In ICL, Internet services provider Affinity found a partner willing
to take a share of the risk while meeting its outsourcing needs.
Liz Warren reports
Outsourcing is often seen as a way to cut costs and get rid of the
management headaches of running routine, stable systems. But for
Internet start-up Affinity, outsourcing was a key competitive
weapon in its business strategy. "Outsourcing enabled us to go to
market quickly by supplying us with all the infrastructure to
support our offers," explains June May, chief executive officer of
Affinity's UK operations.
Affinity is a provider of Internet, telecom and e-commerce services
and technologies. Its clients, which include major brands such as
the Royal Bank of Scotland, Tiny Computers, Powergen, LineOne and
Egg, use Affinity's resources to offer these services to their
customers under their own brand names. "Our focus has been to
understand technology and offer it commercially," says May. "The
strengths of the company are sales and marketing but with the
particular ability to package and market technology and
applications."
Founded in 1995, Affinity achieved a listing on the London Stock
Exchange last year and now operates in Europe, Africa and
Asia-Pacific through three different divisions. Affinity Internet
offers branded Internet service provision to about 150 clients,
which now have more than 1.6 million registered user accounts
between them. Affinity Telecom supplies branded fixed and wireless
telephony services, as well as a convergent billing platform,
delivered through an application service provider (ASP) model, that
allows multi-utilities such as Powergen to provide customers with a
single bill for all services. Affinity Commerce provides brandable
Web, mobile and interactive TV content, e-commerce, software,
portals and advanced customer relationship marketing
services.
Not surprisingly, IT is a major area of investment for Affinity.
Although the company has only 200 staff and a turnover last year of
just £11m, May estimates that it is investing about £10m each year
in IT. "Our belief is that investment in infrastructure is core to
our becoming profitable in the long term," she says. "There's just
no way you can be effective in either the Internet or mobile market
unless you have that scale of investment in infrastructure."
The bulk of this spend is in the form of outsourcing contracts,
with Affinity's IT operations outsourced to ICL from the outset.
May says the choice of ICL for such a strategic role was very
simple. "It goes back to the origins of the business and our need
to share risk," she explains. "ICL was prepared to do business with
us even though we didn't know ourselves quite what might happen.
The other outsourcers we spoke to were not prepared to take the
risk. They were initially enthusiastic, but they weren't prepared
to commit to the timescales we needed." ICL was willing to take
this risk in part because it saw that it could use the relationship
with Affinity to help it to fulfil its own ambitions to become an
e-commerce player. "For both of us, the timing was right," says
May.
Global presence
She adds that the relationship with ICL
brought other benefits to Affinity's operations. ICL is a company
that has credibility in the IT infrastructure sphere and that
helped Affinity to create confidence that it had the scale and
capability to deliver among its target customer base of major
brands. For instance, the company's ISP platform was capable of
hosting a million registered users on launch. ICL also gave
Affinity a strong distribution channel - both directly and
indirectly - which it would not have been able to create for
itself, while ICL's global presence has helped Affinity to move
into new markets overseas.
Affinity has created a similar close relationship with customer
services outsourcer ClientLogic, ensuring a first-class customer
service function from day one. "There's no way we could be experts
in customer service because we didn't have the skills, bandwidth or
infrastructure," says May.
While the relationship between Affinity and ICL may have started
off on the right foot, both companies have had to work hard to
ensure it has remained successful in the longer term. The services
ICL has provided to Affinity have changed dramatically over the
past six years, not just because Affinity has grown but also
because it has developed new offerings for its customers which
ICL's infrastructure must support.
"Outsourcing has enabled us to get to where we've got to, but we
have had to manage our outsourcing partners," says May. "We're a
small business with few managers and a lot of time and effort is
required to ensure that our key partners continue to understand our
business. The Internet side in particular is constantly changing.
But it's important to make sure your outsourcers understand your
business and how it is changing; if they don't, that's your
fault."
To make sure this happens, Danny Sullivan, director of Affinity's
Internet division explains, "We have bi-monthly reviews to look at
what the market is doing, what our competitors are doing, whether
what we're doing still fits, what we should be doing and the
applicability of what ICL and our other partners can offer."
Affinity also holds high-level quarterly strategy reviews with ICL
across all business areas.
Existing outsourcing contracts are subject to monthly service
reviews, while Affinity and ICL regularly discuss which of a long
list of proposed new developments is to be undertaken next. In each
case, Affinity needs to negotiate with ICL over how much work is
included in existing contracts and how much is special. Everything
is kept on track by Affinity's large project management group,
headed up by six professional project managers. "It's basically
about project management, communication and negotiation," says
Sullivan. "It's inevitable that in any big outsourcing project that
you'll drop the ball at some point and the trick is to realise that
you have to then catch up and bring things back on track."
