An audio version of this essay was read on the Software Process and Measurement Cast #13 posted on July 15.
Thomas M. Cagley Jr.
David Consulting Group
Governance of outsourcing contacts is easily the second most important component of any sourcing deal. Governance structures are tools to smooth the path getting the functionality or service that the deal was constructed around. The term governance is a suitcase word encompassing a wide gamut of activities including contractual payments, verification and validation, work rules through dispute resolution. Clearly all activities included in the suitcase called governance are important topics, but are not goals unto themselves (unless you are a consultancy selling governance). Governance processes increases in importance if there are delivery issues, when contractual covenants don’t match expectations or if the governance processes are unbalanced. Issues and lack of balance causes the relationship to become unfriendly (lawyers have been known to be invoked at this stage).
Governance is a balancing act between making sure what has been contracted is done in the manner stipulated and asking so many questions that you get in the way of your sourcer. Organizations use many techniques for creating a balanced approach to governance. Techniques range from developing your own governance structure to using process models. Whether or not you engage consultants to help develop a contract, using a model (or models) as the discussion framework is an effective method to jump start governance.
Why are models so effective? Initially a model provides a common set of constraints that all parties can agree to without much consternation between the parties. How can you argue with a model that is regularly billed as an industry standard (as many of the common models get this billing). Without wrestling the word standard, they are certainly well accepted and are usually effective if clear goals are expressed for why they are being used. In one form or another, models are practically ubiquitous in sourcing arrangements. In many situations the meat of the discussion is not whether a model will be adopted but which model. While outside of the scope of this discussion the choice is important as each model focuses on different constraints. After everyone agrees with the choice of model (CMMI, COBIT or ITIL for example), the benefit of using a model continues by providing focus and definition. The agreed upon model brings with it a defined vocabulary and a set of processes that direct communication and activity. These common definitions provide the basis for governance while minimizing the work needed to arrive at an agreement. Whether recognized or not, the creation of a common vocabulary and process set is the single most important value that a model provides.
There are problems with using common models such as CMMI or ITIL to create balance. The first is a temptation for one party to view the model as a monolith or a goal unto itself. The second is that any individual model does not cover all of the functions found in more complex sourcing arrangements. The size and complexity of governance provisions required are generally correlated to the size and complexity of the sourcing deal. Complex sourcing arrangements often require using more than one model.
The Balanced Scorecard popularized by Kaplan and Norton provides a conceptual framework for establishing balance. Leveraging one or more of the popular process models such as the CMMI and ITIL with the Balanced Scorecard creates a dominant tool set for providing balance in complex governance relationships.
Whether two or more organizations are involved in sourcing discussions, culture is a major determinant of governance structure. Culture defines how people and organization work and importantly how they process and interpret stimuli. The act (or art) of balancing a sourcing contract is an intricate translation of multiple cultures into a set of convents and agreements. These covenants must reflect the needs of ”people”, the human factor. Individual needs and goals are important in an organization but are dwarfed by the goals of groups or constituencies. Constituencies cover the entire organization groupings and can include senior management, users, unions, IT and vendors. Organizational goals act as a linkage between constituencies. Balance must include recognition of the overarching goals; the Balanced Scorecard is a tool for making sure this recognition occurs and is built into the governance process.
Balance combined with the recognition of culture provides focus that aligns monitoring and enforcement. Monitoring and enforcement are interrelated in their simplest forms. Monitoring is merely the processes of watching for what you want to happen and enforcement is the mechanism to make it happen. In some cases, monitoring and enforcement are dealt with in the same process. An analogy for monitoring and enforcement processes is the speed trap. The speed trap monitors speed and at the same time is an enforcement tool (unless totally hidden). The tactic is enabled by the laws and tools. Sourcing uses similar monitoring/enforcement dichotomies. Cost and budget are monitored. Enforcement is accomplished by using accounting tools enabled by the convents in the contract.
Individual contracts refine the framework of model by defining what gets controlled and reported. The contract is the anchor of a sourcing arrangement and is the basis for any discussion of balance. The contract defines what is important (all parties) and how the goals will monitored and enforced.
A part of the discussion of balance is the cost of the governance structure. Implementing models, monitoring and measurement processes are not free. Using models are the most efficient means of pursuing balance within sourcing contracts. Models provide a focus for establishing a balanced approach to governance and as an equally important benefit; models provide a standard set of role definitions. Each of these areas is critical to creating an atmosphere in which communication can occur. The combination of models and enabled communication provide a platform from which balanced governance approaches can be constructed.
