This excellent paper by the Everest Group's Outsourcing Centre, describes best practices regarding the communications methods component of a governance agreement. The structure of informal and formal communication methods employed by 63 highly successful outsourcing relationships, each nominated for the Outsourcing Journal Editor's Choice Awards, were studied for this paper. From that research, both common patterns and innovative approaches were culled to determine the 12 best practices presented in this paper. (PDF file, 16 pages, 353 KB)

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Unformated preview of the document: '12 Best Practices in Managing Outsource Relationships' (Part 3):

/> May 2002
Governing Attitudes: 12 Best Practices in Managing Outsourcing Relationships
©Outsourcing Center. All Rights Reserved
8
The BP relationship with PwC relies on a Regional Governance Board to
manage all but the day-to-day business matters. The board is comprised of
senior management from both organizations. It meets on a quarterly basis
for decisions or issues on major systems activities. On a monthly basis,
they meet to review the key performance indicators monitoring the service
provider's performance. This is also the forum that discusses issues
regarding the complex financial aspects of the agreement and ensures that
charge-backs are going to the appropriate business units of BP's
organization.
Best Practice #5: Appoint Additional Managers When
Implementing New Objectives
In addition to the initial implementation and transition phases of an
outsourcing relationship, some undergo additional periodic transition
phases over the long term as they implement new strategic initiatives. In
some instances, these additional transitions are managed by the account
managers already in place.
However, if the initiative involves substantial changes, the additional
workload may be too heavy to add to the day-to-day responsibilities of the
account manager. The best practice is to appoint additional people to
assist in managing the day-to-day challenges until the transition has been
successfully achieved.
May 2002
Governing Attitudes: 12 Best Practices in Managing Outsourcing Relationships
©Outsourcing Center. All Rights Reserved
9
Best Practice #6: Prioritize Action Items
Where the parties are involved in numerous initiatives, or during
implementation – transition phases, it is best to gain agreement on the
priority of handling various projects. Even though Gung-Ho Company, for
example, has ongoing conversations with its service provider,
ManagedOps, the parties maintain an ongoing action-item list. Each project
is rated as being top, medium or low priority. Gung-Ho also created an
electronic collaborative area on its Web site and posts the action-items list
in that area.
Best Practice #7: Key Strategic Issues
Upcoming challenges, internal changes and goal setting are fairly standard
topics on the agenda of an outsourcing relationship's strategic review
meetings. Forward-thinking companies now employ a new practice. They
use these planning sessions to also review the effectiveness and strategic
impact of their relationship on the buyer's organization.
Compaq is the buyer in an outsourcing relationship where its human
resources (HR) processes are outsourced to Hewitt Associates. They hold
monthly virtual meetings (referred to as "State of the State") between the
senior managers of both entities. Both parties' teams measure satisfaction
with each other. They then candidly discuss how well they are doing in
each key issue category and how they can improve if something is not
working well.
Continental Airlines is also outsourcing HR functions to Hewitt Associates.
Together, they use strategy meetings to learn what is new in their
industries. More importantly, when they review performance, they place
emphasis on items that went well – and why. This approach is considered
May 2002
Governing Attitudes: 12 Best Practices in Managing Outsourcing Relationships
©Outsourcing Center. All Rights Reserved
10
to be equal in importance with what most companies do – examine what
went wrong, and why. Continental also uses these sessions to check on
whether the relationship and outsourcing strategy is still achieving the
goals they initially set for an initiative.
In the outsourcing arrangement between la Caixa and its IT service
provider, EDS, the highest "coordinating" body among the parties is a
Technology Direction Committee. It is comprised of key executives from
both companies and meets monthly.
Leading global companies now use outsourcing as their primary business
solutions tool. By outsourcing as many non-core processes as possible,
they achieve maximum competitive advantage on an enterprise-wide basis.
But this strategy requires that top executives possess a variety of
negotiation and relationship management skills, as well as strategic
planning expertise. Many of these companies have developed new
executive roles.
Dow Chemical, which

Unformated preview of the document: '12 Best Practices in Managing Outsource Relationships':  Part 1, Part 2, Part 3, Part 4, Part 5, Part 6