Outsourcing Governance: Why Insight Beats Oversight
January 19, 2012
For many years, companies have looked to outsourcing as a way to reduce costs and increase supply chain productivity. But according to studies by the Corporate Executive Board, up to 90 percent of the value of an outsourcing deal can be eroded because of poor relationship governance. The Outsourcing Center, an internet site for supply chain thought leadership, agrees. The center reports that poor governance plays a role in outsourcing failures as much as 62 percent of the time. The value erosion or “savings leakage” that can result from poor governance is, in fact, a pressing problem for companies today.
Proper governance in an outsourcing arrangement is critical because the supplier or service provider becomes an extension of the company doing the outsourcing. A sound governance structure provides consistent management along with cohesive policies, processes, and decision rights that enable parties to work together effectively and collaboratively over the life of the agreement. Perhaps most importantly, good governance maximizes the potential for successful contract implementation.
This article explores the nature of good governance within the context of Vested Outsourcing, a concept that is being researched and advanced through work at the University of Tennessee.
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For many years, companies have looked to outsourcing as a way to reduce costs and increase supply chain productivity. But according to studies by the Corporate Executive Board, up to 90 percent of the value of an outsourcing deal can be eroded because of poor relationship governance. The Outsourcing Center, an internet site for supply chain thought leadership, agrees. The center reports that poor governance plays a role in outsourcing failures as much as 62 percent of the time. The value erosion or “savings leakage” that can result from poor governance is, in fact, a pressing problem for companies today.
Proper governance in an outsourcing arrangement is critical because the supplier or service provider becomes an extension of the company doing the outsourcing. A sound governance structure provides consistent management along with cohesive policies, processes, and decision rights that enable parties to work together effectively and collaboratively over the life of the agreement. Perhaps most importantly, good governance maximizes the potential for successful contract implementation.
This article explores the nature of good governance within the context of Vested Outsourcing, a concept that is being researched and advanced through work at the University of Tennessee.
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