Unlocking Value - Embrace Governance, Risk, and Compliance Practices

Unlocking Value:

EMBRACE GOVERNANCE, RISK AND COMPLIANCE PRACTICES THAT ADVANCE THE POWER OF OUTSOURCING

CHRIS JOCK

Organizational value is more than a numbers game

Building a foundation for value creation through a system of record

The vital components of using governance to add value

The qualities of enlightened governance

Resources

CONTENTS /02

/0301

Organizational value is more than a numbers game

It is a steady climb for the vast majority of enterprises to achieve and sustain market relevance today.

Satisfying customers and keeping them in productive relationships are now at the heart

of every measure of corporate value.

The trek is steep because customers have more than buying power; they have

influence over other customers, many of whom they do not even know. Sometimes

these customers do not communicate with one another – they may be simple “likes”

on a social network that shares product and service information. The sources of

product information include customer reviews that are rich with information not just

about the quality but about the use of products.

Then there is the reputation of the company. With the effort to please customers

shifting from things like pricing and packaging to a social and socially responsible

experience, all it takes is negative information from other customers and influencers

to derail what used to be a sure purchase.

The effort to stay relevant through targeted marketing to customers and influencers

is the promontory of the enterprise. Everything behind and around this point is now

measured by its sturdiness as well.

ORGANIZATIONAL VALUE IS MORE THAN A NUMBERS GAME /04

All it takes is negative information from other customers and influencers to derail what used to be a sure purchase.

As more and more direct business effort must be expended toward relationships with

customers, as companies feel comfortable with the reach of technology and their need

to manage more amounts of highly specific data, and as more companies struggle to

satisfy the career and lifestyle priorities of workers, they have warmed to the idea of

outsourcing mission-critical functions.

For market leaders who are obsessed with building more company value, outsourcing

has actually become a key business strategy.

First, company leaders have better ways to identify and measure the contingent

workforce providers who fit with the organization’s culture and vision for performance.

Second, many providers emphasize more than professional excellence and experience

in their workers; they focus on how their services integrate with the other functions

within the enterprise.

Third, service providers also include programs designed to promote and measure

the effectiveness of the outsourced function. Finally, company leaders fortify their

infrastructures – protect them against any risk inherent in using systems outside their

direct control – by finding ways to turn governance processes into methods that also

sharpen their companies’ strategic focus.

/05ORGANIZATIONAL VALUE IS MORE THAN A NUMBERS GAME

Company leaders fortify their infrastructures – protect them against any risk inherent in using systems outside their direct control.

What binds companies and suppliers together in this effort? Shared priorities and

values articulated in a universal system of record – a system that protects and delivers a

single version of the facts, available in real time, from initial discussions, through supply

chain design, through implementation, to execution.

This single version of the facts pulls everyone toward one version of the truth that

works for all parties, in every step of the supply chain and across every possible vested

interest. Far beyond quality control, this is value control: ensuring that all stakeholders

understand and perform to a shared set of practices and objectives. A system like this

makes an outward focus and agile performance even more possible by multiplying a

company’s capacity to govern itself, manage risk and comply with regulatory standards

while achieving internal economy.

This does not make it easy to find the right suppliers. In the best cases, market leaders

find sources who are better at these mission-critical responsibilities than the internal

functions were – who can deliver management and cost savings to the enterprise.

In every case, the correct approach to outsourcing, from both sides – supplier and

client – works from a philosophy that treats governance, risk and compliance as a

joint effort... where all parties understand that the purpose of these relationships is to

generate value... where all parties use governance practices to create value in ways

that protect the company and every stakeholder.


Market leaders find sources who are better at these mission-critical responsibilities than the internal functions were.

The capacity to personalize a customer’s experience exists in every realm of

relationship and transaction. Personalization is not just inside a boutique or online

at an artisan’s website. One hundred years of industrialization and thirty years of

advanced computing power have put decades of functional and management

experience within the reach of every enterprise.

The foundation underneath and behind the market-facing promontory requires

recognized, actionable direction, support, rewards and consequences; and it must

come from a wider group of players, inside and outside the organization.


Personalization is not just inside a boutique or online at an artisan’s website.

