Imagine a large government agency realizing it was incapable of keeping up with technology change, and that believed it could be much more effective in fulfilling its mission if it installed more “leading edge” technology. Outsourcing seemed the fastest way to resolve the problem. Agency executives determined that the service provider should also enforce standards across the whole of the agency’s distributed computing operations, to cut costs and improve service.
However, less than six months into the contract, problems became very apparent. The agency hadn’t set up governance mechanisms to enforce compliance with the outsourcing contract. Less than a year into the contract, the agency began negotiations to completely restructure its agreement, and it started the arduous process of establishing a sourcing governance model to ensure that the new contract would be fully utilized.
What happened? A lack of sourcing governance left this sourcing strategy directionless, with little flexibility or control to achieve the expected outcomes.
“Governance is at the very heart of successful multisourcing,” said Linda Cohen, managing vice president at Gartner. “Without formally established governance that aligns the business, IT and sourcing strategies, multisourcing cannot be effective.”
Sourcing governance is not optional. Even if organizations have the best sourcing strategy, vendors, deals and terms, IT leaders must be able to govern the outcomes. With sourcing governance, IT leaders can establish common, standardized approaches to assign and manage this mix, and they can establish clear rules and processes for the few exceptions that don’t fit the standard approach.
The lack of sourcing governance has left many organizations with a chaotic blend of service relationships and contracts. This dysfunctional sourcing governance will obstruct the alignment of business and sourcing objectives and impede the ability to accomplish the sourcing strategy’s intended results.
“It’s easy to confuse sourcing governance with sourcing management. The decision rights, rules, processes and approaches for governance must be defined before the providers are engaged, while the day-to-day activity of sourcing management occurs after providers are chosen,” said Ms. Cohen.
She added: “Governance is about authority — how decisions are made, who gets to make them, and who’s accountable for them; management is about responsibility for delivering to meet expectations.”
Even the most effective outsourcing management won’t work without sourcing governance, which is the glue that holds the sourcing strategy together. Sourcing executives must ensure the development of both sourcing management and governance practices.
Effective sourcing governance requires three fundamental components:
- Authority. In your own operations, first establish and communicate who the appropriate authorities in your ecosystem are — in the context of outsourcing strategies and decisions. In other words, identify who has the authority to make decisions about what sourcing actions will be taken.
- Rules. Whatever your sourcing strategy and objectives, define rules about how you source, with whom and why. These sourcing policies support the outsourcing strategy to ensure the objectives are realized.
- Process. Once you’ve decided on the strategy, based on the principles and under the auspices of the appropriate authority, establish processes to follow the rules and, when necessary, to break the rules. There must be processes to deal with exceptions.
Outsourcing is political, so establishing its governance will be as well. But without effective sourcing governance, even a business-aligned IT sourcing strategy will not execute effectively.
Additional information is available to Gartner clients in the report “Sourcing Governance Tames Complexity and Ensures Successful Multisourcing.”
Analysts will explore how to create sustainable sourcing strategies in complex times at the Gartner Sourcing & Strategic Vendor Relationships Summit 2015, June 1-2, London, U.K.