The Service Provider Perspective on Outsourcing Governance Software Tools

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The Service Provider Perspective on Outsourcing
Governance Software Tools
Study Overview
This whitepaper presents the findings from a market                                   Buyers of outsourcing services should review and interpret
assessment of outsourcing service providers’ perspectives                            these service provider findings from the perspective of how
and opinions on the role, use and value of software tools                            best to deploy software tools as a component of their own
to support information technology and business process                               overall outsourcing governance programs. Feedback from
outsourcing management and governance (OM/G). It                                     service providers is valuable given their extensive overall
complements a 2006 EquaTerra study that assessed end-user                            outsourcing experiences and work with their own software
organizations’ perceptions and capabilities around OM/G                              tools. Also, as a partner in an outsourcing effort, service
processes, best practices and tools. The goal of this study of                       providers and the overall outsourcing effort can benefit – or
service providers was to assess and understand the                                   suffer – from the use, misuse or lack of use of software tools
following points:                                                                    to support outsourcing governance efforts. While EquaTerra
•    Outsourcing service providers’ views on the roles and                           recognizes the value of these software tools in supporting
     importance of outsourcing governance software tools                             and managing buyers’ internal shared services or offshore
                                                                                     captive operations, the focus of this market study was on
•    Where software tools could add the most value to
                                                                                     their use to support outsourcing governance with third-party
     outsourcing governance efforts
                                                                                     service providers.
•    Improvements that could be made to software tools in
     order to better support outsourcing governance                                  Who should read this report:
•    Best practices for both buyers and service providers in                         •     Executives tasked with making ITO and BPO decisions for
     leveraging software tools’ capabilities as part of holistic                           their organizations
     OM/G programs
                                                                                     •     Members of outsourcing teams
EquaTerra surveyed and conducted interviews in 2Q07 with
                                                                                     •     Outsourcing management and governance personnel
the following eight leading global business process and
                                                                                     •     Retained organization staff for outsourced process areas
information technology outsourcing service providers:
•    Accenture                                                                       •     CIOs and IT professionals making decisions relative to
                                                                                           software tools to support outsourcing efforts
•    ACS
                                                                                     •     Outsourcing service providers’ management and
•    Capgemini
                                                                                           staff tasked with managing outsourcing relationships
•    HP                                                                                    with clients or designing, building and managing the
•    IBM                                                                                   software environments to support client transition and
•    Infosys                                                                               management efforts.

