It has been a hectic year for Simon Thomas, CIO at
retailerThreshers. Back in February, the
company signed a five-year £8m outsourcing contract with services
companyXansaafter six months of
negotiation.
After a tricky transition between Xansa and the company's
previous outsourcing partner,
EDS, the contract came into effect at the end of May - but for
Thomas and his team, the hard work is by no means over.
"Getting to the point where you sign the contract is a long,
hard slog, certainly. But after that, you are faced with the daily
effort of making that relationship work," says Thomas.
The key to getting outsourcing right is to take a holistic view.
Every stage, from building the business case right through to the
termination of the contract at the end of its term, needs to be
carefully managed - and the CIO needs to be involved right from the
start.
The decision to outsource usually comes down to whether IT
capabilities can be delivered better, faster or cheaper by a third
party than they can in-house, says Michael Schaefer, operations and
IT director at independent mortgage broker
Chase de Vere.
"If they can, then you have got yourself a business case," he
says, adding that the IT director usually has the best information
with which to make that judgment call - or at least guide the
thinking of their colleagues on the management team.
The right request
IT directors have much to offer during the tendering process,
because it is at this stage that requirements are documented and
the request for proposal is built.
As a guideline, the request for proposal should cover scope,
schedule, technical requirements and, in some cases, contract terms
and conditions.
"I always send a terms sheet out with the request for proposal,"
says Mike Bell, CIO at retailer
Somerfield. "If a supplier is not willing to meet those terms,
then they need not bother responding. I know what I need, and the
basic terms are not up for discussion."
Most outsourcing veterans agree that a rushed request for
proposal with too little detail is a potential time bomb that could
lead to years of poor performance. But an over-long request for
proposal can also be a problem, says Thomas.
"Large request for proposal documents are just confusing," he
says. "We try to keep things tight, but not too shallow." In the
deal ultimately awarded to Xansa, that approach resulted in an
request for proposal of about 100 pages.
Either way, detail is key, says Ray Cooke, IT manager at
logistics firm Unipart Logistics. Cooke manages the company's
outsourcing contract with service provider
Computacenter, originally signed in 1999 and renewed in 2005
for a further three years.
"You should be very open about your needs and expectations in
the request for proposal. It is not just there to detail the
service you require, but also outline the commercial elements of
the deal you are looking for," he says.
"If, for example, you want an 'open book' deal - where the user
sees the margins the outsourcing supplier is making - then the
request for proposal is the place to make that absolutely clear.
The same goes for the engagement model you want to use. Give
prospective bidders all the details and you will avoid wasting
their time and yours," Cooke says.
The evaluation process
When the bidders respond to the request for proposal, it is time
for the procurement team to start evaluating the responses and
putting the bidders through their paces.
That is a task that Glyn Evans, assistant to the chief executive
on transformation at
Birmingham City Council, took very seriously when looking for
an outsourcing supplier to join the council in Service Birmingham,
a public-private partnership that would not only provide the
council's IT infrastructure, but also take charge of individual
transformation projects on its behalf.
"It was essential that the procurement process thoroughly tested
the bidders' ability to deliver, and proved to our complete
satisfaction that we could work together with them as a team," says
Evans.
As a result, the two companies that made it to the final stage
of supplier selection - IBM and Capita - underwent a rigorous
12-week test of their commitment and dedication.
"The two bidders were asked to perform proof of concepts and
develop full business cases in consultation with council workers
for projects in three areas: customer services, efficiency and
adult services," Evans says.
"In addition, this phase was a fully negotiated one, with
council teams meeting with the bidders on a weekly basis. That gave
us a real feel for their performance," he says.
Capita was eventually named as the preferred bidder in December
2005, and a 10-year contract worth £475m was signed three months
later.
It is also important to remember that what is needed is an
outsourcing supplier that offers a good cultural fit with your
organisation, not just one that offers the best financial
terms.
At Unipart Logistics, Cooke chose Computacenter because it
demonstrated expertise in the disciplines of continuous
improvement, six sigma and lean processes - all of which are core
to the way Unipart is managed. "That gave us an affinity with
Computacenter that other suppliers could not match," says
Cooke.
The job of finalising terms and conditions will run more
smoothly if the supplier and user have developed a good
relationship during the selection phase, says Thomas.
"Contract negotiation is always tense - it is a situation where
everyone has interests to protect. But if you have come to the
right decision with your supplier, these conversations should not
get too heated," he says.
It is also worth remembering that if you drive too hard a
bargain, the relationship cannot go anywhere. "What is the point of
proceeding if there is not something to be gained by both sides in
the partnership?" says Thomas.
By the time the contract is signed, the nature of assets,
payment structures and governance should all be defined. Metrics in
the form of
service level agreements (SLAs) should also be in place.
Managing the transition
The next stage - transitioning internal operations to an
outsourcing partner - typically involves transfer of assets,
potential conversions of operating platforms and processes and, in
some cases, a move of processing to an outsourcing supplier's
facilities. It may also include the transition of personnel to the
supplier's payroll or the transfer of work to an offshore
supplier.
This can be a tricky time if a firm is transitioning from one
outsourcing provider to another, as the team at Threshers found
out. "It would be nice to think that you could leave the suppliers
to work nicely with each other, but the fact is, you will probably
play referee sooner or later," says Thomas.
When the contract comes into force, performance management
begins. Throughout the lifecycle of an outsourcing contract, the
user should be evaluating the effectiveness of the agreement and
providing feedback to the outsourcing supplier, usually in the form
of operational metrics.
This is where many organisations encounter problems, often due
to inexperience. In a survey by outsourcing advisory service TPI,
61% of users admitted to placing more emphasis on setting up their
outsourcing contract than on managing it - and said they had been
disappointed with the results as a direct result.
"It is critical for users to recognise that the manner in which
an outsourcing relationship is managed is as important as forging
the relationship at the outset - if not more so," says Stuart
Harris, a partner at TPI.
Get the measure of performance
In performance measurement terms, a useful point of reference is
the
IT Infrastructure Library Service Catalogue. This outlines the
SLAs that should be used to measure IT, whether provided in-house
or by a third party, and also the frequency with which they should
be measured. This is the approach used by Thomas and his team at
Threshers.
At Unipart, Cooke benchmarks his outsourcing suppliers annually,
using services from Gartner and Compass Management Consulting,
which keep reference databases full of the details of similar
outsourcing contracts.
"Wherever we are performance-wise relative to the rest of the
index, that is what we want to sustain or improve year on year,"
says Cooke. "The outcome has been that Computacenter has always
ensured that we can do that," he says.
In addition to day-to-day interactions, most organisations
insist on a steady schedule of formal meetings with their
outsourcing partners. At Unipart, there are weekly meetings to
discuss recent risks and issues, monthly service-review meetings
where SLAs are discussed, quarterly meetings geared towards
improvement, and annual meetings where the entire relationship is
reviewed.
The annual review is also a fixture at Cheshire County Council,
which outsources its broadband network and all desktop support to
A&O. "The council gives a presentation outlining our IT
strategy, local issues and needs and the changing political
environment.
"Our supplier then does a return presentation, demonstrating how
it is going to support all that. From these presentations, an
action plan is formed," says Steve Hopson, CIO at the council.
Towards the end of an outsourcing contract, whether that end is
due to normal contract expiration or forced by poor service, the
effectiveness of the outsourcing relationship will usually be
reassessed. This judgement may lead to an extension of the
arrangement, a modification of the strategy, or a re-tendering of
the contract.
But no firm should be too hasty to change things without a full
evaluation, says Cooke. "If things are not going well, you may not
solve the problem by switching providers. The problem, in fact,
might be you."