May confirms that the number of people who are actively involved
managing and driving forward the outsourcing relationship between
Affinity and ICL is significant on both sides. "At any one time,
there are at least 10 of our people talking to our outsourcers, at
all levels and all project stages. It's a big investment on our
side and we expect to be treated seriously on their side, but
outsourcing goes wrong when you have just one person on each side
channelling all the communication," she says.
The role and size of the in-house IT team has also changed from its
early days of primarily managing the relationship with ICL.
Affinity has grown, partly through a number of acquisitions, which
have brought with them systems developed and run in house. Some of
these have been outsourced to ICL and the in-house teams have moved
into new roles providing consultancy and training to Affinity's own
clients. "Acquisitions have given us the opportunity to look at the
strengths of both outsourcing and in-house strategies and use what
makes most sense in each area," May says.
Affinity has also brought in house some elements which were
initially supplied by ICL. May cites the example of the company's
e-mail system. "In our early days, ICL ran that for us, but as
we've grown and added offices, we've invested in our own e-mail
system because we see that as a core function we need to own. But
there will always be a role for outsourcing in the infrastructure
we are selling to customers, because it allows us to be more
adaptable to their changing needs than we could be trying to
re-engineer our systems ourselves."
At the same time, Affinity recognises that it does need to develop
some customer-facing systems itself. "On the mobile telephony side,
we do provide a lot of the added-value technical infrastructure
ourselves, because our differentiator in that business is trying to
make it easy for people to use their mobiles," explains May. "The
technical infrastructure for the mobile business is very different
to the Internet and the big outsourcers are not as well up on that
side, so we have a strong IT department at our Gloucester office to
handle all of that."
With such rapidly changing business needs, May admits that Affinity
constantly faces the danger that it might not always end up with
the best deal for new service elements if it sticks with a single
major outsourcer. The risk is reduced by a willingness on both
sides to develop new contracts cautiously.
"Where we are dealing with established business and we know the
rules, we have long-term contracts, but on new business ICL is very
good at committing to us on shorter terms, such as a year, and not
committing us to longer-term contracts until we both understand the
upside and downside and the real costs," explains May. It is worth
noting that this also protects ICL if it gets its sums wrong and
quotes too low a rate for a service that proves more complex than
expected.
In such a fast-moving marketplace both sides also have to be
willing to revisit existing contracts. "We are constantly being
challenged in our strategy by the fact that we are investing in an
industry that turns itself on its head every three months," May
points out. "For example, we had to work with ICL to change the way
it provided services to us in order to handle a change in our ISP
business from pay-as-you-go to subscription services. Our original
contract was built in a way that allowed us to have that
conversation."
She adds that, in any business relationship, it is important to
understand the business dynamics for the other side as well as your
own. "Within commercial realities, you have to be prepared to
compromise to some extent and to create a win-win situation
because, at the end of the day, you both have to succeed," she
warns. "The true measure of any outsourcing contract is that it
will work for both sides in the long term. We know we need to pay
sensible rates to get the services and flexibility we're looking
for and that our outsourcer needs to make money out of the deal
over the longer term as well."
May is also confident that Affinity has retained the right skills
in house to ensure that it continues to get value for money and the
right technical solutions from ICL. "At a day-to-day level, we have
as much access as ICL to information about what the market is doing
and where it is going," says May. "We can make up our own opinions
as to whether we and our outsourcers are on the same page. We also
have very knowledgeable people in house who can challenge whether
the technology being offered to us by ICL is suitable. That's
essential, otherwise you're going in blind."
At the same time, she points out, Affinity can take advantage of
the thought leadership provided by its best-of-breed suppliers.
"They are assessing new technologies and products all the time and
they are very good at offering us the opportunity to take advantage
of those, although we are under no obligation to do so and it's
always on commercial terms," she explains. "We usually have a
couple of pilots going on with ICL and our relationship does allow
for exploratory developments." In return, ICL can get Affinity to
test its own ideas about technology propositions.
Mix-and-match strategy
Furthermore, Affinity is not
afraid to swap outsourcing suppliers or add new ones if it feels it
can get a better deal elsewhere. On the telecoms side, it has used
several network providers, including BT, Cable & Wireless and
Energis. On the IT infrastructure side, Affinity and ICL chose not
to work together when Affinity was developing a new service aimed
at small businesses; Affinity wanted to move more quickly and
provide a greater range of functionality than ICL was able to
deliver within its own current business plan.