1 2 3 4

Maturity without

stagnation

Diligence without

delay

Transparency, clarity and

collaboration

Enlightened governance

/0802

Building a foundation for value creation through a system of record

Governance, risk and compliance command attention and resources. Especially in organizations whose leaders are clear in describing momentous market shifts and the internal change required to respond.

Market titans are already moving past the leadership and change management

conversations to execution. They are introducing new processes and practices that

build value while they absorb a few aftershocks from organization change. They

are finding ways to keep customer expectations in front of every other company

stakeholder – while protecting the company and those stakeholders.

It turns out that outsourcing continues to deliver opportunities to focus on the business

purpose of the organization – opportunities that were not apparent when outsourcing

became a management topic, sometimes controversial and always intricate. Yet by

categorizing the decision to outsource as a high-level strategy, market leaders have

achieved real results: fully-articulated economics of supplier partnerships; effective

decisions taken efficiently; the advance of value-creators such as lowered cost, faster

production, social responsibility and environmental compliance; more satisfied

workers; and last, but foremost, a full-on move to become customer-centric.

BUILDING A FOUNDATION FOR VALUE CREATION THROUGH A SYSTEM OF RECORD /09

Outsourcing continues to deliver opportunities to focus on the business purpose of the organization.

While the formula must be tweaked for each organization to accommodate maturity,

culture and location, outsourcing is now an established business practice – to a great

degree because the market leaders have learned how to configure governance functions

and processes to inspire every stakeholder to create value, not just enforce responsibility.

Intel, Microsoft, Proctor & Gamble, Jones Lang LaSalle, Dell: all have revisited their

supply chain, risk management, compliance and governance practices to implement

contingent workforce strategies that take care of workers as well as the company.

In one example, the client took a look at the validation labs it runs in various

locations around the world. The employees who work in these labs are valuable.

Highly skilled, these people configure, test and validate semi-conductor chips on

new product platforms. And they possess engineering knowledge of the company’s

legacy products. The client began to notice inefficiencies in its existing contingent

workforce model. These employees were leaving to work elsewhere.

When the client undertook a review of its workforce practices, it decided that converting

the labs to a new model was the best way to actually retain the institutional knowledge

while increasing worker morale. The result is a mix of core and flexible employees

that is out-performing the previous arrangement as well as saving them money. And

enabling them to attract the best candidates for open positions. They now offer a more

stable environment for performance and satisfaction.

/10BUILDING A FOUNDATION FOR VALUE CREATION THROUGH A SYSTEM OF RECORD

Outsourcing is now an established business practice – to a great degree because the market leaders have learned how to configure governance functions and processes.

The key success factor in both the design of the new employment model and its

execution is formal program the client established – specific articulation of desired work

outcomes, a growth plan, career paths, forecasts for operating needs. This program

has established the parameters for success not just in the company’s terms but in the

workers’ terms – by using the contingent model to outsource the process, enable the

company to retain invaluable institutional knowledge and experience, and pull in more

experts as needed. The company can focus on its technology and its customers, knowing

that the professional and lifestyle needs of its workforce are being met.

Is a system of record all a company needs to integrate its governance and outsourcing

models? No. A system of record does, however, make the shift to stakeholder ownership

of governance practices less of a leap – whether the stakeholder is a company manager,

a core worker, a flexible worker or a supplier.

By establishing the parameters of the company-supplier relationship in this much detail,

the parties change the outsourcing paradigm from purely financial and transactional to

a broader value basis – and they pave the way for using essential checks and balances

to expose success factors that everyone can employ. And also essential to governance:

the consequences become more transparent to all stakeholders – by way of clarified

roles, responsibilities and benefits.


The parties change the outsourcing paradigm from purely financial and transactional to a broader value basis.

Laying the groundwork for a system of record

Vested Outsourcing began as a project for the US Air Force as directed and executed

by University of Tennessee researchers. Centered in a confirmed arrangement among

all parties, a Vested Agreement articulates shared goals for innovating, creating value

and rewarding success. The model spread rapidly to business, largely because it enables

all stakeholders to forge solutions out of common bonds – bonds they might not have

known they had without the process of identifying the advantages to all stakeholders in

a proposed relationship.

A Vested Agreement is designed to generate wins for every stakeholder based not on

special circumstances but upon an idea from relational economics: the more success a

company enjoys via an outsourcing strategy, the more success for the supplier as well.