•    Tata Consultancy Services
•    Wipro




Copyright © EquaTerra 2007. All rights reserved. The prior written permission of EquaTerra is required to reproduce all or any part of this document, in any
form whether physical or electronic, for any purpose. 3007_082007.
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     Table of Contents
     I.    Study Overview                                                                                   1
     II.   Introduction                                                                                     3
     III. Study Findings                                                                                    6
                 a. Key Outsourcing Success Factors                                                         6
                 b. Software Tools’ Importance to Outsourcing Management and Governance                     7
                 c. Sources of Outsourcing Management and Governance Software Tools                         8
                 d Key Outsourcing Management and Governance Software Tools’ Capabilities and Attributes    9
                 e Outsourcing Management and Governance Software Tools’ Usage and Market Trends           11
     IV. Conclusion                                                                                        11
     V. About EquaTerra                                                                                    12
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Introduction                                                                                                                              Value Realization
OM/G is a critical and fundamental, yet often misunderstood,                                                                              4.   Change Management – Facilitates anticipated business
and sometimes neglected, component of any information                                                                                          change with the service provider, including new services
technology or business process outsourcing effort. It is a key                                                                                 and transformational programs
element through which organizations that have undertaken                                                                                  5.   Service Quality Management – Ensures all aspects
outsourcing can strive to maintain the “intent of the deal.”                                                                                   of service quality are met, problems are resolved,
Many organizations mistakenly assume they understand the                                                                                       and business stakeholders are satisfied with service
science of effective OM/G, yet often that is not the case.                                                                                     performance and quality
OM/G is a critical discipline that enables companies to achieve
                                                                                                                                          6.   Relationship and Communication Management –
the intent of their outsourcing deal. Without it, significant
                                                                                                                                               Focuses on managing key stakeholders involved or
value leakage typically results (see Figure 1).
                                                                                                                                               impacted by the relationship, including the service
                  Potential Value Leakage from Ineffective Outsourcing Governance
                                                                                                                                               provider and other affected parties
                        Loss of Outsourcing Value from Ineffective Service Provider Governance                                            Managing the balance between risk and return is a challenge
                             Efforts
                           Duplicated        Resources
                                              Wasted
                                                         Problems
                                                            Not
                                                                    Performance
                                                                       Not at      Vendors                                 Between 50
                                                                                                                                          when one outsourcing relationship is involved. As more
                                                                      Expected     Deployed                                and 75% of
                                                         Managed
                                                                       Levels       Against
                                                                                  Conflicting
                                                                                                                           Relationship
                                                                                                                           Value may be
                                                                                                                                          companies outsource to multiple providers in multiple
                                                                                   Or Wrong                                lost due to
                                  10%–20%
                                  Value Loss
                                                                                     Goal     Opportunities
                                                                                               Untapped
                                                                                                                           poor
                                                                                                                           Relationship
                                                                                                                                          processes and geographies, they face increased challenges in
                                 Operational                                                                               Management
                                 Challenges                     20%–30%
                                                               Value Loss
                                                                                                                                          managing dispersed teams while leveraging internal
                                                                                        5%–10%
                                                              Performance
                                                               Challenges
                                                                                       Value Loss
                                                                                        Portfolio                                         OM/G skills and tools. These rising challenges provide a more
                                                                                      Management
                                                                                       Challenges
                                                                                                                                          compelling reason for institutionalizing common governance
  Total Potential Value Gained                                                                           “Net” Value Gained
     From the Outsourcing
          Relationship
                                                                                                        From the Outsourcing
                                                                                                            Relationship                  practices and streamlining the teams and tools managing
                                                                                                                                          these relationships. In response, many companies have
Original Source: Corporate Executive Board
                                                                                                                                          begun to manage portions of their outsourcing relationships
                                                                                                                         Figure 1
                                                                                                                                          with holistic or portfolio views and turn to tools as a critical
Outsourcing management and governance is manifested in                                                                                    enabler for their dispersed teams.
the people, processes, software tools and third-party support
                                                                                                                                          It is helpful to evaluate OM/G as four interwoven layers of
services that collectively enable an organization to achieve
                                                                                                                                          structure – the organization itself, the process, the resulting
the intent of the outsourcing deal. OM/G is comprised of
                                                                                                                                          job performer or employee, and the tools that person
six key elements. When performing these six elements,
                                                                                                                                          utilizes to manage the job. The OM/G discipline helps
organizations must strike a balance between risk mitigation
                                                                                                                                          organizations define roles, responsibilities and decision rights,
and value realization.
                                                                                                                                          as well as customize the 29 OM/G processes to their unique
Risk Mitigation                                                                                                                           environments. Once the team is mobilized, the right tools
1.         Commercial Management – Ensures the agreement is                                                                               enable the people to perform the processes, accomplish their
           managed and the financial benefits are both tracked and                                                                          objectives and ensure alignment across the organization.
           realized                                                                                                                       OM/G is the glue that pulls together the people, processes,
                                                                                                                                          tools and best practices needed to manage outsourcing
2.         Compliance – Ensures all applicable compliance
                                                                                                                                          relationships. It enables:
           requirements are met internally and externally
                                                                                                                                          •    The make-up and structure of the OM/G group, its
3.         Issue Management – Ensures issues impacting
                                                                                                                                               authority and accountabilities
           the service or relationship (regardless of cause) are
           effectively and expediently resolved                                                                                           •    The roles within the OM/G group and how they interface
                                                                                                                                               with other parts of the business (retained operations and
                                                                                                                                               business users)
                                                                                                                                          •    The roles and responsibilities of members of these
                                                                                                                                               groups relative to the service provider
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When developing an OM/G tool strategy, it is important for                                     valuable, they are often limited in terms of supporting the
organizations to understand the true intent of the deal and                                    entire governance process or supporting buyers undertaking
the type of outsourcing relationship they seek. The type of                                    multiple outsourcing efforts. Vendors of established
relationship will drive the OM/G commitment and toolset                                        enterprise software applications, such as business intelligence
required to achieve the desired outcome. More sophisticated                                    or enterprise resource planning, also are adding capabilities
and complex relationships will require increased skills and                                    to better support outsourcing efforts. Buyers today, therefore,
tool investments in order to be successful. As noted in a                                      face many choices – indeed EquaTerra, in conjunction with
recent EquaTerra study (see Figure 2), the investment in                                       Microsoft, has launched a governance solution – but now
OM/G (people, tools and third-party spend) increases with                                      buyers must determine how to select the best product(s)
the complexity of the relationship. The study also found that                                  for their needs. What’s best is in part based on the type of
satisfaction was strongest for companies that spent 4 to 7                                     outsourcing relationship sought, as mentioned above, and in
percent of the annual contract value on OM/G.                                                  part based on a function of understanding which aspects of
                                                                                               governance software tools can have the biggest impact.
                         OM/G Spend: Percent of Annual Contract Value

