefit

Innovation Governance

Innovation Portfolio Management

Ideas Develop Pilot Deliver

• Ideas generation• Ideas capture• Identify innovation candidates

ExplorePotential

Qualify &Sponsor

Select initiativesto pursue

Appoint initiativeProject sponsors

Developinitiativesvia projects

Trial initiativesDevelop benefit proof points

Approve & launchInitiatives intodelivery

BusinessBenefit

Figure 7 Key stages of the innovation ‘funnel’

Innovation governance, in the form of an Innovation Board should provide the strategic direction, oversight and control of all innovation related activities, including the creation and management of a ‘Value Creation Centre’. The value creation centre should be considered as the innovation managing entity at an execution level, taking responsibility for the end-to-end process of transforming ideas into real business value. The value creation centre will be the incubator for

Capturing innovation ideas and grouping by innovation themes Exploring potential business benefits and investment case Qualifying and selecting innovation ‘candidates’ to pursue Development of initiatives via formal sponsored projects The trial and proof points Formal launch and release with approval from the Innovation Board Tracking of on-going value

The Innovation Board provides the client and service provider executives with a forum to exchange ideas in a business context, share industry experience and expertise, review current innovation trends in the wider market, assess their personal innovation performance and review their investment portfolio. A typical Innovation Board meeting template is illustrated below:

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Table 21 Example Innovation Board governance meeting template

Innovation Board

FrequencyQuarterly, face to face

LocationTo be advised

Context and Purpose

Innovation drives business value and competitive advantage. The development of innovation initiatives and the investment portfolio of approved innovation projects needs to be consistently aligned with business strategy.

The Innovation Board provides the Executive oversight and control of the innovation investment portfolio and the performance of the Value Creation Centre in delivering tangible business value.Key Attendees to include

The Client and Service Provider Executive Leadership Team responsible and accountable for business value from innovationClient

Chief Operating Officer … Chief Financial Officer … Chief Information Officer … Executive Project Sponsors…..

Service Provider Chief Innovation Officer … Project Directors ….

Inputs1. Previous Innovation Investment Portfolio2. Business strategy 3. Headlines on new ideas4. Innovation initiative proposals5. Investment cases for approval6. Initiative development project updates7. Pilot achievements8. Value tracking

Outputs1. New investments approved2. New Project Sponsors assigned3. Updated Innovation Investment Portfolio4. Innovation Board directives

Standing Agenda Industry headlines Innovation initiative proposals for approval Project Sponsorship Progress of existing initiative development projects Issues and risks that specifically relate to innovation activities Innovation Investment Portfolio.

12.11 Governance performance

The effectiveness and efficiency of joint governance should be assessed on a regular basis. Consider a few key performance indicators to measure the performance of governance overall. As governance is the core outsourcing management function it should be continuously ‘fit for purpose’. A short survey of stakeholders, those directly involved in governance and those whose roles are influenced in some way by governance should provide a reasonable mix of objective and subjective feedback.

Governance should change over time to reflect all manner of changes in people, roles, organisational constructs, scope etc. and the performance survey feedback will provide a measure of how well governance is adapting to such changes.

The governance performance survey could address objective measures such as the number of escalations, quality of issue resolutions, number of outstanding actions, communication responses, delay time caused by slow

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or ineffective decision making, approvals outstanding etc. Of equal importance are the ‘soft’ or subjective measures such as commitment, collaboration, behaviours and attitudes.

The survey feedback should be formally reviewed and remedial action taken where necessary

12.12 Governance Control Document (GCD)

A Governance Control Document (GCD) should be developed as the repository for all matters relating to governance. The GCD will provide the reader with a single, easily accessible reference point for jointly agreed commitments and control mechanisms between client and service provider. It describes the business context, ‘ways of working’ and principles by which the outsourcing arrangement will be managed.

Typically the Governance Control Document will be structured as follows: Business Strategy Rationale for outsourcing The Client / Service Provider Relationship Strategy (including agreed mutual expectations) Relationship Charter (describing expected behaviours and ways of working together) Roles and responsibilities Implementation Plan (transition) Organisational Contact Map Governance Framework Meetings Templates Meetings discipline Governance performance metrics Escalation processes

The Governance Control Document should be maintained as a ‘living’ contractual document and any required changes should be formally approved by both parties to ensure integrity of the contents.

