GBS: The Limits of Centralized Governance Teams

Last week’s webinar on HfS’s survey findings on GBS confirmed the continuing ascent of GBS (ignore the title! No-one beats HfS at razzamatazz…).

For me, it re-opens a debate about governance because at the core of the HfS prescription for GBS success is ‘a strong centralized governance team’. Which may be true but I think misses some important nuances.

We agree that appropriate governance is always essential, whatever the organization and its circumstances, and that it must be centrally coordinated. But it also needs to be embedded in business-as-usual in the line wherever possible.

In a world of mega outsourcing deals, where much of the back office is delivered through a handful of global suppliers, then managing everything through a central governance team (a Vendor Management extension) makes perfect sense.

But that world is fast disappearing, as the HfS data confirmed. Hybrid GBS is rapidly becoming the norm. The future is about weaving end-to-end service delivery from across a constantly flexing mix of internal resources and outsourced service providers.

In that scenario, it is business stakeholders, not a centralized governance team, who are best positioned to drive innovation, to forge more effective collaborations with customers and service providers, to identify and manage risk.

GBS - The Limits of Centralized Governance Teams - 30 Oct 2013Enabling business stakeholders to deliver what buy-side organizations say that they really want – agility, innovation and more collaborative relationships – requires that day-to-day governance is embedded in BAU.

Which links directly to organizational process maturity. High-performing GBS organizations will leverage an enterprise process management platform both for its embedded governance and holistic perspectives but also to underpin their own service management frameworks.

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It’s Not A Talent Gap Holding Back Outsourcing

It seems to me that HfS Research and Accenture are drawing the wrong conclusions in urging investment to close ‘a talent gap’ that is preventing outsourcing buyer organizations from driving innovation and getting beyond cost reduction:

“Barely a third of enterprise outsourcing customers believe their current governance talent – the people responsible for managing the service relationship – can drive innovation or define business outcomes.”

HfS’s prescription is training for outsourcing governance teams:

“The majority of governance teams are comprised largely of procurement professionals, contract negotiators and project executives who are not learning the necessary skills to shift their focus from tactical project management to strategic business alignment. Enterprise leaders fail to develop the necessary strategic business skills as their engagements mature and their needs move beyond managing tactical operations.”

What’s really holding things back is that the business is usually at least one stage removed from the outsourcing relationship.

It’s the business alone – the owners and stakeholders for the end-to-end business processes – that has the visibility, understanding and insights that can drive innovation and optimize the blend of outsourced service providers.

And it’s a process management platform that can bring this to life.  It simplifies so that everyone can see the big picture. It provides a framework for effective collaboration within a unified governance wrapper. It enables everyone involved, both in the retained organization – GPOs, IT stakeholders, Lean teams, Risk and Compliance folks – and in the service providers, to work together on the design and implementation of change.  It engages people with process and makes continuous improvement easy.

A current example, to illustrate that this isn’t hot air. A global organization with a major HRO contract that wasn’t working has been able to turn on a sixpence (as we say in Northamptonshire) and re-source at pace by leveraging its process platform and disciplines. It has been able to rapidly capture the As-Is HR processes (without much cooperation from the exiting incumbent); in parallel, to design the To-Be processes; to define and manage all the necessary variants; to orchestrate the necessary ERP re-implementations; and then to execute, in-sourcing some activities while re-outsourcing others.

You need procurement and contracts people to do this.  But without a framework for effective collaboration that engages all the stakeholders and puts the business in the driving seat, it’s always going to be slower, more expensive and more risky.

It seems like bad manners to trash free research. Hats off to HfS for its continued thought leadership in many aspects of this debate.  But on this one, I think the HfS/Accenture diagnosis is wrong.

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Effective Collaboration And Outsourcing Success

One slide (below) from an HfS Research webinar yesterday highlighted how effective collaboration is at the heart of outsourcing success.  Coming from HfS – at the center of the industry, with no particular ax to grind – it’s significant.