To establish a Vested Agreement, all parties follow five rules.


The vested outsourcing strategy

1. Focus on outcomes, not transactions.

Instead of calculating costs on a per-task or per-person basis, the company defines the

desired outcome and the supplier can account, upfront, for complexity, variability and

mutual dependency. While pricing may never be completely precise, centering the

agreement on outcomes requires more analysis going into the agreement. The level

of detail helps to focus the conversation on results – including the financial value for

the supplier.

2. Focus on the what, not the how.

Drilling down into the desired outcome, the company can truly act as the customer –

exploring what it wants and needs out of the arrangement. The supplier gets to focus on

its expertise, demonstrating its value through it – and quite possibly through the upfront

process of getting the information it needs from the company.

3. Clearly define and measure the desired outcomes.

Besides articulating the specific outcomes, the stakeholders address the monitoring

and measuring processes they will use to evaluate their progress. This yields an even

deeper understanding of each stakeholder’s role and responsibilities – making it easier

to communicate over the random events that inevitably will test the agreement.


4. Build incentives into the pricing model that optimize for tradeoffs.

There are no longer one-size-fits-all prices, so a fair structure requires flexibility and fresh

thinking. The stakeholders build a pricing structure that accounts for differentiated needs

and priorities, with markers that inform them about changes, for the better and worse,

along the way.

5. Govern with insight to downplay oversight.

The role of governance has never been to transform a company – only to protect it

and enforce consequences for bad behavior. The latter is still essential, yet a strong

governance team and practice actually gives stakeholders a framework for maximizing

their performance.


/1503

The vital components of using governance to add value

THE VITAL COMPONENTS OF USING GOVERNANCE TO ADD VALUE /16

Corporate governance now includes the participation – and contributions – of virtually every business function.

Whether due to the significant change in the corporate regulatory requirements of the

past decade or the questions Main Street has for Wall Street, every stakeholder has

become accountable for satisfying its responsibilities as set forth and managed through

a governance process.

Even customers participate. The governance spectrum ranges from internal risk

management and regulatory compliance to the company’s social impact, from

employment to environment and everything in between. This puts governance at

the center of the organization’s community.

As customers have become more wired into the story of a product or service – whether

learning from influencers or evaluating a company’s sense of responsibility – they have

become stakeholders in the company’s ability to manage risk and comply with both

regulations and social norms. Governance is now a progressive, not just a reactive,

process. Outsourcing providers can create leverage for client companies in balancing

a multitude of complex, interwoven and at times conflicting areas. No need to leave

opportunity, growth or money on the table.

Governance is now a progressive, not just a reactive, process.

For example, the Statement of Work [SOW] has become a tool of governance.

As businesses continue to change workforce dynamics before losing institutional

knowledge, the SOW process can give them greater visibility into what they are

actually outsourcing and spending. The well-defined, well-executed SOW also

mitigates risk and helps align outsourcing strategy with the entire supply chain.

Another example: Technology. While it is fueling the flow of information and forcing

transparency, technology is also a primary tool for identifying and mitigating risk.

Companies can visualize scenarios and teach stakeholders, especially employees and

suppliers, how to anticipate them as well as handle them. Decisions about problems

and opportunities can be set and disseminated throughout the company’s ecosystem

much more efficiently and quickly.

There are many advantages to governance at the grass roots, but the most significant

is its role in positive engagement and acceptance of enforcement. Transparency works

both ways: By engaging workers and suppliers, the company’s leaders also enable them

to understand the purpose of governance plans and reminds them of their roles and

responsibilities. Stakeholder knowledge of consequences, based in irrefutable data and

analysis as well as open communication, strengthens enforcement.

/17THE VITAL COMPONENTS OF USING GOVERNANCE TO ADD VALUE

Companies can visualize scenarios and teach stakeholders, especially employees and suppliers.

How to encourage grass roots governance.


1. Establish personal accountability as a key success factor.

2. Understand your current situation and define your desired state. Scope the gap and map the process for bridging it.

3. Chart the universe of available and appropriate suppliers.

4. Establish the rules of engagement.

5. Make risk an open book.

6. Get into the regulatory weeds.

7. Embolden the Statement of Work [SOW]. Incorporate a clear depiction of the company’s need, the supplier’s role and the risk mitigated by outsourcing the project or process.

