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Work governance into sourcing contract

Organizations that spell out in contracts how they intend to govern client-provider relationship will have "better chance at success", according to industry player.
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Written by Vivian Yeo on

SINGAPORE--Organizations and services providers need to ensure governance is built into an IT sourcing relationship right from the start, to have a "better chance at success", according to an industry player.

Clients, or recipients of IT services, need to spell out how they intend to govern the relationship between buyer and supplier at the contract negotiation stage, Graham Coombes, service management consultant at Capgemini UK, said Tuesday at a seminar organized by the Institute of Systems Science at the National University of Singapore.

IT services providers also ought to remind customers to include such provisions in the contract, if their clients have not done so, Coombes said.

"If you don't put governance in place at the beginning of that [relationship], it's very, very difficult to put it in place later," he said later in an interview with ZDNet Asia.

Citing statistics from ZDNet Asia's sister site Silicon.com, Coombes noted that governance issues were responsible for 80 percent of IT outsourcing failures. The 2005 study had concluded that two-thirds of outsourcing deals fail to deliver the expected benefits.

Factoring in governance early in the partnership also helps lay the foundation for a sound relationship, which then lets the enterprise react quickly to business demands, said Coombes.

"When you get to periods [requiring] heavy reactive change to market trends like what happened with the economic downturn, if you haven't got that governance structure in place, it's 10 times more difficult [to manage the market change]."

Stressing the need for client organizations to view services providers as partners, Coombes said increasingly businesses are recognizing the value of a collaborative partnership with their vendors.

While the services recipient is responsible for business strategy, and the services provider is accountable for service transition and service operation, "joint governance" is also a key component of the relationship, he noted. This includes establishing policies, and working out the responsibility assignment matrix or RACI, as well as performance levels and metrics.

A joint governance model, he added, could be aligned to ITIL (IT Infrastructure Library) principles and include the formation of a joint executive board to manage shared responsibilities.

In a separate presentation, Wim Van Grembergen, professor at University of Antwerp's economics and management faculty and executive professor at the University of Antwerp Management School, listed several components organizations embarking on IT governance should establish:

  • IT steering committee
  • IT project steering committee
  • Having the CIO report to the CEO
  • Project management methodologies
  • Portfolio management
  • IT budget control and reporting
  • IT leadership

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