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CFO Insights 2021 September
The Partner Management Office (PAMO): Yield Value Beyond Just Cost Saving
CFO Insights is a monthly publication to deliver an easily digestible and regular stream of perspectives on the challenges confronting CFOs. This article introduces "PAMO" that is a powerful lever and key element to realize strategic synergies throughout the engagements with the third-party service providers.
As outsourcing continues to be the focus for operational finance process streamline, many CFOs are considering not only saving cost, but also realizing strategic synergies throughout the engagements with their service providers.
As progressing in phases in large transformation journey and getting various service partners on-boarded, a strong, transparent, and healthy partnership will help service receiver unleash value and get the best out of partners engaged.
To establish and maintain this strategic partnership, it is essential to build a scalable, agile and robust Partner Management Office (“PAMO”). This is a key element of successful BSO (Business Service Optimization) ecosystem to ensure high quality services to clients.
PAMO is an internal unit within an organization that is in charge of evaluating third-party partners of goods and/or services, supervising day-to-day interactions and managing longer-term relationships. PAMO is playing an important role to make all these happen in a more transparent and easy-to-understand manner.
Benefits and Challenges of PAMO
Under PAMO framework, third party service providers are treated as strategic business partners, instead of just vendors. PAMO itself is a service accelerating the establishment of strategic relationship with partners and supporting such relationship in a long term. That is why PAMO performs different processes and contains unique features than traditional vendor management.
Benefits
- Risk mitigation: It defines and implements the strategy for assessing transition. It plays a key role in defining governance structure for approving milestone payments and monitoring interdependencies between programs.
- Flexibility: It forecasts demand and reduces variance to utilize contractually committed volumes effectively.
- Cost reduction: It closely tracks the performance results versus original objectives. By determining whether productivity targets are being met, PAMO negotiates necessary changes in contract and manage scope creep.
- Quality improvement: It encourages utilization of service providers beyond pure staff augmentation activities. Meantime, PAMO not only tracks and reports, but also strives to improve service levels that determines fair and non-excessive quality goals.
- Productivity Increase: It establishes baseline for tracking productivity and track progress against contract, and translated productivity improvements into bottom-line savings or increased capacity
- Multi-partner Engagement: It accelerates the integration of newly engaged service provider to emerge into the multi-partner operating model quickly.
Challenges
Nonetheless, determining an optimal PAMO model is much more challenging than it sounds as the scope of the partner management function has expanded from simply managing the selected vendors to maintaining a long-term strategic partnership with service providers across the enterprise. An enlightened CFO as the real driver is expected to tackle these challenges:
- Experienced Resources: Finding Experienced Resources with requisite skills to deal with the changing scope of work and contractual obligations
- Flexibility & Scalability: Flexibility and Scalability to meet the changing needs and strategic direction of the business as well as changing market trends
- Optimum Organization Design: Optimum Organization Design to improve internal governance as well as manage and control operational cost of vendor
Available Funding and Budgets: Access to optimal technology platforms that can address enable operational efficiency and reduced manual effort - Tools & Technology: Building Toolkits and implement Technology that are flexible and scalable, easy to deploy in a with minimal overheads
- Balanced PAMO Operating Model: Balancing a hybrid model with scalability of centralized policies, processes, controls and implementing within the business
- Roles & Responsibilities: Define Roles and Responsibilities with clear and distinct accountability for all internal and external stakeholders
- Strategic Partnership: Structure Strategic Partnerships with large key Vendors providing key services across major business units
Building Blocks
Based on Deloitte’s field experience and knowledge of leading practices, a sound PAMO model should consist of the following five fundamental building blocks:
Contract Management
- Manage & track obligations
- Manage contract compliance
- Draft contract guides and formal correspondence
- Provide contract amendments
- Negotiate/renegotiate contracts
- Provide contract drafting support
- Process contract changes
- Manage contract risks
Financial & Commercial Management
- Verify rate and volume/ invoice charges/recommended payment model
- Track benefits and savings and service credits
- Budgeting & forecasting assistance
- Monitor and report capacity optimization
- Collect and aggregate business forecasts
Issue & Query Management
- Track resolution of escalated issues/ report on issues/ archive issues
- Create and manage issue/ escalation management process
- Perform legal dispute management
- Provide guidance on interdependency with Governance mechanisms and forums
Service Performance Management
- Month end approval of service level agreements (“SLA”) and exception breach process
- Undertake SLA change management
- Perform SLA escalation in cases of persistent breach
- Act as point of escalation for Service delivery or performance issues
Governance & Control
- Establish governance forums and terms of reference
- Prepare agendas, track issues and actions, develop materials and follow up post forums
- Manage document version control and security
Conclusion
The abovementioned fundamental building blocks are just the starting point to construct PAMO. Topics, for example, of business continuity plan under the situation like COVID-19 pandemic, how best to build trust with partners that engender shared knowledge, shared motivation and shared risk, are things to be considered when the organization is evolving into a partner coordination processes in partner management.
More importantly, it is crucial for CFOs to keep the big picture in mind that the key to success in this partnership is to maximize the benefits out of the relationships and maintain a long-term view of building a sustainable PAMO.
This includes dedicating necessary time and effort to establish relationships with key internal stakeholders and critical service providers, investing in leading IT solutions with suitable tools and scalable capabilities, and designing an agile partner management operating model that can readily adapt to changes in enterprise strategy. Building a robust and effective PAMO requires flexibility, innovation, and determination eventually.
Let’s talk
As companies continuously review their organizations for new outsourcing trends, investments in PAMO will remain a key component since the ecosystem will likely become more dimensional and dynamic. By taking an elevated approach, PAMO can serve as a powerful tool to strategically manage innovative forces across multiple service providers. This not only requires changes in how outsourcing deals are constructed, managed, and delivered, but also necessitates new tracking and measurement capabilities to demonstrate value.
It takes strategy, vision, and experience to discover the potential of innovation in outsourcing. If you're looking for ways to better navigate the evolving your global outsourcing landscape, manage risks, and realize opportunities in partner management, we should talk.
For inquiries, please contact the author, Wang Yue Cassandra (yuewang@tohmatsu.co.jp).
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