SS

Table 6.2 Service sourcing structures

The selection of a sourcing structure should be balanced with acceptable risk s and levels of control. The method an organization uses to manage a sourcing relationship depends greatly on the sourcing organization’s characteristics such as degrees of centralization, standards and process maturity . In general, the sourcing organization should excel in establishing a set of relationship standards and processes. Other key responsibilities are to:

 Monitor the performance of the agreement s and the overall relationship with providers.

 Manage the sourcing agreements.

 Provide an escalation level for issues and problems.

 Ensure prioritization for providers.

When sourcing services, enterprises should first focus on clearly defining the services. All too often the primary focus is on the reporting structures and the resource s aligned to those structures. Resource alignment and organizational structures should be analysed and adjusted only after understanding the dynamics of the new or enhanced services. This affords the opportunity to remove redundancies and ambiguities, and chokepoints and dysfunctions prior to creating workflows.

Once the resource and organizational discussion begins, be sure to account for the introduction of new critical skills. While highly dynamic, these competencies generally fall into three categories: business , technical and behavioural. For example, the greater the level of outsourcing , the greater the need for business and behavioural skills. The greater the level of internal sourcing , the greater the need for technical skills.

6.5.3 Multi-vendor sourcing

The approach of sourcing services through multiple providers has emerged as a good practice . The enterprise maintains a strong relationship with each provider, spreading the risk and reducing costs. The challenges are in governance and managing the multiple providers. When sourcing multiple providers, the following issues should be carefully evaluated:

 Technical complexity: sourcing is useful for standardized service processes. Be mindful that as customization increases it is more difficult to achieve the desired efficiencies.

 Organizational interdependencies: contractual vehicles should be carefully structured to the dynamics of multiple organizations. Incentives, training, and other intangibles can have significant long-term effects.

 Integration planning : carefully consider the need for integration planning and solutions. This can take the form of standardized reporting and service reporting , or installed technology and protocols that integrate tools and data.

Figure 6.13 The service sourcing staircase

There are multiple approaches and varying degrees in sourcing. How far up an organization is willing to go with sourcing depends on the business objective s to be achieved and constraints to overcome (Figure 6.13). Regardless of the sourcing approach, senior executives must carefully evaluate provider attributes. The following is a useful checklist:

 Demonstrated competencies: in terms of staff, use of technologies, innovation, industry experience and certification s ( ISO/IEC 20000 )

 Track record: in terms of service quality attained, financial value created and demonstrated commitment to continual improvement

 Relationship dynamics: in terms of vision and strategy , the cultural fit, relative size of contract in their portfolio and quality of relationship management

 Quality of solutions: relevance of services to your requirement s, risk management and performance benchmark s

 Overall capabilities: in terms of financial strength, resource s, management system s, and scope and range of services.

6.5.4 Service Provider Interfaces

To support development of sourcing relationships in a multi-vendor environment , guideline s and reference points (technical, procedural, organizational) are needed between the various service provider s. These reference points can be provided through the use of Service provider interface s (SPI) (Figure 6.14).

SPIs help coordinate end-to-end management of critical services. The Service Catalogue drives the service specifications, which are part of, or extensions to, standard process definitions. Responsibilities and service level s are negotiated at the time of service relationship contracting, and include:

 Identification of integration points between various management processes of the client and service provider

 Identification of specific role s and responsibilities for managing the ongoing system s management relationship with both parties

 Identification of relevant systems management information that needs to be communicated to the customer on an ongoing basis.

Figure 6.14 Service provider interfaces

Process SPI definitions consist of:

 Technology prerequisites (e.g. management tool standards or prescribed protocols)

 Data requirement s (e.g. specific event s or record s), formats (i.e. data layouts), interfaces (e.g. APIs, firewall ports) and protocols (e.g. SNMP, XML)

 Non-negotiable requirements (e.g. practices, activities, operating procedure s)

 Required role s/responsibilities within the service provider and customer organizations

 Response time s and escalation s.

SPIs are defined, maintained and owned by process owner s. Others involved in the definition include:

 Business representatives, who negotiate the SPI requirement s and are responsible for managing the strategic relationships with and between service providers

 Service provider process coordinator(s) who take operational responsibility for ensuring the operational processes are synchronized.

6.5.5 Sourcing governance

There is a frequent misunderstanding of the definition of governance , particularly in a sourcing context. Companies have used the word interchangeably with ‘vendor management,’ ‘retained staff,’ and ‘sourcing management organization’. Governance is none of these.

Management and governance are different disciplines. Management deals with making decisions and executing processes. Governance only deals with making sound decisions. It is the framework of decision rights that encourage desired behaviours in the sourcing and the sourced organization. When companies confuse management and governance, they inevitably focus on execution at the expense of strategic decision making. Both are vitally important. Further complicating matters is the requirement of sharing decision rights with the service provider s. When a company places itself in a position to make operational decisions on behalf of an outsourcer, the outcomes are inevitably poor service level s and contentious relationship management.

Governance is invariably the weakest link in a service sourcing strategy. A few simple constructs have been shown to be effective at improving that weakness: