Shell'sIT outsourcingdeals totalling about £2bn that were signed last month
represent a break from the normal pattern of multi-source
outsourcing deals.
Shell signed three IT outsourcing deals last month with EDS,
AT&T and T-Systems. EDS will take over day-to-day
management of the oil company's of AT&T and T-Systems. It will
also take over responsibility for the risk of those projects as
well as its own.
But unlike traditional prime contractor relationships, the oil
company will still retain overall control of the other suppliers
and its IT strategy.
EDS will provide end-user computing services and integrate
Shell's infrastructure services AT&T will provide network and
telecommunications and T-Systems will support datacentre computing
including hosting, storage and most of Shell's SAP services.
Albert Sprokholt, executive director at outsourcing advisor
EquaTerra, said, "Shell would previously have had to deal on
operational issues with T-Systems, AT&T and EDS itself. Now EDS
takes control, which reduces Shell's risk and costs."
Shell has been planning to use outsourcing to simplify its IT
since 2005. The approach it has now taken promises to simplify the
way Shell manages its IT, enabling it to focus its resources on
projects that makes it more competitive.
Alan Matula, Shell's Chief Information Officer, said, "This deal
allows Shell IT to focus on IT that drives competitive position in
the oil and gas market, whilst suppliers focus on improving
essential IT capability."
The deal raises some interesting questions. How does EDS
exercise control over AT&T and T-Systems, especially given that
certain desktop support functions, such as a roll-out of Windows
Vista, is predicated on AT&T's network service? Similarly, how
does EDS exercise control over decision support desktop software,
which needs to take a data feed from the SAP system, managed by
T-Systems. The other dilemma for Shell is how it can trust EDS to
deliver the outsourced service if EDS faces a default by one of the
other parties?
Shell has tackled these problems by putting multiple service
level agreements in place. Each of the three suppliers have their
own service-level agreement with Shell. Additionally, there are
service-level agreements between each supplier to ensure they are
contractually obliged to co-operate when needed.
John Madden, from Ovum, said, "[The contract] takes the burden
off Shell's internal staff to manage multiple relationships with
third parties."
Elesh Khakhar, partner at TPI, the advisory service used by
Shell, said, "Shell's approach combines all the advantages of
decentralised service provision with the benefits and efficiency of
a centralised governance structure.
The contracts will come together over the next few months and
the combined outsourcing IT service is due to go live in July 2008.
While Shell appears to have put in place an innovative SLA
structure to ensure the delivery of IT services it needs, its
success will be a measure by how these agreements stand the test of
time.
Advice for IT departments considering multi-supplier
outsourcing
1. CIOs need to scope the contract with their outsourcers in a
way that does not encourage them to compete for the same
business
2. Take into account companies that have a track record of
collaborating
3. Ensure IT suppliers that are unable to cooperate share the
pain
4. Try to avoid creating an environment of competition, where
the suppliers work against each other to compete for business
Source: Elesh Khakhar, partner at TPI
See also:
Podcast - Shell VP for IT infrastructure and services reveals their
innovative outsourcing approach. In this podcast Cliff Saran
speaks to Swee Chen Goh, vice president for IT infrastructure and
services for Shell globally, about this innovative contract.