  Type of Relationship
                                                                                               EquaTerra identifies four key ways that the effective use of
  Type of Relationship
                                                                                               software tools can improve a buyer’s outsourcing governance
           Transaction
           Transaction           Enhanced
                                 Enhanced            Collaboration
                                                     Collaboration            Partnership
                                                                              Partnership      capabilities and advises buyers to assess their governance
             2-3 %                   3-4 %               5-7 %                     NA          software tool needs in the context of enabling these
                                                                                               capabilities.
                               OM/G Spend: % of annual Contract Value
                                                                                               1.   Increase Efficiency: As tools mature and can better
  Focus of Relationship
  Focus of Relationship
                                                                                                    support a greater range of OM/G activities in a cost-
             Delivery
             Management
                                    Quality Management       Joint Planning
                                                                                                    effective manner, they will bring greater value to the
                                    Operational              Coordination & Communication
                                    Customization
                                                             Program Management                     outsourcing effort. EquaTerra estimates that effective
                                                             Value Management & Reporting
                                                                                                    outsourcing management tools will save organizations
                                                                                    Figure 2        1 percent of the annual contract value each year. These
                                                                                                    savings are a result of several factors, primarily the
OM/G software tools are emerging as a key enabler for sound                                         automation of routine or transaction-based processes.
governance efforts. While buyers have always used some                                              Software tools also can play a key role in supporting
sort of software to manage outsourcers and outsourcing                                              the transition process. After the contract is signed,
relationships, typically those tools were home-grown or                                             organizations often spend as long as six months
ad-hoc (e.g., e-mail, electronic spreadsheets) and were not                                         learning how to manage, track and report on the new
designed for or tailored to the needs of the outsourcing                                            relationship. Much of that time is spent setting up the
governance organization. While all outsourcing service                                              reporting infrastructure and determining which factors
providers have their own tools, the tools are not always fully                                      to track. An effective toolset can help buyers figure out
accessible to the buyer nor are they always designed with                                           what they need to manage the relationship, and it can
all the buyer’s needs in mind. As buyers more frequently                                            be configured to support their objectives in significantly
undertake multiple outsourcing efforts and employ different                                         less time.
providers, relying solely on service providers’ tools will be less
                                                                                               2.   Improve OM/G Business Intelligence: How an
sustainable.
                                                                                                    organization manages its complex data set and analytics
In the past five years, many tools have emerged in the market                                        resulting from its outsourcing relationship is a critical
designed specifically to support outsourcing efforts. They are                                       component of OM/G. All buyers have some sort of
targeted at both buyers and service providers and typically                                         reporting or scorecard mechanism to help manage their
focus on select aspects of OM/G, such as managing service                                           operations. The greater these mechanisms are tailored
level agreements, contracts or change requests. While                                               specifically to outsourcing the better. Buyers need the
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     capabilities to store all the information associated with      Recognizing the inherent and growing importance of
     an outsourcing relationship. This includes contract terms,     software solutions and tools to support and improve buyers’
     suggested changes to those terms, details around the           OM/G capabilities, as well as to support its own product
     pricing model, drivers behind negotiated positions, etc.       development requirements, EquaTerra undertook a series
     There are many critical data points that become lost           of market research efforts to gain additional insight into
     as teams transition to new roles and as multiple parties       buyers’ and service providers’ needs. These research efforts
     get involved in the OM/G process. Software can enable          complement and extend knowledge gained by EquaTerra in
     organizations to capture this critical business intelligence   its many OM/G client engagements. These research efforts
     and transfer the “what” and “how” of deal management           have resulted in the following deliverables:
     knowledge to subsequent teams.                                 •    Why and How Outsourcing Management and
3.   Strengthen Communication and Collaboration –                        Governance is Critical to Outsourcing Success (http://
     Internally and Externally: An OM/G tool should                      www.equaterra.com/KR/research/why-and-how-OM-and-
     facilitate improved communication and collaboration                 Governance-is-Critical-to-Outsourcing-Success.aspx)
     among all parties through its business intelligence            •    Drive Value with Outsourcing Management Tools (http://
     capabilities. This includes internally between corporate            www.equaterra.com/KR/research/Drive-Value-with-OM-
     and the business units and with the service provider.               Tools-mo.aspx)
     The right toolset enables stronger communication and           •    Outsourcing Management Software Tools – An Executive
     coordination that supports facilitation, collaboration and          Point of View (http://www.equaterra.com/KR/research/
     project/program management among all parties. The                   om-tools-EPOV-mo.aspx)
     tool should provide support for change management,
     and contain all the information about performance,             Readers can also visit the EquaTerra Business Performance
     chargebacks, success stories, trending and planning.           Improvement Network (http://www.equaterra.com/KR/index.
     In addition, the tool should enable communication              aspx) to access all EquaTerra research and thought leadership
     among the OM/G team, business units and the retained           materials, including additional papers on outsourcing
     organization, service providers and business executives.       management and governance.

