OneEcosystem™ governance is critical to mine value from your service provider relationships

Service provider relationships have long disappointed most enterprises because they simply do not govern them effectively. It’s high time to rethink the governance model.

For the last two decades, enterprises have endured the expensive, stressful process of selecting a service provider partner, suffering through transition, achieving performance expectations, and then watching the service provider’s performance and alignment to your changing business needs wane to the point that the only solution appears to be replacing the service provider, which starts the cycle again.

What if you could improve your service provider management process to manage performance and evolve services to keep pace with your company’s changing needs? HFS has an answer to this: the OneEcosystem Governance process, which can be extended to all your critical service and technology providers. The OneEcosystem mindset seeks to optimally leverage the best of your business process and technology capabilities, including valuable offerings from specialist service and technology providers outside of your company. You can no longer fear reliance on third parties—you must embrace and include them in your solutions.

Service provider relationships are on your surgery table, ready for operating

Your call to action to drive performance and future-proof alignment is obvious because most firms are bullish on renegotiating contracts with their suppliers in 2024. As shown in Exhibit 1, over 74% and 64% of enterprises are looking to renegotiate terms in the services and software industries, respectively. Many of these will be renegotiated through competitive RFP processes.

Exhibit 1: Enterprises are addressing perceived shortfalls in their contracts

Source: HFS Research H1 2024 Pulse, N=605

Furthermore, as shown in Exhibit 2, nearly two-thirds of enterprises want to expand their relationships to improve quality and reduce costs, as specified in the same research study of 605 enterprises. Given the goals of enterprises, the expanding number of service provider relationships, and enterprise dissatisfaction with current commercial terms, there has never been a better time for you to build a robust governance process to avoid the cyclical process of select, transition, manage, degrade, and replace.

Exhibit 2: Enterprises intend to increase the quantity of service provider relationships

Source: HFS Research 2024 Pulse, N=605

Why a OneEcosystem mindset is critical

The basis of the OneEcosystem Governance process is having a OneEcosystem mindset. This holistic view ensures that all performance dimensions, from service delivery to innovation and sustainability, are continuously monitored and optimized. By aligning goals and strategies across your ecosystem, you can ensure that every stakeholder, including service providers, is working toward common objectives.

Engaging in continuous dialogue and joint initiatives drives innovative solutions and business models between enterprises and service providers. Collaboration drives innovation and ensures that solutions are tailored to the specific needs and contexts of the enterprise, thereby creating a competitive edge and driving significant value—which breaks the service provider renegotiation and replacement cycle. Finally, engaging in the OneEcosystem journey keeps your provider relationships ahead of the curve, drives innovation, and creates new business models, future-proofing your relationships.

Dimensions of the OneEcosystem Governance process

The OneEcosystem Governance process focuses on eight critical dimensions of an enterprise-service provider relationship shown in Exhibit 3.

Exhibit 3: OneEcosystem Governance process

Source: HFS Research, 2024

The importance of these dimensions is as follows:

1. Service delivery and quality: This dimension focuses on evaluating the consistency, reliability, and overall quality of the provider’s services. Key metrics include adherence to SLAs, uptime reliability, quality management practices, scalability to handle volume fluctuations, and efficiency in problem resolution. These are the core performance metrics of an enterprise’s processes.
2. Cost management: This dimension assesses the service provider’s financial efficiency. It includes metrics such as cost competitiveness, effectiveness of cost control measures, adherence to budget constraints, and accuracy and simplicity of the invoicing process. These are the financial expectations of a service provider relationship.
3. Human capital and expertise management: This dimension evaluates the service provider’s management of human resources and expertise. It includes industry knowledge, availability of skilled professionals, training and development programs, effectiveness of knowledge transfer, and strategies for managing employee attrition. These support the changing skills necessary to support processes in a competitive recruiting environment.
4. Compliance and data security: This dimension evaluates the service provider’s adherence to regulatory requirements and the robustness of their data security measures. It includes compliance with industry regulations, implementation of data privacy and protection measures, and effectiveness of business continuity planning. These support the changing regulatory landscape enterprises must navigate.
5. Performance metrics and reporting: This dimension focuses on the transparency and usefulness of performance metrics and reporting provided by the service provider. It includes clarity and transparency of performance reports, provision of actionable insights based on performance data, and continuous monitoring and improvement of performance. Without reporting, enterprises cannot manage their service provider relationships.
6. Relationship management: This dimension focuses on the quality of the relationship between the service provider and the enterprise. It includes communication effectiveness, collaboration willingness, engagement of senior management in strategic decisions, overall enterprise satisfaction, and the ability to create new value through collaboration. The quality of relationships among senior executives, including the development of trust and respect, is the foundation of evolving services to match an enterprise’s changing strategic initiatives.
7. Innovation and continuous improvement: This dimension measures the service provider’s ability to innovate and continuously improve their services. It covers technological advancements, development of new and improved service offerings, process innovation, ongoing improvements based on feedback, and the ability to co-create innovative solutions with enterprises. Driving innovation into a relationship creates longevity and sustained engagement.
8. Sustainability and CSR: This dimension assesses the service provider’s commitment to sustainable practices and corporate social responsibility. It includes the adoption of environmentally sustainable business practices, engagement in social and community initiatives, and adherence to ethical standards. Increasingly important, enterprises are looking to their service providers to support their value chain’s sustainability objectives.

The rubber hits the road: Implementing the OneEcosystem Governance process

At least twice each year, you can put the OneEcosystem Governance process into play by following the following steps:

1. Collect feedback on each of the eight dimensions and their sub-dimensions. This feedback aims to rank the relative importance of the dimensions, ask participants to elaborate on their requirements to achieve strategic objectives, and evaluate the service provider’s performance.
2. Ensure the service providers, key internal stakeholders, and day-to-day governance leaders take your survey. The greater the participation, the better the process’s representation and value.
3. Analyze the feedback in the following ways:
   1. Importance: Compare the participants’ perspectives on the relative importance of the dimensions. The purposes of this are to a) detect any misalignment in priorities and b) help each organization understand what their stakeholders’ expectations.
   2. Performance: Compare the participants’ perspectives on the relative performance of the dimensions. The purposes of this are to a) provide the service provider feedback on performance and b) calibrate performance expectations.
   3. Importance and performance: Sort the performance metrics based on the customer scoring and then compare and evaluate how well the supplier performs in the customer’s eyes in the important areas.

The discussions in these areas will lead to improved alignment and performance improvement in areas that matter most. Service and technology providers will know where innovation and R&D need to occur and how to align with your changing business needs to ensure they don’t eventually fall into the replacement cycle.

The Bottom Line: A structured, intentional process to align improvement opportunities future-proofs your OneEcosystem.

If you don’t focus on building OneEcosystem Governance, you will continue to find your service and technology providers are unable to keep pace with your changing expectations. Collecting and comparing perspectives creates the opportunity to build alignments that last longer than a contract term. You must focus on the long-term relationship, not the first few dates!