Get to what matters. 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. www.equaterra.com Page 2 Get to what matters. 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 www.equaterra.com Page 3 Get to what matters. 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 www.equaterra.com Page 4 Get to what matters. 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 www.equaterra.com Page 5 Get to what matters. 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 www.equaterra.com Page 6 Get to what matters. 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. www.equaterra.com Page 7 Get to what matters. 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. www.equaterra.com Page 8 Get to what matters. 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 www.equaterra.com Page 9 Get to what matters. 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. www.equaterra.com Page 10 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. www.equaterra.com Page 11 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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