4.   Make Better Decisions and Improve Focus on                     This market assessment of service providers on OM/G
     Strategic Issues: OM/G and business executives are             software tools is the next installment of EquaTerra’s OM/G
     regularly asked for more detailed analytics on various         research efforts. The results of this assessment are presented
     aspects of their outsourcing efforts. Typically, OM/G          below and, where applicable, are compared and contrasted
     resources have problems accessing the independent,             to similar findings from buyer studies.
     fact-based data they need and must rely on service
     provider data. Also, due to the complexity of many             There are five key segments in this study:
     outsourcing relationships and the vast amount of               1.   Key Outsourcing Success Factors
     administrative tasks, little time is left for strategic and    2.   Software Tools’ Importance to Outsourcing Management
     value-add work. Responding to requests for data takes               and Governance
     significant time and resources, because the data resides        3.   Sources of Outsourcing Management and Governance
     in different places and requires human intervention to              Software Tools
     compile and verify. An OM/G tool should be designed
                                                                    4.   Key Outsourcing Management and Governance Software
     to compile data from multiple sources and present the
                                                                         Tools’ Capabilities and Attributes
     information in a clear, concise way.
                                                                    5.   Outsourcing Management and Governance Software
                                                                         Tools’ Usage and Market Trends
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Study Findings                                                                                                                                      of vision and purpose between the buyer and the service
Key Outsourcing Success Factors                                                                                                                     provider. They noted the importance of both buyers and
                                                                                                                                                    providers being on “the same page” when it comes to key
A variety of factors contribute to the success of an
                                                                                                                                                    goals of an outsourcing effort and the means to achieve
information technology or business process outsourcing
                                                                                                                                                    those goals. This goes beyond simply agreeing on the terms
effort. Naturally, the capabilities and “quality” of the
                                                                                                                                                    and conditions of the contract to encompass a higher-level
outsourcing service provider are of paramount importance.
                                                                                                                                                    agreement on the intent of the outsourcing effort. It also
However, whether or not outsourcing is successful is often
                                                                                                                                                    requires strong, clear levels of communication between the
determined by execution skills and capabilities. Execution
                                                                                                                                                    buyer and the service provider throughout the life of the
success is based on many factors. These include possessing
                                                                                                                                                    engagement.
the requisite skills and resources needed to undertake the
effort, having a solid process in place to drive execution, and                                                                                     As one service provider commented, “We recommend tying
clearly defining the desired goals of the outsourcing effort.                                                                                        both parties’ performance and success to a set of similar
The active support of management and other key decision                                                                                             objectives so that both parties have a mutual interest in
makers and influencers also is critical. Finally, and to the point                                                                                   making the relationship work. During transition we work to
of this market assessment, OM/G and the software tools that                                                                                         produce a key list of ‘agreed to’ deliverables and map out
support it play a critical role in enabling outsourcing success.                                                                                    principles for how we will work together throughout the
                                                                                                                                                    contract. It is very important that there is understanding and
The poll of service providers found that management support
                                                                                                                                                    communication around making the relationship a win-win in
was deemed the most critical element to outsourcing
                                                                                                                                                    order for it to work.”
success (see Figure 3). Service providers gave management
support a unanimous 5.0 rating on a one-to-five scale where                                                                                          The service provider added, “Strong service levels and
one was “not at all important” and five was “very important.”                                                                                        contracts are quite important. Of even greater importance
The service providers’ overall capabilities and quality was                                                                                         to the ITO/BPO success is for the service provider and the
ranked second with a 4.7 rating. Interestingly, further down                                                                                        customer to have a mutual understanding regarding the
on the scale were buyers’ OM/G capabilities and the use of                                                                                          intent of the contract and for the buyer and customer to
third-party sourcing advisors, though these two elements still                                                                                      translate the contract into ‘agreed to’ operational goals,
received above-average rankings of importance.                                                                                                      objectives and deliverables.”

                                                                                                                                                    Buyers polled in the 2006 EquaTerra market study on
                                        Outsourcing Success Factors
                                                                                                                                                    outsourcing management and governance were generally in
         Management Support

         SP Capabilities/Quality                                                                                                   (59%)
                                                                                                                                           (45%*)
                                                                                                                                                    sync with service providers on which elements were critical
     Collaborative Relationship                                                                                            (N/A)                    to outsourcing success. In the buyer study, respondents
                                                                                                             (N/A)
         SP's OM/G Capabilities
                                                                                                   (21%)
                                                                                                                                                    were asked to select the three most important elements
 Transition Processes/Resources

 Strong Service Levels/Contract                                                                (47%)                                                contributing to outsourcing success (see percentage
             Cultural Fit with SP                                                    (35%)
                                                                                                                                                    notations next to each element in Figure 3). The leading
      Supporting IT Capabilities                                                 (40%)

                                                                 (34%)
                                                                                                                                                    element, cited by 59 percent of buyers, was service provider
      Buyer's OM/G Capabilities

Sourcing Advisor/Legal Support                      (6%)                                                                                            capabilities, followed by strong service levels and contracts
                                  3.0   3.2   3.4          3.6       3.8   4.0           4.2           4.4           4.6           4.8        5.0   (47 percent) and management support (45 percent). Two
                                                                                         1=Not At All Important, 5=Very Important
                                                                                                                       (* % Buyers Citing)          response options in the service provider version of the
                                                                                                                              Figure 3
                                                                                                                                                    study – the importance of a collaborative relationship with
                                                                                                                                                    the service provider, and the importance of service providers’
Elaborating on the key drivers to outsourcing success, service                                                                                      OM/G capabilities – were not included in last year’s buyer
providers highlighted the importance of a shared clarity                                                                                            study.
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Software Tools’ Importance to Outsourcing                                                  Service providers were asked to rank in importance (one
Management and Governance                                                                  being the “most important” and six the “least important,”
Many elements go into a quality outsourcing management                                     see Figure 5) the capabilities of governance software
and governance effort. EquaTerra polled service providers                                  tools to support the six elements that comprise an overall
as to which elements they felt were the most relevant                                      outsourcing management and governance effort. Service
and important, ranking candidate aspects on a one-to-five                                   quality management was ranked as the aspect of governance
scale with one being “not at all important” and five “very                                  that software tools are best able to support, receiving a 1.90
important.” Service providers, perhaps being a bit disposed                                rating on the six-point scale. Support for issue management
to the tools topic, ranked their own software tools as the                                 was ranked second and change management third. Buyers
most important aspect impacting OM/G success, with a 4.3                                   ranked these attributes in the same order. Support for
ranking (see Figure 4). This was followed by the buyer’s overall                           compliance management was ranked last by service providers
OM/G capabilities (4.1) and a buyer’s OM/G resources and                                   (4.80) and support for communications management was
people (3.9). Interestingly, the buyer’s OM/G software tools                               last among buyers (3.95).
ranked last with a 2.9 score.                                                                                          Governance Tool Value for OM/G Activities
                                                                                                                    1.00     1.50   2.00        2.50           3.00      3.50      4.00        4.50        5.00
                                  Key OM/G Components
                                                                                                     Service Quality
                                                                                                      Management
   SP's OM/G Software Tools
                                                                                                 Issue Management

