Governance is a skill that in many companies has not fully developed into a key process to optimize its relationship with third-party providers. Outsourcing relationships can generally be characterized into four types, as depicted below:
Key to developing a relationship with a provider is to identify the type of relationship. In many cases a contract is negotiated as transactional when the expectation of the client is collaborative or partnership. This difference in expectations usually results in contracts being terminated or having to be renegotiated. Management of contracts by the client is key to achieving the desired results of the contract. A description of each outsourcing relationship is as follows:
The team to manage third-party relationships should possess skills and attributes based upon the type of relationship as follows:
In many cases the governance process is given to the department that is most impacted by the outsourcing process. This usually results in sub-optimal performance of the third-party because the department is not completely focused on the relationship, and by human nature the third-party takes advantage of this lack of governance skill by the client. Developing a core capability in governance at the corporate level is the preferred approach to manage relationships.