Evolution of sourcing governance
Firms establish a governance body across 3 layers: organisational, functional & operational.
- Organisational governance: ensures that the firm’s business case for globalisation is being established, monitored & achieved.
- Functional governance: enable coordination, communication and control between the various process owners and provides a mechanism for knowledge management and transfer.
- Operational governance: is the actual management of the individual outsourcing contract or internal service levels.
The focus here is on organisational & functional governance. “The Feeny and Willcocks Framework” identifies core IS capabilities for successful IT sourcing such as leadership, informed buying, relationship building, making technology work, contract facilitation, contract monitoring, vendor development, business systems thinking, and architecture planning.
The framework highlights leadership, informed buying and strategic management of risks and controls as core IS capabilities that are necessary for outsourcing governance. Forrester reseach has published “Four stages of going offshore“
- Bystanders
- Experimenters
- Committeds
- Full exploiters
Risk connected to leadership are
- Loss of organizational capabilities/ competencies and
- Risk of business failure/uncertainties.
Risks connected to informed buying are
- Low awareness of offshore location/vendor capabilities and
- Wrong type of service outsourced/ offshored.
The Offshore governance changes dramatically, as companies migrate through the four stages of the offshore journey. What starts as an administrative function evolves over three or more years into a program management and development discipline.
- Phase one: establishment. The strategic focus in this period is on developing and articulating the overall offshore strategy.
- Phase two: encouragement. Governance evolves to drive use.
- Phase three: upgrading IT processes and methodologies. The scope of vendor management also shifts from providing the supplier with a to-do list to pushing the vendor to deploy precious domain expertise and proactively offer up shared risk/reward-based projects.
It is an interesting journey and the ultimate goal ought to be sourcing governance with sourcing as main focus rather than just offshoring.