 

 

 

 

 

 

 

 

 

The market has moved beyond cost savings. Buyers are looking for outsourcers who can deliver innovation and continuous improvement:  “Most clients want to work in a collaborative relationship”, said Phil Fersht, HfS Founder and CEO.  Yesterday’s case study featuring Syngenta Business Services and Capgemini provided a superb example of effective collaboration in practice.

Effective collaboration demands the right people, the right structures and the right incentives. Providing the underpinning framework – rich, robust and intuituve – that enables this complex, dynamic and multi-layered collaboration is the strategic opportunity facing the process management platform vendors.

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© Text Michael Gammage 2012

Outsourcing: Death Throes and Birth Pangs

HfS - The Industry With No Name

The existential crisis underway in the outsourcing industry makes for amusing reading. The industry has voted by a two-thirds majority to drop ‘the O word’, reports advisory group HfS, in an attempt to shed its apparently negative connotations. But there’s no industry consensus on a new name – and ‘outsourcing’ features in many of the most popular suggested alternatives.

Phil Fersht, HfS founder and industry thought leader, doesn’t mince his words:

“There is far too much “believe our own bullshit” going on and this industry needs to change how it is perceived before it can effectively “rebrand”.”

Phil maps out the four challenges he sees facing a stalled industry. But really they are all one – and summed up in his final challenge:

Challenge #4: How can buyers and providers really partner to foster innovations into business process outcomes?

I’m optimistic. Outsourcing service providers I know are investing heavily to up their game. They see the industry’s current convulsions as death throes for a simpler world of labor arbitrage and automation.  And the birth pangs of a world where outsourcing will continue to prosper but in new ways.

If you ask me, two developments will define this new world:

All Work Is Process. The opening sentence to the first-ever APQC report on Business Process Management, published back when Adam was a lad – but it remains broadly true, and it is set to become much more widely accepted. So we’ll drop, for example, the empty distinction between ‘business process outsourcing’ (which really means Finance and HR services) and the rest (such as IT, planning and analytics). All work will be seen as process. The process will always be owned by the enterprise but it may be delivered using in-house resources or be outsourced or, most often, through a hybrid of the two.

Platforms for Process Excellence. If all work is process then every organization needs an enterprise process workbench. Outsourcing providers will adopt them to enable more collaborative engagements with their clients across the service delivery lifecycle.  Outsourcing buyers will adopt them to orchestrate the delivery of end-to-end processes, delivered through a constantly-adapting blend of in-house and bought-in resources – and to engage all the process stakeholders in continuous improvement.

Arguably, the most interesting challenges are now on the buy side: Developing Global Business Services organizations with the capability to continually re-optimize multiple, complex and dynamic sourcing equations [which include, crucially, keeping IT aligned] to deliver value and innovation for the enterprise. No surprise that GBS is the career choice for some of the brightest people I know.

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© Text Michael Gammage 2012

Death Of Outsourcing ‘Greatly Exaggerated’

KPMGOh dear. Things are looking a bit terminal for outsourcing.  The market-leading HfS blog, whose 80k subscribers are mostly sourcing professionals, sounded a death knell.  And now KMPG has published The Death of Outsourcing.

Mark Twain’s celebrated remark on his premature obituary comes to mind. You don’t have to look at IBM and Accenture for long to realise that this ‘corpse’ has rather a lot of vital signs.  Indeed, in many industries and activities – in clinicals trial and manufacturing in Life Sciences, for instance – outsourcing appears to be in the rudest of health.

So what’s happening? Why this apparent gloom?

If you ask me, it’s because things are changing fast. We’re in an accelerating transformation towards the the virtual enterprise of the future.

And this sea change is most obvious in how the non-core activities of the enterprise – like procurement, accounting, HR and IT – are delivered. In KPMG’s words:

“There is a revolution taking shape in the business services industry, one that disregards the traditional shared services and outsourcing paradigms..”

It’s not difficult to see why. The lion’s share of the benefits of labor arbitrage and automation have been harvested. A recent Deloitte report, for example, concluded that the organizations which have been leaders in shared services and outsourcing ‘are now struggling to capture the next generation of value… after picking the low-hanging fruit.’

