Successfully Governing Demand and Supply: Focus on the Customer
Many organizations have difficulty creating a successful outsourcing relationship. Establishing and managing the governance function is often a stumbling block. This article identifies the Critical Success Factors (CSFs) for creating a governance organization and outlines the pitfalls and opportunities that present themselves along the way. An integral key to success is control of the in-house service provision. Frequently, businesses use a common scenario that makes it as difficult as possible to start a governance organization: they first outsource ICT services, then decide to set up their governance organization. Unfortunately, with this approach, businesses must be active in two fields at once: they must implement the sourcing contract and create the governance organization. The governance organization or demand supply organization (DSO; in this article, we will use these terms as synonyms) is created with high expectations: that it will ensure that the supplier serves the company well, and that the company “gets their money’s worth.” The expectations are even more exaggerated when one expects the new governance organization to manage the demand as well. This often results in unrealistic expectations and information managers simply waiting for things to happen: “just let the DSO prove itself.” Too often businesses find themselves juggling three issues at once: a new outsourcing contract is already in place, the new supplier already at work and the governance organization must step in while still in the start-up phase. What tends to occur is that the DSO staff, often originating from the IT organization itself, focus their attention on what they know: the supplier and the contract. The demand side is neglected, so it doesn’t take long for the business management to file the first complaints about the service provision. They may feel that it takes too long, it’s difficult, or there is insufficient insight, etc.
Critical Success Factors
Breaking out of the negative spiral of these burgeoning, poorly functioning DSOs is absolutely possible through the use of Critical Success Factors (CSFs). With CSFs, the focus is on opportunities rather than challenges. Here is an overview of the Critical Success Factors for the development stage of the DSO:
1) Select realistic objectives that reflect the organization’s maturity.
After all, an organization with a mature information management can expect a more mature DSO compared to an organized with information management that is still in its infancy.
2) Pursue an explicit realization strategy
Determine which specific problems are placed with the governance organization. Define what is and what is not included in the development phase of the DSO. For example, should the new DSO immediately take on portfolio management?
3) During the realization, apply change management and active communication.
Assess the result and the effect of measures taken. This reduces the risk of customer and employee dissatisfaction. Consciously look for opportunities that arise and respond to these.
4) A governance organization that comes from an existing IT front office will be operational sooner than a DSO that is staffed by new employees.
Should a sourcing contract be managed at all, then it is even more important to have calm and order on the DSO front, preferably using an existing organization and employees that know the ropes.
5) Decide in advance what constitutes the right people and competencies.
When staffing the various positions one needs to take the group’s strengths and weaknesses into account.
6) Emphasize results, rather than operations or process.
7) Make sure that the solution of business problems is not dependent on the development of the governance organization.
It’s important to separate the issues; e.g., inferior information management is the problem of the business, not of the governance organization.
8) Focus on the measurable added value of IT.
To be able to handle that challenge, be sure to include the economic perspective on IT in governance (Are the right investments made on time? Are the desired savings realized?). When measuring, start small. Measuring on a limited number of points and directing on this provides better results than trying to do everything right all at once.
9) Concentrate on the contribution of the governance organization and its staff.
At the first stage, the contribution to the business is much more important than process completion.
10) Ensure external focus
Prioritize the customer’s interests (product and price).
11) Focus on the staff of the DSO and the IT organization
After all, they take care of the IT service provision. For example, ensure that an intended contract manager is given the opportunity to be present at the “deal making” of the outsourcing contract. He or she will be able to make a positive contribution sooner and will be more comfortable in his or her new role. Next we examine how the CSFs referenced above can contribute to the success of the set-up of a DSO.
Many organizations view the operationalization of a governance organization as a process set-up issue. From a tactical-operational perspective, this is certainly correct. However, in order to turn the governance function into a lasting success, one needs to also look at it from a strategic perspective. Consider the measurable added value of IT, and focus attention on its economic perspective; perhaps developing a separate business plan that tracks progress from the “opening” of the DSO.
Should a governance organization be positioned within or outside the existing IT organization? Positioning the governance organization outside, an often selected option, is perceived as a motion of no-confidence by IT, which will inevitably result in a worsening of the relationship with the IT organization. The governance organization will be considered as a controlling body, not as a partner. Positioning the governance organization with the Board of Directors also has its disadvantages. Division might feel the need for “shopping around” and use the governance organization to get a budget for large investments, then when this fails, return to the IT organization in order to achieve a cheap solution. The better solution is to position the governance organization in the front office of the IT organization. Next, one can determine which service provision will be outsourced and which one is kept in-house. With regard to supply management, the focus should be on controlling the future IT organization, not just on controlling an outsourcing contract. Outsourcing is not well received by every employee, but in general, it creates less differences within the organization when it is clear as to what the IT organization will look like in the future.
Although positioning in the front office is preferable, there may be situations in which different positioning is worth considering. The place of the DSO can be affected by its range of duties (e.g., more controlling than executive) but also by the size of the organization and how it is organized, such as the degree of centralization or decentralization. Another matter is whether the DSO can also be set up in two parts: the demand organization finds its place with the various divisions; the supply management is housed with the IT organization. In practice, this construction does occur but it is questionable whether this is the best arrangement. After all, this no longer involves a party that analyzes, streamlines and bundles the demand. A thorough business-wide alignment of the demand fails to materialize, and inevitable cost increases will result.
