Rolls Royce IT chief says mega outsourcing contracts can adapt and deliver big savings
- Posted:
- 15:53 21 Nov 2003
Multibillion-pound outsourcing deals can deliver hefty
savings and adapt to meet the changing needs of the business,
according to the IT director of Rolls Royce.
Speaking at a National Outsourcing Association conference last
week, Rolls-Royce IT director Luc Schmitz said his company had made
substantial savings on IT costs since signing a £1.3bn
outsourcing contract with EDS in 2000.
"We have roughly halved the cost of the PC managed service unit
under the outsourcing deal, saving us tens of millions of pounds,"
he said.
Under the 12-year contract, EDS runs 90% of Rolls-Royce's IT in
four areas of the business: global aerospace, defence, marine and
energy.
Although "mega" outsourcing deals have become common, some analysts
believe they pose significant risks. For example, a user could be
vulnerable if its supplier folds, and long-term contracts may lack
the flexibility to change with business needs.
Other large companies, such as Barclays Bank, have chosen to sign a
series of smaller outsourcing deals with different suppliers.
Schmitz admitted that long-term outsourcing contracts were
difficult to plan and manage but added that they reduced the amount
of time his business had to spend on negotiating contracts with
suppliers.
"We do not have to renegotiate contracts with other suppliers on a
frequent basis, he said. "[Having to renegotiate frequently] can be
a nightmare, especially when you have to decouple part of your
estate and hand it over to another outsourcing supplier."
However, since the deal with Rolls Royce, EDS has been hit by
problems with other mega deals. EDS customers WorldCom and US
Airways filed for bankruptcy last year, and problems with the US
Navy and the Department for Work and Pensions in the UK resulted in
delayed payments to the supplier worth hundreds of millions of
pounds.
The resulting profit warning by EDS and an investigation by US
financial regulators contributed to the loss of a
multibillion-dollar outsourcing contract that was due to be signed
with Procter & Gamble late last year.
Schmitz said Rolls-Royce had renegotiated part of the outsourcing
contract since 2000 but had decided not to capitalise on EDS'
troubles by pressing for big discounts on the deal.
"Changing a deal like this is like a turning an oil tanker, but we
have refreshed our approach and changed some of the terms of the
contract, mainly how we plan and align the objectives in the deal,"
he said.
Mega deals 2003
April Procter and Gamble signs £2bn,
10-year deal with Hewlett-Packard.
June Royal Mail signs £1.4bn deal with
consortium led by CSC.
October Nordea Bank embarks on 10-year,
£1.5bn "joint venture" with IBM.
