Getting good at GBS governance: Why heroes don't scale

January 18, 2014 | Phil Fersht

Mike Beals is Vice President, Governance Research and Strategy, HfS Research (click for bio)

The implications of evolving to a GBS model are significant for all affected enterprises, but possibly none more so than those responsible for service delivery governance, as described in our Six Maturity Leaps.

This governance group has the challenge of managing an increasingly complex environment, with aspirations much loftier than in the past to achieve the right maturity levels to run GBS effectively.  So, if you have aspirations to make some of these leaps and want to find out how to develop the skills needed, without hiring in a crack team of black belts, you could do worse than read our latest report (click here to download your complimentary copy), authored my HfS' VP for Governance Research, Mike Beals, aptly entitled "Heroes Don't Scale".

In the meantime, we caught up with Mike to discuss the context of the new report and how governance is evolving with the onset of the GBS framework for the back office that promotes control, efficiency, quality and visibility of end-to-end-processes...

Mike, what are the key trends you are seeing in outsourcing governance as we move into 2014?

We’ve seen quite a lot of advancement in the capability and maturity of governance organizations over the past 10 years and I think we’ve hit a tipping point relative to understanding the need for good governance. I believe that as organizations move toward a hybrid model, or a global business services environment, that they will increase their investment and awareness of governance even further. The companies that have not done so, will advance past the point that they are managing each individual outsourcing and shared services environment individually and will aggregate this capability into a center of expertise or a GBS group. I also believe that organizations that have multiple outsourcing or shared services environments will recognize the need to adopt a common framework across the enterprise and implement a training program to ensure their resources have the appropriate level of demonstrated proficiency. There is just too much risk not to.

One aspect we noticed at the recent HfS Blueprint 3.0 session was the difference in skillsets between vendor managers and governance professionals. Is this a common trend developing, where some executives view themselves purely as a "vendor manager" and others as a "governance professional"?

I don’t think it’s as much of a trend as an observation of the career paths that have led them to their current role. There is a group who started out in procurement and have landed in vendor management roles, and then there is a group who started in a business function and are now in a governance role. There are pluses and minuses of each career path, but I think the trend is that the two skill sets will merge together. I think it is somewhat similar to the way CIOs used to be selected in the past. Many of them were very technical and were promoted out of the ranks of IT, but over time, more CIOs came from the business. The point is that CIO’s that came from the IT department sometimes struggled in relating to the business and driving business value. The same type of challenge exists for traditional procurement professionals that stay in their comfort zone and manage vendors but do not effectively understand broad business requirements and how to drive business value.

What, in your view, makes a successful governance executive? What are the key attributes they need to develop?

First, it’s important to point out that the business environment is changing. We are moving from a cost-containment environment to a growth environment where transformation and innovation are increasingly important. So in this new environment, governance executives will have to take on a leadership role in driving change, to include better understanding business drivers, and communicating value to internal business constituents to a much higher degree than they have in the past.

To be successful, these leaders will not only have manage provider relationships well, but they will have to have strong communication skills to clearly articulate the value proposition of adopting new services and communicating value in terms understood by each key stakeholder. Just like CIOs, I think the trend will be for these top governance executives to come in higher numbers from the business rather than from procurement.

Do you see shared services and outsourcing governance genuinely coming together into a single centralized management function across the majority of enterprises? Aren't the skillsets required very different, between managing providers and managing processes and operations? What are the challenges and opportunities of centralizing governance in the fashion?

These are great questions that many organizations are struggling with and probably deserve a much lengthier response, but here are a few thoughts. I think we first have to breakout the composition of a single central management function, whether we call it a Global Business Services group (GBS) or something else. The way I think about it, is that in both outsourcing and shared services, there is a group that sets the strategy and policies for a business function, there is a group that determines and manages how that strategy will be implemented, and an operations group that delivers.

This requires three very different skill sets. Simplistically, the strategy and policy makers need to be well-versed in their business function, understand its value to the business, and determine what services to provide. The governance, or management, layer needs to understand how to optimize, manage, and report on service delivery. The operations group needs to have very specific expertise in the processes they deliver.

