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Third-Party Governance Styles Based upon Contract Objectives

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.

About Charlie Schaefer

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Charles T. Schaefer has over twenty-five years experience in the management, development, implementation, and operations of business operations and information technology in the financial services industry. Mr. Schaefer leads management consulting services, providing business planning services, process redesign, aligning information technology to business objectives as well as identifying opportunities to use information technology as a competitive resource. Mr. Schaefer employs business information planning methodology, and selected consulting services to improve organizational effectiveness, business and technical processes, and the effectiveness of information management resources. Mr. Schaefer was responsible for the software and system consulting business, providing solutions to major insurance companies. Mr. Schaefer helped develop WinRisk underwriting product from a business process perspective that is used by many major life insurance companies.

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