12.13 Governance Implementation Checklist

The following activities or building blocks should be completed to implement governance:1) Establish the key business drivers and outcomes for outsourcing

Business strategy, business case, stakeholder expectations, key performance metrics (e.g. Critical Success Factors (CSFs) and Key Performance Indicators (KPIs)

2) Define the governance strategy and lifecycle phasesVision, formalisation, alignment to business, multi-tier relationship principles

3) Establish clear responsibilities and accountabilities for both customer and service provider(s)Use agreed responsibilities and accountabilities to determine:Organisational constructs for customer ‘retained’ and service provider(s)Delineation, roles, empowerment and decision making rights

4) Determine / reference standards and policies for governance control, regulatory compliance, risk, assurance, security

5) Establish and document key decision making fora and meetings structures which should directly address business imperatives and expected outcomes. For each meeting:hierarchy, purpose, frequency, chair, agenda, attendees

6) Establish meeting disciplines and behavioural norms 7) Define key process paths (inputs, outputs)

reporting, media, tooling etc escalation for resolution (issue, conflict, dispute)

8) Define governance performance metrics and assessment criteriareview and assessment of governance effectiveness, efficiency, performance and achievement

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9) Pilot the governance modeleducation, awareness, coaching, facilitation, observation, refinement

10) Roll–out and execution11) Monitor and refine

12.14 Normative Reference list (used in this phase)Make a list of all used normative references (like ISO 9000) in this phase.

12.15 Bibliography list (used in this phase)

Make a list of all books, guidelines and publicationsConvention: < Name, (year), Title, Publisher, ISBN>.

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Annex A(informative)

Maturity Model (NL)

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Annex B(informative)

Guidance on Outsourcing AgreementContents

Unofficial translation of the original Dutch language template sourcing agreement of the Dutch Outsourcing Association (Platform Outsourcing Nederland, www.platformoutsourcing.nl)

between

[…]

and

[…]

Legal information:This is an unofficial translation of the Template Sourcing Agreement v1.0 of the Dutch Outsourcing Association (Platform Outsourcing Nederland). The translation has been sponsored by Capgemini and VondstAdvocaten.

This template sourcing contract has been drawn up by the PON Sourcing Contract Task Force of the Netherlands Outsourcing Platform association (Platform Outsourcing Nederland - www.platformoutsourcing.nl). The task force comprised the following individuals: Polo van der Putt (VondstAdvocaten, Chairman), Jan Aernout (Philips), GertJaap Das (PGGM), Hans van Dijk (UWV), Erwin van der Heijden (Quion), Louis Jonker (Van Doorne), Ad Kuus (Rabobank), MaaikeNijensikkens (Logica), Liselore Sauer (KPMG), JoopSchuilenburg (Emtio), Marco van der Vet (Capgemini), Eliane de Vilder (Brinkhof), MarjoWildvank (Software Improvement Group), Michiel de Vries (ING) and Dennis Zieren (PloumLodderPrincen). The members participated in the task force in a private capacity. The template contract does not necessarily reflect the views of the individual members of the task force or those of their employers.

The Netherlands Outsourcing Platform community repeatedly requested a template contract for sourcing transactions that can serve as an example/source of inspiration for their own contracts. The purpose of this template contract is to meet that need.

The contract has been written for outsourcing transactions with a major IT component. The contract can be used by both SMEs and larger companies, although smaller deals are more likely to benefit from the Supplier’s (and in some cases the Client’s) standard agreement and usually offer less room (and budget) for extensive negotiations. The agreement assumes two Dutch parties entering into a contract under Dutch law, but can also be used in an international context, although additional attention must then be paid to aspects such as export restrictions (e.g. personal data) and the dispute resolution procedure (competent court or alternative dispute resolution such as arbitration).

The contract is based on best practices, assuming mature clients and suppliers. Best efforts have been made to draw up the contract such that neither party has a disproportionate advantage over the other party. The authors realise that template provisions will always entail a certain degree of arbitrariness. Adequate alternatives are often available for certain formulations or contractual solutions. However, actual practice requires one reference

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example, not a catalogue full of alternative contractual provisions from which the reader must pick and choose. The present template was created with these basic premises in mind.

Every transaction has its own unique aspects that should be taken into account in the contract. By their nature, template contracts can rarely be put into practice unchanged, as most projects call for specific provisions (depending on factors such as subject matter, the parties’ maturity, the budget (also for creating the contract), regulations and/or terms and conditions applicable to a particular sector, and geographic scope). The present template therefore serves as a point of departure for creating a sourcing contract and cannot be equated with a fully negotiated contract for every random transaction.

Use of this template is at the user’s expense and risk. The Dutch Outsourcing Association, the PON Sourcing Contract Task Force, the individual members of the task force and their employers do not accept any liability with regard to this contract.

The undersigned:

1. [...], having its registered office at [...], [...], [...], represented in this matter by its director [...] (“Client”)

and

2. [...], having its registered office at [...], [...], [...], represented in this matter by its director [...] (“Supplier”)

Whereas:

(A) The Client is engaged in [...].(B) The Service Provider is engaged in [...].(C) By means of the Request for Proposal of [...] with the subject [...], the Client asked the Service Provider to make an offer for the supply of services as referred to in the Request for Proposal. The Service Provider responded to the Request for Proposal with its tender of [...], reference number [...]. (D) The parties then entered into negotiations and performed reciprocal due diligence studies. (E) The Service Provider issued its Best and Final Offer on [...], reference number [...].(F) The Parties reached an agreement on that basis and wish to enter into a sourcing contract under the following conditions. And have agreed as follows:

1. The parties herewith enter into a sourcing contract under which the Service Provider provides services to the Client in the area of [workspace management, application management, hosting, client administration, software development, etc.].2. This sourcing contract commences on [...] and is entered into for the period of [...] years.3. The parties’ rights and obligations are laid down in the Annexes to this Contract Sheet, with regard to which Annex 1 (Legal Terms and Conditions) prevails, including the priority arrangement.