  Overall OM/G Capabilities
                                                                                               Change Management

    OM/G Resources/People
                                                                                                    Communication
                                                                                                     Management
OM/G Processes/Procedures
                                                                                            Commercial Management

              OM/G Budget
                                                                                            Compliance Management

Buyer's OM/G Software Tools                                                                                                                                                1=Most Important, 6=Least Important

                                                                                                                                           Service Providers    Buyers
                              2    2.5                3               3.5   4       4.5

                                         Service Providers   Buyers
                                                                                                                                                                                                  Figure 5

                                                                                Figure 4   The relatively low score for communications management
Buyer rankings from the previous EquaTerra market study                                    highlights the fact that service providers recognize that
were somewhat different. Buyers ranked OM/G resources                                      buyers already have a variety of means to “communicate”
and people as most important (3.8), followed by overall                                    (e.g., telephone, e-mail, other collaboration software) and
capabilities and OM/G processes and procedures, both at                                    that more and better communications are often needed
3.7. The service provider’s OM/G tools were not an option in                               to support outsourcing efforts. It is important for buyers to
the buyer study. While the strong emphasis service providers                               think more broadly about communications in the context
place on their own tools is admirable, it is perhaps a bit                                 of outsourcing governance. This involves determining the
unrealistic, especially when compared to overall governance                                processes and tools necessary to develop a communications
capabilities. While software tools can augment and enhance                                 strategy, how to leverage multiple media to communicate
a buyer’s governance efforts, they are not a substitute for                                key messages and value propositions relative to outsourcing
adequate and skilled people, processes and procedures.                                     efforts, where self-service is an appropriate substitute for
Additionally, service providers are too dismissive of the                                  direct communications, etc. It also highlights the opinion of
importance of buyers’ tools, particularly when buyers today                                many service providers that communications with buyers – at
frequently need tools to better govern efforts across multiple                             least for non-routine issues and problems – is best handled
service providers, something providers’ own tools cannot                                   directly or face-to-face as opposed to using a software tool.
fully support.
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These findings indicate that while software tools are              applications, scoring this source at 4.1 on a one-to-five scale
important to supporting governance efforts, they are more         where one equates to “rarely or never used” and five equates
relevant for certain aspects of governance than others.           to “frequently or almost always used.” It is interesting that
Different software tools also are designed to support             this ranking is not higher given that all providers have tools,
different elements of governance. It is critical, therefore,      which they offer to buyers at no charge. Tellingly, the second-
that buyers assess where software tools add the most value        highest ranking went to “do not extensively use tools” (3.6),
and which tools are most relevant for different aspects of        highlighting that tools are often not extensively deployed by
governance.                                                       buyers. ERP vendors scored the lowest at 2.9.

Service providers accurately noted that buyers’ needs relative                                                 Sources of OM/G Tools

to software tools will change over the life of an outsourcing                   SP OM Tools                                                                              (38%)


effort. The ability to efficiently load contract terms and            Do Not Extensively Use                                                         (20%)


conditions, identify key milestones and deadlines, and             Other Enterprise Software                                                (23%)


support overall issue management requirements are critical            Internal/Home Grown                                           (26%)


capabilities to support initial transition efforts. Two key          Business Analytics/BPM                                    (27%)


value–adds that tools can bring are accelerating the                           OM Tools ISV                          (13%)


deployment of governance efforts, as well as freeing                             ERP Vendor           (29%)


governance and transition team members from                                                2.00               2.50           3.00            3.50              4.00                4.50

administrative tasks (e.g., loading contract terms and                                     % denote where respondents acquire governance tools              1=Rarely/Never, 5=Frequently