The middle tier, whether outsourcing governance or shared service management requires a very similar skill set. Other than a few commercial processes, like invoice verification and contract change control, the rest of the governance processes should be very similar, if not the same, independent of who delivers the service. There is no valid reason I can think of for activities like how service levels are managed and reported, how new projects are requested, how issues are tracked and reported, or how business value is communicated, to be that different in outsourcing versus shared services. Sure, there are always varying procedures, but the core processes should be consistent.

So, yes. I believe shared services and outsourcing governance can and will come together into a single management function using a common governance framework. The challenge to pulling this off is similar to any merger of groups, and includes politics, change management, and leadership. Specifically, who will be place in charge, what is their reporting structure and mandate, and who decides which version of a governance framework gets adopted.

As far as the benefits go, there is obviously an economy of scale gained by combining independent groups. Additionally, by adopting a common governance framework, you lay the groundwork for driving consistency and improved quality. We haven’t talked about it in this interview, but a consistent governance framework and set of processes makes it much easier to tool enable with automation, workflow, reporting and analytics. This just isn’t possible if everyone is doing their own thing.

Is GBS going to have a major impact on the future of outsourcing governance? What is your advice to outsourcing governance professionals on how to approach GBS? 

I believe that GBS is the logical next step in the progression of many organizations that have multiple outsourcing relationships combined with shared services groups that are inconsistently managed across business service functions. So the impact that GBS will have is to become a catalyst for taking outsourcing governance and shared services management to the next level of maturity in managing a portfolio of internal and external delivery assets.

If you think your company is ready to take the next step and move to GBS, I would suggest three things. First is to do your homework with your peers or with an outside consultancy to fully understand what’s involved. Make sure that expectations are appropriately set and that key stakeholders understand that this will be a multi-year initiative. Second, pick a strong leader to head up the charge. He or she will need a lot of credibility and the right philosophy on managing internal and external assets. And third, adopt a consistent governance framework and go through a rational design process before staffing the group. Just because “A” or “B” quality players are available doesn’t mean they have the right experience, skills, or attributes for the job.

When you look out into the future of governance in two-three years' time, what activities do you see them taking on? Do you see most executives moving beyond tactical and operational management areas into data governance and innovation activities?

As competitive pressures continue to increase and as enterprises shift from cost-containment to growth mode, companies will not be satisfied with achieving only tactical objectives. Many companies still need to rationalize what business services they provide and how those services are delivered. I think governance organizations in the future will play a key role in developing new service offerings in collaboration with their providers and internal customers; they will play a role in ensuring the adoption of new services by selling and marketing those services; and they will be more effective at communicating the value provided by those services. Value will be defined not just in cost reduction, cost avoidance, and risk reduction, but increasingly in employee productivity improvements, capital/asset management, end-customer satisfaction, and in some cases, top-line revenue growth.

As the delivery environment gets more and more complex, tools will have to be implemented to deal with the amount of data generated. Not only will governance groups have the ability to automate almost all standard reports, they will be able to quickly respond to ad hoc reporting requests, and will be able to provide sophisticated analysis on just about any “what if” scenario you can come up with.

And finally, what is your advice for ambitious governance executives today looking to advance their careers?

Getting back to what we talked about before, if you have come up through the procurement ranks, to augment your understanding of sourcing, make sure that you have a good grounding in your company’s business and the business service function or functions you would like to represent. What are your company’s key drivers and initiatives? What are the industry trends in the marketplace? What are the provider capabilities and what new services are on their roadmaps? Take on projects that will provide broader recognition and increase your credibility with the business units.

If you have grown up in a business service function and now find yourself running a governance group, then go to school on strategic supplier management. Really understand how commercial relationships are structured and figure out the levers in the agreement that you can pull to modify provider behavior. You should also nurture relationships in each business unit and strive to better understand where your company is heading.

In either case, improve your skills in presentation, facilitation, and joint planning. All of these will be critical to your success.

Thanks for your time Mike, it's great having you share your thinking about where governance is heading

Click here to download your complimentary copy of our report, "Heroes Don’t Scale: Establishing an Effective GBS Governance Strategy"

Posted in: Business Process Outsourcing (BPO)Buyers' Sourcing Best PracticesCaptives and Shared Services Strategies

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