May certainly doesn't play down the hard work that is involved in
creating a successful outsourcing relationship. It requires good
project management and continued open, two-way communication
between client and outsourcer. The result is that Affinity and ICL
are now able to hold mature conversations about both companies'
capabilities and whether or not to undertake certain
activities.
And with six successful years of growth behind her, May has no
doubts that outsourcing has been the right strategy for Affinity.
"We don't want to be all things to all men, we never could be and
we shouldn't try to be," she says. "We've been able to get where we
are quite quickly because we've worked with major brand names that
are experts in their field."
Affinity at a glance
The organisation
Affinity is a white-label provider of Internet, telecom and
e-commerce services and technologies. Its clients - which include
major brands such as the Royal Bank of Scotland, Tiny Computers,
Powergen, LineOne and Egg - use Affinity's resources to offer these
services to their customers under their own brand names.
The challenge
As a start-up company, Affinity needed to
create a robust and credible infrastructure as soon as possible
which would convince major brands that the company could deliver
high quality services to consumers. Once the company was
established, it needed to be able to extend and refresh that
infrastructure regularly and quickly.
The solution
A strategic outsourcing relationship with
ICL has allowed Affinity to tap into a huge infrastructure from day
one and then add new services as its business model has
developed.
Top 10 tips: Secrets of Affinity's outsourcing success
- Open and honest two-way communications at all levels of the
companies and at all stages of projects
- Heavy investment in time and effort to manage contracts and the
wider relationship, with strong project management of specific
initiatives
- Retaining the right skills in house to assess technical and
commercial proposals from outsourcers
- Putting in place the best procedures and practices in both
partners' operations
- Flexible and intelligent use of outsourcing: bringing
operations in house, developing solutions internally or working
with other outsourcing partners where appropriate
- Finding an outsourcing partner that is willing to listen and to
share the risk created by a dynamic corporate and technical
environment
- Use of short-term contracts in new business areas to allow both
sides to understand the dynamics of the new service before
committing to long-term deals
- Ensuring contracts are written to allow variation in services
to meet changing business needs at a reasonable price
- Understanding the business dynamics of outsourcers and how
collaboration might help them to meet their business goals, while
recognising their need to be profitable over the longer term
- Drawing on the thought leadership that can be provided by a
leading player in the technology sector and leveraging the
strengths of the outsourcer in areas outside the original
contract.
What the experts say...
Alistair Fulton, BuyIT
chairman and president of the Computing Services & Software
Association
At first, outsourcing was hyped as a solution for all
situations and like all hype it actually turned out to be true:
- Only for some situations
- Only if the decision had been made for the right reasons, and
then
- Only if both sides had the skills to work in this new way,
because it is not easy.
This case study shows a start-up using outsourcing to give it a
competitive advantage. It demonstrates the three principles very
well. A key feature of the relationship between Affinity and its
suppliers is the extent to which both sides have invested in making
the relationship work.
Another is the sharing of strategic market information on a regular
basis and the ability to work closely to develop solutions for
problems as they arise. Flexibility in contractual terms and in
day-to-day relationships is key here, with the pace of change in
the IT and telecoms market capable of wrong-footing even the
best-informed organisations.
Finally, Affinity has understood the need to focus clearly on
developing and maintaining in-house those skills that differentiate
it in the marketplace and both sides have recognised that they are
operating in a complex market where other partners may be better
suited to specific areas. This takes a sophisticated original
contract.
Colin Thompson, deputy chief executive, British Computer
Society
This case describes a set of very successful outsourcing
relationships and serves to illustrate just how far outsourcing has
matured over the past 10 years.
With a green-field start, Affinity was able to take a totally
strategic view and design outsourcing relationships into its
operation from the start. Clearly, that will not be possible for
those running an existing organisation, but there are valuable
lessons in this case for anyone contemplating outsourcing, whether
a new or existing organisation.
Inevitably, when outsourcing contracts fail, the supplier collects
most, if not all, the blame. This case illustrates just how much
success is dependent on the understanding, attitude and
capabilities of both parties. Clearly, ICL and the other partners
have played a major part in the success of Affinity and they
deserve the credit for that. But that contribution was made
possible by the fact that Affinity itself had a clear idea of what
it was outsourcing, knew what it expected from its outsourcing
partners and understood what that meant in terms of the nature of
the relationships required. Above all, it was prepared to put in
the very considerable effort needed to establish and maintain those
relationships.
This case teaches us that the quality and maturity of the
relationship between the parties, over the life of the arrangement,
is the essential ingredient. Where that relationship is right, all
other elements, including the contract, can be tuned to achieve
success.