This month, we discuss how to utilize governance frameworks to secure the business case long-term in effective FAO arrangements.

by Chris Gattenio

We know strong governance models are critical to FAO arrangements in terms of relationship management. How do I use these tactically to secure my business case long-term?

A: Establish within your governance framework a commitment to effectively unite the comprehensive objectives of all parties involved upfront, and ensure each party commits to outcome achievement within the business case.

Last month, we discussed how innovative organizations are implementing strong governance models in FAO arrangements, and how executive collaboration, strong teams, and a formalized governance framework can achieve effective relationship management. Utilizing this framework to ensure achievement of your long-term business case is a critical component of success.

How you set standards in defining the overall relationship with your provider will be the strongest indicator of long-term success in an FAO engagement. By optimizing advisor involvement, driving value from your legacy organization while still achieving your cost case, and enabling provider innovation, you can avoid three of the most commonly missed components of ensuring sustainable achievement of your objectives.

Advisor Involvement
If you’re using a sourcing advisor, governance is already a part of your contract discussions with providers. However, many organizations are often so consumed with the process of securing the right provider partnership that this element of the contract gets reprioritized to the bottom of the list.

Advisors’ experience has taught them that establishing a comprehensive framework early ensures the best outcome through the contracting phase of an FAO arrangement and beyond. Together you need to focus on building this model into the business case, and work to ensure each party is contractually obligated to the achievement of these goals in the long term. Although advisors are not typically involved beyond the contract phase, use their expertise to establish each party’s commitment to the long-term achievement of the business case.

Be clear with both your advisor and provider about what you really want out of the deal. Clear articulation upfront enables organizations to establish a governance model—and an overall FAO contract—that can execute on your long-term objectives.

Retained Organization
Within your governance framework, it’s critical to address an overall strategy for your legacy finance organization in terms of repositioning and investing in developing talent for cost-effectiveness and for driving sustainable value against your business case.

In its recent study “Optimizing the FAO Retained Organization,” the Everest Research Institute highlights links between FAO success and investment in the strategic retained organization. It noted that recognizing the retained organization as a key contributor to the success of the overall FAO service model enables companies to leverage the benefits and value accessed through a well-run legacy finance organization.

It’s increasingly apparent to industry insiders that effective FAO engagements encourage retained buyer employees to expand their skills to address new business needs. This presents significant career opportunities, including:

• Development of additional skills through managing vendor organizations and other third parties;

• Experience gained through roles
within different business departments that otherwise may not have been available; and

• Expertise achieved through achievement within various functional areas/shared services models.
Ensure that the appropriate level of talent is retained to effectively link to the new finance organization. While provider support throughout this process is key, transformation and continuous improvement only occur when joint ownership between both organizations exists.

Enabling Innovation
A framework that allows for responsiveness to changing business environments is critical. Rigid models inhibit adaptability, which can lead to cost and process inefficiencies. Within an effective governance model, organizations can lead innovation by creating a framework for a best-in-class, modern, responsive finance organization.

The ability to respond rapidly to changing business needs is a hallmark of successful FAO in a maturing market. Organizations need to be open to changing processes and strategies to fit their requirements continually. Collaboration is indispensable.

When outsourcing FAO, finance organizations must link objectives to the overall strategy of the business, supporting innovation and enabling providers to help move them toward their goals. This alignment, paired with a strong governance model, results in successful FAO engagements.