Third-Party GovernanceAs we commented on in our blog post back in November, there are a number of key processes to be managed when sourcing for services:

  • Service quality and performance management
  • Financial management
  • Contract and Compliance management
  • Relationship management
  • Resource management
  • Risk management

And there are numerous platforms that support these processes (e.g., Ariba, Emptoris, ServiceNow).  But questions remain; what is the right operating model for this?  Should it be provided in-house?  Outsourced?  Should it be centralized or distributed by geography and/or function?  Should it be aligned with Procurement or line of business?

Complex questions – and there is no one right answer.  As with many things, the design and implementation of an effective Supplier Relationship Management function is complicated.

Fortunately, the industry has wrestled with these issues for long enough that best practices have emerged and are now mainstream.

Best practices include:

  1. Plan and implement early – those that initiate governance and change management activities no later in the program than when supplier contract development is occurring experience greater success.
  2. Use a PMO construct – whether it’s called a PMO, a VMO or something else.
  3. Place organizationally in accord with the enterprise’s strategy – for example, if third-party services are primarily for IT, put the vendor management function in IT. If the focus is BPO services for Operations, place it there.  If the strategy is to leverage automation, analytics, global labor and process optimization broadly across the enterprise, a stand-alone center of excellence is appropriate.
  4. Hire leaders with relevant experience (either in-house or consultants) – many large enterprises are seeking to hire industry veterans to lead vendor management offices, while others continue to leverage advisors to launch and/or manage this function on an on-going basis.

Regardless of where the function is placed organizationally, consideration should be given to three levels of governance:

  1. Strategic Governance
    1. Align business strategy & global services initiatives
    2. Guide execution of enterprise wide global sourcing initiatives
    3. Ensure adequate risk mitigation and controls
    4. Program sponsorship
  2. Functional Governance
    1. Coordination, communication & control between process owners
    2. Provide for knowledge management
    3. Opportunity Identification & enable demand aggregation
    4. Cross-functional, cross-geography, cross-vendor alignment
  3. Operational Governance
    1. Manage global sourcing activities and contracts
    2. Manage vendor relationships, performance and resources
    3. Manage scope and integration
    4. Reporting

At Neo Group, while we have a proven framework for Governance and Change Management, we always co-create the solution with our clients, to ensure solid alignment with the firm’s strategy for use of third-party services.  In addition, we offer Governance-as-a-Service for those clients who prefer to source their supplier management function.

Alan Crew

Alan Crew

Partner & SVP at Neo Group
Al brings more than 35 years consulting and technology operational management experience to the world’s leading financial services and insurance organizations. He is an industry-leader in business process outsourcing, operations optimization and IT transformation. Al takes on complex challenges and focuses on opportunities that leaders face today and delivers on strategic capabilities to address challenging supplier relationships, operating models for service management and operations optimization, and alignment between IT and business strategy.

Al has a consistent record of leading some of the largest and most complex sourcing arrangements across all industries with great depth in the financial, insurance and retail space. He is highly experienced in helping enterprises move to managed service and shared services arrangements with third party service providers. He has been involved in a number of successful IT transformations and turnarounds by using sourcing as a catalyst to drive business outcomes.
Alan Crew