8. Articulate the role of governance in the outsourcing decision and the consequences for not participating.

Sandardized Frame Agreements & SOW Templates

Sandardized Risk Assesment Matrix

Sandardized Methodology, Tracking & Reporting

The role of the Governance Office.

CORPORATE STRATEGY

PLAN

/19

RISK

QUALITY

LEGALDEFINED EXPECTATIONS

MEASURE & VERIFY

PERFORMANCE

EMPOWER PROJECT

GOVERNANCE OWNERS

Effective institutional oversight & day-to-day operational oversight

Clear & agile decision-making authority

Continuous linkage to Corporate business strategy & objectives

Executive influence over program maturity & outcomes

EMPOWER PROJECT

GOVERNANCE OWNERS

DEFINED EXPECTATIONS

Many variables affect the construction of an organization’s governance functions,

the most significant being the outsourced functions. Yet across the board, every

governance office, whatever the organization, whatever the industry, has five

core responsibilities: managing risk; maintaining an accurate inventory of supplier

relationships, documented through SOWs; ensuring proper approvals have been

obtained and recorded; exposing opportunities for collaboration among stakeholders;

and evangelizing the importance of compliance.

To execute these responsibilities, it is essential to centralize the SOW process – to

introduce and maintain standards and protect all stakeholders. Yet the office must be

able to act as a neutral party in evaluating management priorities, internal needs and

supplier capabilities – monitoring their intersection and pursuing integrity.

When a company has a strong, effective governance process, it produces more than

records and achieves more than compliance, operating efficiency and cost reduction.

The company addresses a business need, it accelerates the delivery of a product or

service, and it reduces risk. Past shortcomings are revealed and can be converted to

improvements. Theoretical ideals become universal standards for evaluation.

/20THE VITAL COMPONENTS OF USING GOVERNANCE TO ADD VALUE

The office must be able to act as a neutral party in evaluating management priorities internal needs and supplier capabilities.

How to manage grass roots governance


1. Wrap governance into the company’s communication and change management plans, emphasizing collaboration, transparency and community.

2. Establish a System of Record to serve as the framework for continual enhancement and value creation; build the System to identify and reinforce measurements that check truth and objectivity.

3. Develop objective, quantitative criteria for selecting suppliers.

4. Build detailed guidelines for contracts and SOWs.

5. Use technology designed expressly for managing projects and delivering information in real time.

6. Conduct orientation programs for every stakeholder group that take them through design, going live, and ongoing process.

7. Provide resources for answering questions about every aspect of governance, especially the formation of SOWs.

8. Regularly conduct audits and stability tests.

9. Collect data from every step of every compliance process

/2204

The qualities of enlightened governance

Market leaders have raised the profile of outsourcing as a strategic, appropriate corporate tool. Yet negative perceptions about governance, risk and compliance remain difficult to turn around in some corners.

Governance can be code for “rules and regulations to make jobs harder.” Risk

management is perceived as “setting up systems and processes to find ways to avoid

new product development.” Compliance is construed as “finding out what’s wrong,

not what’s right.”

Some organizations will never reach a state of enlightened governance. They are

locked into command-and-control mode and are resolved to, if not comfortable with,

managing compliance as they always have. They are far less likely to realize the benefits

of enlightened governance: more predictable and scalable product development; an

engaged workforce; financial advantage; a palpable corporate ethic; higher rates of

compliance; a vivid social reputation. Any associated failures and missteps may not be

catastrophic, but their cost is not just financial; aspects such as competitive position,

employee motivation and customer satisfaction often suffer.

/23THE QUALITIES OF ENLIGHTENED GOVERNANCE

Any associated failures and missteps may not be catastrophic, but their cost is not just financial.

Companies that embark on creating a governance structure which incorporates

outsourcing can expect to heighten their productivity and market presence. They

can expect maturity because they are diligent. Teams spend extra days in product

development with suppliers, before production and launch, to plan for random

scenarios that might interrupt an otherwise well-designed process. They outline

potential failures because they know it increases the chances of success.

Enlightened governance offices define problems well. They know what they mean

when they label something a risk. They invite and make use of diverse opinions from

every stakeholder group. They define outcomes in terms of what they can actually

measure. They enforce consistently and communicate incessantly. They maximize their

use of technology without losing their humanity.