So it may be the end of ‘outsourcing as we know it’. But we can see the new paradigm rapidly emerging in the rise of ‘global business services’ (GBS) organizations – and they have flexible sourcing at their core.  Again, in KPMG’s words [my italics]:

“Many of these new business services organizations share common traits. They are centrally managed, and usually have an integrated portfolio of capabilities – typically a combination of external service providers and internal shared services… [They] leverage a global pool of internal and outsourced resources to deliver a service that is nimble, aligned to the business, and connected with customers, employees and suppliers.”

So reports of the death of outsourcing seem ‘greatly exaggerated’.  In GBS and beyond, it’s set to continue to grow. But it’s going to be different – more complex, more dynamic, more multisourced – and will require new capabilities.

It’s difficult to see how any GBS organization can deliver effectively without a world class business process management platform at its heart. It’s the key to business alignment; to effective collaboration across organizational silos; to managing risk effectively; to delivering superior customer experience; and to sustainable improvement.

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What Do We Even Mean By ‘Governance’?

iStock_000012210065SmallThere’s a swirling fog of confusion around what ‘governance’ means in the context of business transformation and process improvement – and it’s hampering progress.

Two examples:

Last week’s PwC/HfS report highlighted governance as a critical issue in Global Business Services. It offers no definition of ‘governance’ but seems to mean something like ‘a central organization or business unit’.

In the Hammer and Company Process Enterprise Maturity Model (PEMM), the concept of ‘governance’ is both broad and specific, covering the extent of the enterprise process model, whether there is clear process ownership and accountability, and whether the ‘Chief Process Officer’ is coordinating all process improvement projects and driving integration with customers and suppliers.

Both of these may be plausible definitions of ‘governance’ – but they are also quite a long way from what many people mean. ‘Governance’ has become a very elastic term. These two definitions may be outliers but there’s a formidable spectrum of meaning, from something as simple as version numbering to something as specific as segregation of duties.

Arguably, ‘governance’ has becoming so elastic that it’s no longer useful. Even its most obvious practitioners usually take it as understood. GRC vendors and consultants focus (for instance here) on risks and controls, with very little on governance (beyond Board issues).

‘Governance’, in short, is in danger of going the way of ‘sustainability’. It’s becoming motherhood and apple pie, a term to be liberally used (and abused) as required.

Which is more than an etymological shame, because it matters. Governance is a critical enabler for sustainable performance improvement. Without it, any program will fail [and there’s plenty of evidence how difficult it is to make cost cuts stick].

So what’s a useful definition of this essential thing called governance?  Starting at the highest level, the simplicity of this definition is compelling:

Governance is.. how an organization controls its actions.

Deloitte spells out a helpful distinction between corporate governance and operational governance:

“Operational governance is very different from corporate governance, which focuses on oversight by a company’s board of directors and shareholders…

In contrast, operational governance is a management activity that centers around key operating decisions by company managers and executives. Major elements include effective decision making through clear organizational roles, responsibilities and ownership… and continuous improvement through effective practices, policy setting, and knowledge sharing.”

So what does ‘operational governance’ translate into, in the real-world context of a Finance transformation program, or a global business services initiative, or a sustainable performance improvement program?

See it through the lens of the principal actors and an operational governance framework comes to life:

For the COO, it’s about visibility, accountability and ensuring the capability to design and execute performance improvement. Functions and end-to-end processes, the warp and weft of the operating model, are visible and integrated. Ownership and accountability are clear. Roles and responsibilities for the design of new target operating models, and their ongoing implementation, are explicit. And the whole organization has the means to get involved in continuous improvement.

For the CIO, it’s about a collaborative framework that can nurture a rich dialog to ensure complete IT alignment with the business, and fully leverage IT’s capabilities for the business.

For a Global Process Owner, it’s about end-to-end visibility and ownership, with clear roles and responsibilities, with real-time KPI metrics and analytics, and the means to collaborate effectively with all the process stakeholders – including customers – on performance improvement.

