With experts warning of an impending global recession, understandably many companies are tightening budgets and pursuing layoffs or instituting hiring freezes.
While managing with fewer resources and tighter budgets is never ideal, it is a familiar business problem, and old problems often have well-tested solutions. For businesses proactively planning for the impacts of a global recession, the first change they should consider isn’t cutting costs, it’s strengthening the very program intended to deliver improved efficiencies – your governance program.
A Recession Raises the Criticality of Good Governance
When companies fear a loss in profits, they often look first to what they can cut. Canceling contracts with third parties that haven’t delivered the promised results can seem like an obvious solution, but it’s not always the most efficient choice when you consider the costs and challenges of replacing third parties, especially during a recession.
Instead, looking into why your partners aren’t producing the desired results can yield insights into how you can get more out of the relationships you already have. By investing in stronger governance, you can find opportunities to improve efficiency and outcomes within your current partnerships—maximizing the investments you’ve already made.
What Good Governance Looks Like
Governance is the system and processes that ensure your intended outcomes are realized. In practice, most companies underinvest in governance with a minimum dedicated team focused on the transactional aspects such as contract and performance monitoring. But that’s only a fraction of what operational governance should cover in order to reap the full benefits.
To get the most out of your third-party relationships, operational governance needs to go beyond Contract and Performance Management to also include other key management areas.
Good governance should include these key operational factors:
The ROI on comprehensive operational governance includes:
- Reduction in spend leakage through timely price benchmarking, tracking and reconciling consumption and billing data, and checking compliance with the agreed pricing model
- Improved productivity through better utilization of resources already deployed
- Healthier relationships with third parties with more leverage for negotiation, faster and more effective issue resolution, and opportunities to benefit from third-party expertise and innovation
- Higher degree of customer satisfaction is achieved by continuous monitoring of performance and tracking and by resolving service delivery risks before they escalate
Source: Third-Party Governance: What ‘Good’ Looks Like
5 Advanced Tips to Unlock Further Value Through Governance
To unlock even more value, here are a few specific governance best practices.
1. Don’t solely rely on your supplier to ensure you get the maximum out of the relationship
You selected your third parties for the expertise they bring to your organization—but that doesn’t mean they’re good at knowing how to work best with you. Specialized governance experts know how to engage with partners, analyze both internal and third-party teams, in order to design a structure that enables both teams to work effectively together.
2. When it comes to governance – the earlier the better
Governance is most effective when it’s a priority from the beginning of each new relationship enabling you to design the right structure from the start. When you have good processes in place from the beginning, you improve your chances of getting the promised results with far fewer issues along the way.
3. Analyze the relationships you already have
While the best time to focus on governance is from day one, the second-best time is as soon as possible. Even existing relationships can benefit from review by a governance expert who’s trained to find opportunities for greater efficiency and improved results.
4. Look beyond your suppliers for the root cause of problems
While on the surface it may seem best to offboard third parties that aren’t performing, the third party may not be the problem. It’s possible the impediment to success is internal or requires engaging with the partner to adopt new technologies or solutions. Good governance enables a deeper look beyond the surface signs of a problem to find the root cause.
5. Focus on the right metrics for proactive problem solving
Unfortunately, at many companies, governance focuses on lagging indicators when quality has already started to decline. Alternatively, the right leading indicators can alert you to a potential issue before performance suffers. Identifying better metrics is part of effective governance.
Stretch Tight Budgets Further with Good Governance
Ready to learn more about how good governance can enable you to do more with less? Our Neo Group governance experts leverage 22 years of deep governance experience to enable our clients to achieve incredible outcomes including (need to insert statistics here regarding increased efficiencies, ROI, cost savings, etc.). Reach out today to learn how you can too.