/24THE QUALITIES OF ENLIGHTENED GOVERNANCE

They outline potential failures because they know it increases the chances of success.

THE QUALITIES OF ENLIGHTENED GOVERNANCE /25

The most significant benefit is that a well-tuned governance model actually can protect

the outsourcing strategy. The governance office accelerates the outsourcing process so

that all stakeholders remain informed of opportunities and their responsibilities, freeing

them to focus on their roles and performance.

In the right hands, governance is no longer a chore. It is a path to value. There are

intangible benefits that make a better work environment, especially after leadership

and change management models have been implemented. Yet the true value of

governance is, through processes that articulate accountability and inspire personal

responsibility, organizations clear the path for workers and suppliers to improve

processes, manage finances and innovate.

The governance office accelerates the outsourcing process so that all stakeholders remain informed of opportunities and their responsibilities.

Toward a mature governance model.

THE QUALITIES OF ENLIGHTENED GOVERNANCE /26

Stage 1: Awareness. Understanding that current governance practices do not serve stakeholders. Benchmarking organizations that have adopted optimized practices. People are wary.

Stage 2: Transition. Either as a standalone effort or as part of a corporate change management initiative. The decision has been made but teams are identifying opportunities and charting strategy. People are stressed.

Stage 3: Acculturation. The organization adopts enlightened governance and invites engagement from all stakeholders. A period of hyper communication. People are attentive.

Stage 4: Optimization. The governance model begins to serve stakeholders. The defined outcomes appear and are measurable. People feel safe.

Stage 5: Transformation. All systems go. Stakeholders endorse and participate in governance. Insights are captured and fed into the model. People are energized.

The mature governance model. Stage 3: Acculturation.

People are attentive.

Stage 4: Optimization. People feel safe.

Stage 5: Transformation. People are energized.

AWARENESS. People are wary TRANSITION

People are stressed

/27

STAGE 1: AWARENESS

STAGE 2: TRANSITION

STAGE 3: ACCULTRATION

STAGE 3: OPTIMIZATION

STAGE 5: TRANSFORMATION

People are

wary

People are

stressed

People are

attentive

People feel safe

People are

energized

/28

RESOURCES

• Intel’s Contingent Workforce Philosophy

• Vested Outsourcing: How P&G Brought Its Focus on Innovation to Facilities Management, by Kate Vitasek and Joseph Tillman

• Vested: How P&G, McDonald’s, and Microsoft Are Redefining Winning in Business Relationships, by Kate Vitasek and Karl Manrodt with Jeanne Kling, 2012

• Outsourcing Business Processes for Innovation, by Mary C. Lacity and Leslie P. Willcocks, MIT Sloan Management Review, 2013

EXIT

ABOUT KELLYOCG

KellyOCG® is the Outsourcing and Consulting Group of workforce solutions provider Kelly Services, Inc. KellyOCG is a

global leader in innovative talent management solutions in the areas of Recruitment Process Outsourcing (RPO), Business

Process Outsourcing (BPO), Contingent Workforce Outsourcing (CWO), including Independent Contractor Solutions,

Human Resources Consulting, Career Transition and Executive Coaching, and Executive Search.

KellyOCG was named in the International Association of Outsourcing Professionals® 2014 Global

Outsourcing 100® list, an annual ranking of the world’s best outsourcing service providers and advisors.

Further information about KellyOCG may be found at kellyocg.com.

For more thought leadership go to talentproject.com

ABOUT THE AUTHOR

CHRISTOPHER P. JOCK is vice president and practice leader of Kelly Outsourcing and Consulting

Group. Appointed to his current post in 2009, as global leader for KellyOCG’s Center of

Excellence (CoE) for Global Managed Solutions, Jock works with his team to assist companies

with the operational management of their core and non-core functions, ensuring and increasing

efficiency, productivity and quality. No stranger to effecting and leading organizational change and

transformation of varying size and complexity, he has been involved in well over thirty such projects while engaged

in various roles over his career. He is well-suited and suitably experienced to be a trusted advisor to organizations

that might find themselves in similar situations. He is responsible for strategy, brand relationship management and

business development and support for Managed Solutions worldwide.

http://www.kellyocg.com

http://www.talentproject.com