For a Process Stakeholder, it’s about visibility and accountability across the enterprise, within their particular dimension. For the Chief Risk Officer, for instance, it’s about understanding risks and controls, and ensuring compliance, within the context of ‘live’ end-to-end processes, not as something lodged in a document repository, divorced from operational realities.

For the Process User, it’s about making it easy to understand what to do, how and when – and to have the means to provide feedback and process improvement ideas.

So at the heart of good governance is structured and effective communication at all levels. HfS and the LSE presented survey evidence on a webinar last week High Performance BPO which illustrates just how much it matters.

Asked about the reasons for outsourcing failure in their organizations, the respondents were clear that it wasn’t for lack of budget for change management. They highlighted instead ‘communicating ineffectively with the business’ as the #1 reason for failure. And in almost 40% of cases, ‘not adequately planning for the full engagement of stakeholders’ had a significant negative impact.

How to make it happen? How best to enable an operational governance framework that will drive successful business transformation and sustainable improvement? That’s where the business process management platform comes in.

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20 Jun 2012    Process – The Emerging Global Business Language

29 Feb 2012    Why Process Improvement Projects Fail

© Text Michael Gammage 2013

Why Governance Teams Are Not The Answer

HfS PwC - The Future of Global Business Services - June 2012It seems to me that there’s a fundamental flaw in the conclusions that HfS and PwC draw from their survey The Future of Global Business Services published this week. And that their recommendations would lead organizations down the wrong path.

The report focusses again on governance (which featured heavily in their joint report last year).

This year’s survey shows, they claim, that

“centralized governance organizations create the best outcomes…every organization should organize a governance team and, despite internal resistance from IT and business leaders who do not want to lose control, organizations should seriously consider centralized teams.”

All that I have seen in working with clients over the last ten years suggests that a centralized governance team is a dead end.  If by ‘governance’ we mean clear roles, responsibilities and accountability for driving every aspect of performance improvement, then governance has to be embedded in day-to-day operations.

A small core group supervising governance policies and their overall implementation across the enterprise makes sense. But the meat and drink of governance is the relationships and behaviours of process stakeholders. It’s about regulating actions in the real operational world of end-to-end processes. That’s where it lives and breathes.

Quality management offers a parallel.  Most often it was seen as a silo, separate from operational realities.  It was a box-ticking activity, a cost of doing business. No-one went into Quality Management to further their career. Then organizations like Toyota demonstrated the value of a completely different approach. They embraced quality and tried to embed quality thinking into everything they did.  They realized that quality only comes alive when it connects with everyday operations and gets people doing real work involved.

In Toyota’s case, Quality begat TPS and Lean of course – but that’s another story. The point is that nowadays a centralized Quality Management team is as rare as hen’s teeth. Quality should be everyone’s passion.

The HfS/PwC survey results themselves, and the HfS/PwC conclusions, illustrate that centralized governance teams can’t deliver:

“Governance teams frequently accomplish their primary objectives, but struggle to create similar outcomes in areas outside of their key focus areas.”

In other words, a centralized governance team may be able to railroad through cost savings, but it can’t also deliver innovation or agility or improved customer service. Centralized governance teams are naturally project-focussed and single issue. They can’t deliver sustained operational excellence and continuous improvement because that comes from ongoing collaboration between all the process stakeholders and users.

What every GBS organization needs is a collaborative framework that enables ‘Toyota thinking’:

  • a rich, ongoing and effective collaboration between all of the stakeholders of each end-to-end process (including of course its customers)
  • an engagement with process executors and customer users that will ensure their continual feedback and so drive continuous improvement.

Governance is the framework for this collaboration, the rules of the road that underpin rapid and sound decision-making.

Governance is absolutely a critical success factor, and especially in GBS environments which are often complex and fast-moving, with many actors involved. But its value comes when governance is embedded into the everyday, not ‘managed’ from some corporate ivory tower.

© Text Michael Gammage 2013