conditions into a spreadsheet) in order to focus on more
                                                                                                                                                                         Figure 6
strategic activities.
                                                                  The question was positioned slightly differently to
Once the basics of the outsourcing agreement are addressed
                                                                  participants in the buyer study in which respondents were
and understood and transition is progressing smoothly,
                                                                  asked to identify where they acquired governance support
buyers can focus on using tools for more strategic and
                                                                  tools. Tools from service providers again received the highest
analytical work. This could involve, for example, root-cause
                                                                  ranking, cited by 38 percent of buyers. ERP vendors were
analysis of why service levels are not being met, identifying a
                                                                  second at 29 percent. Commercial OM/G tool vendors ranked
misallocation of support resources, or performing a
                                                                  last, cited by just 13 percent of respondents. Buyers were also
“what if” analysis on changing performance or service levels.
                                                                  asked where they planned to get their tools in the coming 12
Later in the outsourcing lifecycle, tools can provide value
                                                                  months, though the rankings changed little for the forward
by becoming the institutional memory for the outsourcing
                                                                  projection.
effort, its terms and conditions and nuances, and changes
that have occurred to those terms and conditions over             The key point to note in these findings is the wide variety
the life of the effort. This is valuable in deals with a longer   of sources buyers turn to in order to acquire software tools
duration or when there is significant turnover in governance       for outsourcing governance support, which highlights the
team staff.                                                       overall immaturity of the market. It also illustrates that buyers,
                                                                  in many cases, are using tools not designed specifically to
Sources of Outsourcing Management and Governance                  support outsourcing governance efforts and are not likely to
Software Tools
                                                                  have access to all the capabilities needed to improve their
Buyers typically use software tools from a variety of sources     governance capabilities. There is much work underway in the
to support their governance efforts. Service providers            market by third-party vendors, as well as service providers, to
were asked how frequently they found buyers using OM/G            improve the capabilities and flexibility of governance
tools from a defined list of sources (see Figure 6). Service       software tools.
providers cited their own tools as the most frequently utilized
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Key Outsourcing Management and Governance                                                                              by 40 percent of service providers. Software tool cost and
Software Tools’ Capabilities and Attributes                                                                            value for the money were selected by 30 percent of service
Service providers were queried on what are important                                                                   providers. These were the top attributes selected by over 60
functional and technical attributes of outsourcing governance                                                          percent of buyers. Scalability and project management were
software tools. Functional attribute assessments are displayed                                                         attributes not assessed in either survey.
in Figure 7.                                                                                                                                             Key Technical Attributes of OM/G Tools

                                                                                                                                 Reporting/Presentation
                            Key Functional Attributes of OM/G Tools                                                                           Ease of Use
                                                                                                                                 Business Rules/Modeling
             Track SP Performance/SLAs                                                                                             Analytics/Visualization
                                                                                                                                               Cost/Value
Provide Timely/Relevant/Actionable Data
                                                                                                                                       Portal/Self-Service
                Enable Faster Decisions                                                                                 Integration with SP Systems/Apps
                       Provide Visibility                                                                                    Integration with Other Apps
                                                                                                                                Workflow/Process Mgmnt
      Facilitate Teamwork/Collaboration
                                                                                                                                    Content/Doc. Mgmnt
                 Ease of Customization                                                                                                              Other
          Benchmark Performance/Costs                                                                                                           Scalability
                                                                                                                                    Project Management
                    Ensure Compliance
                                                                                                                                                             0%   10%    20%           30%            40%        50%     60%     70%
     Resolve Customer/Employee Issues
                                                                                                                                                                                            % Service Providers Citing
                                            0%   10%      20%        30%        40%      50%      60%      70%   80%
                                                                              % Service Providers Citing                                                                Service Porivders    Buyers


                                                       Service Providers   Buyers
                                                                                                                                                                                                                           Figure 8

                                                                                                           Figure 7    The differences of opinion between buyers and service
Service providers felt strongly that tracking service provider                                                         providers are not unexpected given the different levels
performance and service level agreements (SLAs) were the                                                               of experience and sophistication relative to outsourcing
key desired technical attributes of an outsourcing governance                                                          governance tools between the two groups. Buyers, for
software tool. Eighty percent of providers cited this attribute.                                                       example, are interested in invoice verification functionality,
Providing timely, relevant and actionable data was ranked                                                              a feature service providers would not focus on in a software
second (70 percent), followed by enabling faster decisions                                                             tool. Buyers are practical and pragmatic with their emphasis
(50 percent).                                                                                                          on qualities like ease of use and cost/value, proven by their
                                                                                                                       reticence to invest heavily in outsourcing governance tools.
There were differences of opinion between service providers                                                            While it is important to pay attention to costs, buyers must
and buyers on key functional attributes. Buyers, for example,                                                          keep in mind the negative impact (as illustrated in
were much less interested in tracking service provider                                                                 Figure 1) of underperforming in governance. There also is a
performance and SLAs with just over 20 percent selecting                                                               cost-avoidance factor that buyers must consider with
this attribute. For buyers, “providing timely, relevant and                                                            software tools. Automation of routine tasks, for example,
actionable data” ranked as the top attribute, followed by                                                              can free up the time of more expensive people to do more
“enabling faster decisions and benchmark performance and                                                               important and strategic work. Reducing errors in processing
costs.” Opinions on three attributes (providing visibility, ease                                                       routine outsourcing governance transactions can lower the
of customization and resolve customer/employee issues)                                                                 overall cost of governance.
were not requested by either buyers or service providers.
                                                                                                                       Service providers did not feel that the general requirements to
There were significant differences of opinion between buyers                                                            support ITO versus BPO were markedly different from a tools
and service providers over the desired key technical attributes                                                        perspective. Nor was it felt that the need for tool support
of outsourcing governance software tools (see Figure 8).                                                               was any different for ITO or different types of BPO. Where
Seventy percent of service providers selected “reporting and                                                           there was a difference, it was more likely based on the size
presentation capabilities,” compared to less than 15 percent                                                           and complexity of the outsourcing effort, the maturity of the
of buyers. Ease of use, business rules and modeling, and                                                               buyer, the capabilities of the service provider, or the quality
analytic and visualization capabilities were each selected                                                             and sophistication of the overall governance operation.
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                                                                                                Get to what matters.