Thus agreed and signed in duplicate:

[Client] [Supplier]

By: By:in: in:Date: Date:

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Template Sourcing Agreemement: to be integrate. Dubble Click on the document to view it.

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Annex C(informative)

Service Catalogue Framework

ServicenameResponsible

Added value To be delivered addedvalue and outcomesKey Control objectiveKey risk Key risk measures

Inputs 1 Input and mandate service componentService component 1 Description of service component (function, interaction with, consists of the

following processes: 1. 2..

Output 1 Desired outcome of the service component

Inputs 2 Input and mandate service componentService component 2 Description of service component (function, interaction with, consists of the

following processes: 1. 2..

Output 2 Desired outcome of the service component

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Key performance indicator

Key indicator that at minimum gives information whether or not the value is created as defined

KRI Key indicator that at minimum gives information whether or risks associated with the service process is c

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Annex C(informative)

Knowledge transfer methodology

The following components of knowledge need should to be transferred:

Procedures and Standards: It is essential that all applicable standards and administrative and technical procedures used by client are well understood and followed by Service Provider.

System knowledge and Application knowledge: The Service Provider should need to have a global knowledge of the application area: Information about relevant user manuals, overview of application functions of each system

Business functionality: The Service Provider shall understand / shall have an industry specific knowledge relevant to the business context. Methodology for Knowledge Transfer


STD Version 2.2

Cross reference phases – ISO standards and detailed processes (WHO?)

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Cross reference phases – ISO standards and detailed processes (WHO?)

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13 Bibliography (Project Editor consolidates input from co-editors)


STD Version 2.2


14 Index of figures

Figure 1 Contextual model of outsourcing........................................................................................................10Figure 2 Outourcing lifecycle............................................................................................................................ 12Figure 3 Main Outsourcing lifecycle products...................................................................................................15Figure 4 Information flows – direction and reporting.........................................................................................53Figure 5 Example governance meetings structure............................................................................................53Figure 6 Example Client (Retained) Organisation.............................................................................................56Figure 7 Key stages of the innovation ‘funnel’..................................................................................................59


STD Version 2.2


15 Index of tables

Table 1 Process Identify Strategic Opportunities..............................................................................................17Table 2 Process Identify Strategic Implications & Risks...................................................................................18Table 3 Process Set up Sourcing Strategy Project...........................................................................................19Table 4 Process Assessment current business architecture.............................................................................21Table 5 Process Define Sourcing Strategy.......................................................................................................22Table 6 Process Define Orchestration & Governance Model............................................................................24Table 7 Process Define Business Case............................................................................................................25Table 8 Process Decide ‘Go-No Go’ and Execution Plan.................................................................................26Table 9 Detail Services in a Service Catalogue................................................................................................28Table 10 Define outsourcing model..................................................................................................................28Table 11 Define agreement requirements and agreement type........................................................................29Table 12 Identify Service Provider...................................................................................................................30Table 13 Evaluate and select Service Providers...............................................................................................31Table 14 — Define Service Level Agreement...................................................................................................31Table 15 Install project management transition team.......................................................................................35Table 16 Service process design and knowledge transfer................................................................................36Table 17 Detailed (iterative) Transition plan.....................................................................................................36Table 18 Implement the appropriate governance structure & processes..........................................................37Table 19 Transfer of people, processes & technology......................................................................................38Table 20 Install monitoring and auditing framework..........................................................................................39Table 21 Test service delivery capability..........................................................................................................40Table 22 Formal handover................................................................................................................................ 40Table 23 Process Deliver Service.................................................................................................................... 42Table 24 Process Monitor and Review Service Performance...........................................................................43Table 25 Process Manage and Resolve Issues................................................................................................44Table 26 Process Manage Change................................................................................................................. 44Table 27 Process Manage Finances................................................................................................................45Table 28 Process Manage Relationships.........................................................................................................46Table 29 Process Manage the Agreement.......................................................................................................47Table 30 Example governance meeting – Strategic Relationship Board..........................................................52Table 31 Example ‘Deliver Value’ governance meeting - Service Review Board.............................................58Table 32 Example Innovation Board governance meeting template.................................................................60


STD Version 2.2

Guideline 380300 Outsourcing - Proposal Guideline Web view19-03-2012 · Draft...

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