Governance by Design

Business Environment Changes

  • Most organizations have become complex, interconnected, and global:
  • Through growth, acquisitions, alliances, suppliers, vendors, etc.
  • Internal Shared Services and Outsourced Services:
  • Serve a diverse group of stakeholders
  • Have functions spread throughout the organization
  • Have multiple interfaces and dependencies both within and outside of the organization

Current Approaches to Governance

  • Informal
  • Unstructured
  • Operational by Functional Area
  • The functional areas (departments, businesses, silos) have different agendas, goals, languages and measures
  • No Enterprise-Wide Level of Influence
  • Inappropriate Skills
  • Inadequate Time Allocated

The Impact on Managed Services

  • The discrete functional areas may have become efficient and effective when measured against their individual goals, however:
  • Corporate Goals and Expectations are not met
  • Return on Investment
  • Often not even known
  • Economies of Scale
  • Redundant efforts
  • Continuous Improvement – Not tracked
  • The Functional Areas often work at cross purposes and don’t effectively support the business
  • Strategy and Compliance drift from original intent

Critical Success Factors

  • A Comprehensive Process View
  • Involve all Stakeholders
  • Clear Specifications of Services
  • Scope
  • Performance Level Requirements
  • Strategic Goals and Direction
  • Governance Structure
  • Sufficient Resources
  • Right Skills Sets
  • Clear Roles and Responsibilities
  • Appropriate Authority/Influence

TBI’s Governance Challenges

TBI Case Studies 1

Customer View:“Our IT service provider ‘nickels and dimes’ us to death. Way too frequently,we get hit with additional costs in order to get work done that we assumed was already included in the scope and covered by contract base charges. In addition, we have trouble understanding the monthly bill because it’s become so complicated.” Governance Failure: Cost Control

  • Case 1:

Health Insurer; 6 years into deal; $100M spend (running more than 50% above base). TBI reviewed scope and identified gaps where misunderstandings occurred, researched billing history to trend cost increases and tease out bundled costs, and then benchmarked rates against market. Recommended re-competing deal with clearly stated SOW & roles and responsibility matrices, along with price and billing structure that better met information needs. Two vendor contracts awarded – total savings 36%

TBI Case Studies 2

Customer View: “At first we reduced staff, but two years later we added supervisors to each outsourced service area to watch over sales system support vendor staff. It was the only way we could get information we trusted. So, three years later, retained costs for services are double, even though scope is the same.” Governance Failures: Service Level Management & Cost Control

  • Case 2: Pharmaceutical Sales Support; end of 5 year deal; TBI identified performance requirements and service level management process with metrics reporting and performance review and improvement planning that met client’s aggressive continuous performance improvement objectives for its sales support operations. A new pricing structure was also established that tied price to key workload drivers. Competitive procurement with these changes resulted in new deal that allowed client to reduce outsourcing program office staffing level by 66%, retaining only service leads and overall program manager.

TBI Case Studies 3

Customer View: “We have major business pressures to lower spend, but the only innovations our service provider brings to us are proposals for system enhancements that will cost us more. We need them to offer improvements in ways that are consistent with our corporate strategy. We have to push them into making the kinds of performance improvements that we actually need. Our CIO is so disgusted; he won’t even meet with them. We are thinking about paying the early termination fees.” Governance Failure: Alignment with Business Needs

  • Case 3: Business Services Company; 7 years into deal; $22M spend. TBI review found no formal SOW, unreasonable economic market adjustments applied annually, data center pricing well above market level, no effective governance structure for anything but day to day operations, and a service provider that was treating them as a “cash cow” and biding time until contract end.. TBI planned and led renegotiation of new 5 year contract, with clearer performance requirements and improved pricing, terms and governance structure. 33% savings 1st year; 25% savings subsequent years.

5 Key Components of Governance

  1. Regulatory & Business Risk Management – risk identified, mitigation, strategic plan
  2. Operational Control – problem reporting, root cause analysis, disaster recovery
  3. Proactive Management & Strategic Planning – business & strategic compliance
  4. Demand Management – Change, service request management, project approva
  5. Outsourcing Program Management – Contract, quality, dispute resolution management

Effective Governance

Value Realization

  • Ensure delivery of expected savings
  • Manage Demand
  • Leverage and focus service provider capabilities
  • Create optimization through standardization
  • Institutionalize process improvement

Risk Mitigation

  • Meet contractual obligations
  • Ensure effective management
  • Rapid identification and resolution of issues
  • Provide consistent direction to service provider


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