Service providers also noted a common concern that                Service providers indicated that outsourcing governance
software tools may give buyers more information than they         software tools should become “smarter.” The ability to
can process or provide information that is inaccurate or easily   build intelligence into these tools and define and customize
taken out of context. It is important to separate, however,       process models to reflect overall governance processes
information overload from providing buyers all of the needed      was cited as a key desired enhancement. As tools become
and meaningful information on service provider performance,       more intelligent and process oriented, they can better help
even if providers would ideally prefer that buyers did not        buyers prioritize information and issues, proactively identify
have ready access to that information. Indeed, a key reason       potential problems, and embed more consistency into how
why buyers need their own software tools is to ensure that        the work of governance is performed. Here buyers need to
they have access to all the governance-related information        assess candidate software tools’ workflow capabilities as a
they need, not just what service providers want them to           means to enable more structured and intelligent governance
see. Buyers must ensure that any software tools deployed          processes.
can address these concerns, for example, by enabling the
                                                                  Just as with governance in general, many service providers
prioritization and flagging of key information and results
                                                                  indicated that they felt buyers did not address the need for
and by supporting the creation of rules and role-based
                                                                  governance software tools or fully flesh out those needs far
information routing and presentation. These capabilities are
                                                                  enough in advance of their ideal deployment time. Often
not always available or fully functional in commercial tools in
                                                                  buyers do not look to invest in software tools until they have
the market today or in service providers’ own tools, so buyers
                                                                  experienced pain from not having them in place. While
need to vet these capabilities carefully.
                                                                  buyers show an interest in general reporting requirements
Another weakness identified in outsourcing governance              and want to know in advance what information service
tools is the capability to link outsourcing key performance       providers will supply them, they often do not drill deep
indicators (KPIs) or service levels to broader business           enough to determine what information they need beyond
process KPIs and service level agreements (SLAs). By linking      what the service provider can deliver or how to get at that
outsourcing performance to business performance, a buyer          information once it is identified.
can identify which aspects of outsourcing most impact the
                                                                  While the importance of outsourcing governance tools is
business, as well as more accurately derive the value that
                                                                  recognized by service providers, they are clear in their view
outsourcing provides. This is in addition to being able to
                                                                  that software tools are one supporting component in the
measure whether the business case for a specific outsourcing
                                                                  totality of an outsourcing governance effort. As one service
effort is being met.
                                                                  provider noted, “The success of most outsourcing contracts
Also on service providers’ wish lists is improvement in           is more about the ability to deliver an effective, efficient and
governance software tools’ capabilities to manage multiple        innovative solution rather than about what tools to use.”
outsourcing efforts as an integrated portfolio. Service
                                                                  Another service provider offered the following perspective,
providers have their own needs in this respect, but it is
                                                                  “Governance tools are dependent on maturity of the
also increasingly important to buyers. Today, many buyers
                                                                  processes being supported and the buyers using them. While
have multiple outsourcing efforts underway concurrently,
                                                                  some vendors and service providers that offer tools may
often in an adjacent or interconnected process or with the
                                                                  over-promise on their capabilities, less mature buyers may
same service provider. While each effort has its own set of
                                                                  think they under-deliver regardless of how well they perform,
requirements, terms and conditions, buyers increasingly need
                                                                  because they expect too much from the tools.”
to have visibility across all efforts and to understand how the
performance of one effort impacts the others.
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                                                                                                 Get to what matters.