Are the right people on board?
Provided that the IT organizations already had a front office, the step towards a demand-focused working method is relatively easy. In many cases, training of account managers and employees will be required. For example, learning how to control demand and supply on the basis of Key Performance Indicators (KPIs), is not a natural ability. All too often, a balanced score card with far too many KPIs is set up. In that case, one seems to be in control, but is not. After all, control demands focus; it does not require the largest possible number of performance indicators. It may also be necessary to attract new staff for certain positions. They can be staff from within the business, or temporary external staff. Businesses that start working with a governance organization are in fact breaking new ground. Almost every IT organization will have trouble with the new dimension of the controlling of the demand, the so-called demand articulation. The staff simply has to get used to new methods and has to be given time to become proficient in their new tasks. For that reason, best practices and the exchange of experiences between organizations will only provide limited support during this transition. One should not just be reading but one should also be learning. It may be necessary to attract new employees for reinforcing the management of the governance organization. It is also possible that the existing management has more affinity with the supply side. In that case, this is better placed in the new governance organization than at the demand side of governance.
For a mature demand relationship between customer and DSO, good information management is of vital importance. The information management in the divisions or business units is often entrusted to former employees of the IT organization. They do not always find it that easy to find the connection with the business, since they are used to thinking in terms of technology. Furthermore, when formulating the business’ demands and wishes, they are no longer able to communicate with the IT organization but are obliged to collaborate with the DSO. The DSO demands guidelines; it does not demand technical specification. This also requires a change in the way of thinking. In smaller organizations, it is otherwise perfectly possible to enforce the front office of the IT organization with an information manager who serves several business units. Thus, information management can be a service of the DSO.
In a traditional “your wish is our command” situation, portfolio management often takes place in a somewhat cramped environment. All projects need to go through, resulting in spreading one’s energy too thin. Line managers protesting against the slow progress of projects are temporarily given some attention, after which one reverts to the old tempo. If a DSO is active, then this can support the portfolio management. Thus, one is able to see whether projects can be supported by the existing technology (demand bundling) and whether it is possible to add focus to the demand (responding to opportunities in the market, dealing with overrunning projects, stopping projects) on the basis of business criteria. The question is whether the portfolio management should be housed with the DSO immediately. A DSO in the making could bite off more than it can chew. Moreover, portfolio management is quite often politically charged because line managers compete among themselves and set their own priorities. If the young DSO is unable to cope with this, then this may lead to disappointment within the organization and in some cases, to the DSO being dismantled or split.
Control does deserve special attention and necessitates the question, what does the governance organization stand for? Whoever asks this question discovers the existence of different types of governance organizations. For example, this may be an exclusively monitoring body (e.g., as an extension of the Board of Directors), or it can be an organization that also channels special orders and supports projects. The latter involves more staff and will be closer to the IT organization and the shop floor. For each DSO, there are three flows to be controlled, as viewed from the perspective of supplying IT services to the customer:
- The according to agreed service levels delivery of standard services and the on time delivery of the right standard requests or products to the customer. These services or products are usually ordered on the basis of a catalog.
- The on-time and correct delivery of special orders. With regard to special orders one may think of products that can become the standard (after all, the very first color printer was special) or of pre-conditional orders, such as a test environment for an application
- The on-time and correct delivery of results of projects and the control of the project portfolio.
The three flows each include three parties: the customer, the supplier (also: in-house back office) and the DSO (the place for the alignment of demand and supply between both). One of the pitfalls is that detailed process and procedure descriptions are made, in which workflows are led past specialized employees. This results in large numbers of interfaces, each with a risk of mistakes and delays. In terms of control, it is best to focus on the interface between customer and the DSO, between the DSO and supplier and on the interface of the demand and supply alignment within the DSO. In a properly functioning DSO, there will be minimal attention to the internal alignment, so that the focus can be on the customer and the performance as delivered by the supplier for the benefit of that customer. (See also figure 1.) In addition, it is necessary to follow the market, the environment of the business. We refer to this as business and information planning.
In a nutshell
In this article, we outlined a number of success factors for setting up a DSO. It is important that this is set up on time and from an economic perspective, prior to proceeding with outsourcing. It is also sensible to give the DSO staff time to get used to their new role and allow them to undergo a learning process. With respect to this, IT organizations with a front office have the advantage, especially when setting up a DSO. Splitting up a DSO into a supply part in IT and a demand part per division or business unit is a dead end. In that case, there is no proper governance. However, focus on the added value for the customer is the success factor for a young DSO. Responding to quick wins and opportunities that arise, such as a division that is apparently eager to collaborate is a smart strategy for any DSO. After all, this has to prove itself and also has to show a return on investment itself. In that case, it does not suffice to achieve a number of successes at the supply side (think of successful contracts) and realize economies, when the customers are perhaps dissatisfied. It makes more sense to achieve successes at the demand side as soon as possible because that is where “the war is won.”