Seemingly, the outsourcing industry may have matured over time, but the governance of suppliers is still in its nascent stages. In a matured supplier governance environment including vendor management practices, buyers require a more holistic approach towards outsourcing and relationships with service providers. The reason for this argument lies in the fact that 48% of clients think that suppliers do not provide a quality service despite having contractual service levels in place; as per a survey report.
The very definition of SLAs is service level agreements, which should ideally be ensuring satisfactory delivery of services. However, SLAs could become the Achilles’ heels of outsourcing contracts as their focus is only on meeting a minimum level of service by the provider. However, it does not automatically align with the changing business requirements of the client organization. Service level metrics can be perfected over time by a provider, but meeting these criteria will only reflect the challenges and needs of a client organization in the past; not meeting business expectations of the present and future.
Trust, communication, and transparency play an important role along with service delivery performance in strategic account management and better alignment with the client’s business needs. Additionally, a robust internal governance process will become the beacon for suppliers guiding them towards aforementioned goals.
To further dissect what we would call an effective and robust governance framework, we should look at processes for contract management, performance management, financial management, relationship management, compliance and outsourcing risk management. Implementing a governance framework by suppliers will help them in:
- Reducing pressure on service delivery: Well defined processes for managing accountability of all deliverables and obligations; milestones and reporting service level achievements help meet client expectations.
- Reducing effort in managing outsourcing deal: Working transparently with clients on action items from governance meetings, managing issues, and having reported on performance credits and earn backs reduce surprise elements on both sides.
- Reducing Risk: Timely communication with clients and their involvement in processing work orders, contract changes, and contract amendments with changing client needs reduces the risk in outsourcing deals.
- Reducing DSO (days sales outstanding): Having a process to get invoice data pre-reviewed with a client and ensuring the invoices are audited internally before submitting for payment; ensuring that milestones, regulatory and policy compliance deliverables are met on time to achieve a higher level of performance in the eye of the client.
The above four benefits cumulatively result in creating the grounds for establishing a greater trust with the client. Together with these, a good balance scorecard of performance and close participation with the client on financial analysis planning will create value beyond service levels. The benefits of having a robust governance framework will outweigh the investment by manifold as you exploit the full potential of existing strategic clients.