Outsourcing Management and Governance Software                     outsourcing and governance models will have a leg up on
Tools’ Usage and Market Trends                                     the competition. Strong specialization in certain aspects
There are literally hundreds of vendors providing software         of governance (e.g., service level management, issue
tools that buyers can use to help manage outsourcing               management) will prove valuable, though over time, narrower
efforts. These vendors include providers of broader enterprise     solutions will lose out to more comprehensive offerings.
software applications (e.g., enterprise resource planning,         Also, extensions to traditional IT management applications
e-mail and collaboration, analytics), IT management                to specifically support outsourcing will help drive uptake
suites (e.g., IBM’s Tivoli, and HP’s OpenView and Mercury          of those products, though those platforms will have less
applications) or peripheral applications not designed              applicability outside of ITO.
for, yet still applicable to, outsourcing governance (e.g.,
analytics, dashboards, reporting, contract management and          Conclusion
collaboration). It also includes vendors specifically targeting     Leading outsourcing service providers are clear in their
the outsourcing and shared services spaces, including both         positions that software tools are an important component
the buyer and service provider. The latter includes vendors        in an overall outsourcing governance program. As with
like Digital Fuel, Oblicore and Janeeva.                           outsourcing governance overall, however, buyers often place
                                                                   too little emphasis on deploying software tools. In many
Service providers surveyed use a variety of home-grown             cases, tools are an afterthought in the governance process,
and commercial software products, including those from             and they are not used significantly until problems arise. It is
HP/Mercury, IBM, Microsoft, Digital Fuel and Oblicore. It is       recommended that buyers gain an understanding of how
not an either/or scenario, however, as all providers use a         software tools can support governance efforts, as well as
combination of software tools based on the outsourced              the capabilities of the tools provided by services providers,
function being managed and the specific aspect of                   whether built internally or acquired in the market.
governance (e.g., tracking service levels, facilitating
communications) being supported. To date, no specific               All service providers have their own governance software
leading software platform has emerged. Also, given that            tools, based on both custom home-grown and commercial
some service providers sell the software (e.g., IBM with Tivoli,   applications. They use them to manage client relationships as
HP with Openview and Mercury), ownership dynamics play             well as to provide them to clients. While service provider tools
into tool selection.                                               play an important role in supporting outsourcing governance,
                                                                   typically buyers will need to have their own tools, particularly
Service providers see buyers using a wide range of software        if they are managing multiple outsourcing efforts employing
tools to support outsourcing governance efforts. Overall           multiple service providers.
(as noted above in Figure 6), they do not yet see significant
usage of outsourcing specific commercial software products.         The commercial outsourcing governance software tools
They see greater usage of tools to support ITO over BPO,           market is still immature and fragmented. There are many
though it tends to be based more on buyer experience than          small vendors in the market providing software with
ITO-centricity in the tools. Service providers feel that buyers    functionality that supports different pieces of an outsourcing
would benefit if they had better tools at their disposal. To this   governance program. While these tools can provide value,
end, several service providers indicated that they frequently      buyers must use the typical caution employed when dealing
introduce and push the greater use of software tools for           with small vendors in a rapidly changing market. Larger
governance into their client accounts.                             software providers, including enterprise software and IT
                                                                   systems and operations management software vendors, are
EquaTerra expects the commercial outsourcing governance            extending their applications to support IT outsourcing and
tool market to grow and diversify. Product offerings that          don’t carry the same financial risk. For the near term, most
can support multiple outsourcing efforts and/or all internal       buyers will need a combination of software products to fully
services, integrate easily with other software applications,       support their outsourcing governance efforts.
and allow the user to tailor the tools to specific types of
www.equaterra.com                                                                                                      Page 12



                                                                                              Get to what matters.



Buyers need to focus on how software tools can help them         About EquaTerra
operate their governance efforts in a smarter and more
consistent fashion. The ability to prioritize key information,   EquaTerra sourcing advisors help clients achieve sustainable
proactively spot problems and get the right information to       value in their IT and business processes. With an average
the right person in a timely fashion are all valued attributes   of more than 20 years of experience in over 600 global
of an outsourcing governance software tool. Buyers should        transformation and outsourcing projects, our advisors offer
ensure that they can embed the processes, policies and           unmatched industry expertise. EquaTerra has in-depth
procedures that they define to perform governance into their      functional knowledge in Finance and Accounting, HR, IT,
supporting software tools. This will help bring consistency to   Procurement and other critical business processes with
how governance is performed and enable buyers to define           advisors throughout North America, Europe and Asia Pacific.
best practices that they can more consistently follow.           Our people are passionate about providing objective, conflict-
                                                                 free advice to our clients, which has fueled our exponential
Finally, buyers need to recognize that software tools are one    growth over the past four years. We help clients achieve
component in an overall outsourcing governance program.          significant cost savings and process improvements with
They are not a panacea or a substitute for adequate and          outsourcing, internal transformation and shared services
skilled people and processes. That being said, software          solutions. It is all we do.
tools can help increase the efficiency of governance
staff, automate routine activities, improve the accuracy         For more information on EquaTerra, please contact Lee Ann
of information used in performing governance activities          Moore at +1 713 669 9292; Leeann.Moore@EquaTerra.com;
and, in general, raise the overall performance level of the      or visit www.EquaTerra.com.
outsourcing governance process and team.                         For more information on EquaTerra’s research efforts, please
                                                                 contact Stan Lepeak at + 1 203 458 0677;
                                                                 Stan.Lepeak@EquaTerra.com.

                                                                 For more information on EquaTerra’s Governance Workplace
                                                                 software solution, please contact Mike Beals at
                                                                 +1 770 623 6320; Mike.Beals@EquaTerra.com.

                                                                 For more information on EquaTerra’s Governance offerings,
                                                                 please contact Liz Campbell at +1 312 953 4891;
                                                                 Liz.Campbell@EquaTerra.com.

				
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