At the 2013 ISG Sourcing Industry Conference in the Americas, Esteban Herrera spoke about governance as a means to client satisfaction and improved margins.

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A means to client satisfaction and improved margins
The Future of Effective Governance
September 9th, 2013
Esteban Herrera

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What if…?
• Reduced governance effort by 33-50%
• Improved collections (DSO) by 15-25%
• Accelerated transitions
• Developed consistency and expertise in the provider teams
…Improved Provider Margins
• Reduced governance complexity
• Simplified invoicing and reconciliation
• Standardized the SLA measurement methodology
• Developed consistency and expertise in client governance teams
…Increased Client Satisfaction
• Reduced friction in the relationship
• Enforced process discipline
• Removed bias
…Focused both teams on business value
What if we could collaborate to build an industry-standard governance solution
that…

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Why this, and why now?
1. Relationships differentiate, governance processes do not
2. Clients are inexperienced, poorly organized, and inconsistent
3. Providers are forced to come up with bespoke governance for each client
4. Process discipline in governance has value to both parties (this is rare)
5. After all this time, change in business conditions is still difficult to address
6. Multi-sourcing further complicates governance issues for both parties
7. Performance across accounts is difficult to normalize and compare
8. Bills are still paid late for no apparent reason
9. SLAs are inconsistently enforced
10. Scope change are still emotional affairs
Outsourcing governance lends itself to standardization. Why not do for governance
what ITIL has done for infrastructure and PCMM for application development?

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What will it take?
Global
Standard
Governance
Third Party
Advisor
Buyer
Community
Provider
Community
The effort is significant…an unprecedented collaboration of the interested parties

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…But the payoff is huge
The evidence is overwhelming that as an industry, we are failing at governance
Governance is the link between Customers and
Suppliers and is one of the key elements for
successful sourcing, but . . .
“81% of suppliers believe that poor or failed outcomes
are primarily or completely the customer’s fault
89% of customers believe that poor or failed outcomes
are primarily or completely the supplier’s fault.”
International Association of
Outsourcing Professionals
“Lack of management is central to the problems with
multiple sourcing. 84% of companies do not have what
they regard as a mature governance model.”
Financial Times
Customers
Governance
Suppliers
ISG’s Governance Service experience has shown that
effective governance can provide demonstrable hard
savings of up to 9.75% and soft savings of 5.5% – in
addition to improving the overall relationship.
ISG Research Study

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So, what does good governance look like?
A robust, exhaustive process framework, which separates strategic and
transactional governance
Contract Management
Comply With Agreements
Commercial Management
Validate And Manage Costs
Performance Management
Right Work, Best Quality
Relationship Mgmt
Satisfy Customers, Set Direction
Contract Compliance & Deliverables 4
Contract Interpretation 4
Governance Library 4
Contract Change Request 4
Issue Management 4
Third Party Contracts Management 4
Supplier Audit 4
Consumption Management 4
Legend:
4 Sourced 2 Selectively Sourced 0 Retained In-house
§ Emerging Supplier Management Offering
Invoice Management 4
Performance Credits & Earnbacks 4
Contract Pricing Adjustments 4
Value Assurance 4
Spend Pool Management 4
Financial Analysis & Planning 2
Supplier Procurement Oversight 2
Chargeback 0
Service Level Compliance 4
Work Requests & Authorization 4
Consumption Mtg-Operational Compliance 4
Risk Management 4
Supplier Monitoring and Intelligence 4
Supplier Asset Management Oversight 2
Architecture & Standards Management 0
Security Management 0
Service Delivery Management 0
Performance Analysis 0
Incident, Problem, Change Management 0
Governance Administration 4
Regulatory & Compliance Management 4
Communications Management 4
Supplier Program Management 4
Customer Survey Management 2
Forecasts & Demand Management 2
Workplace Services 0
Contract
Management
Financial
Management
Performance
Management
Relationship
Management
§
§
§
§
§

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Of course, not all governance is suitable for standardization
ISG already has over 20 large customers (with over $11 Billion in TCV)—a good
starting point for an industry governance solution?
ISG performs:
 Process management and tracking
 Data collection and validation
 Performance and payment analysis
 Record Keeping
 Reporting
Market Demands
Raising the Bar on
Skills
Automate or Eliminate
Tasks
Use of Emerging
Technologies
Aligning with Internal
Customers
More Focus on Risk
and Analytics
Client and Provider retain:
 Decision making
 Approvals
 Relationship with Providers

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Discussion Questions
Why hasn’t better governance gained traction?
What are the obstacles to collaboration?
What are the obstacles to implementation?
Do you see value for your clients?
Is it helpful to have an independent arbiter?
What commercial incentives and barriers exist?

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