A study published by Deloitte Consulting in April this year found that 70 per cent of participants had bad -- even costly -- experiences when it came to outsourcing. European Communications asked John Leigh, BT Global Service's head of
marketing for outsourcing services,
When John Leigh spoke at Gartner's 2005 Outsourcing and IT Services Summit in April about the practical issues that make the difference between success and failure of an outsourcing project, he was greeted by a keen audience, hungry for information. The debate at the conference wasn't about whether or not to outsource; rather, it was about how best to do it and who to partner with to ensure genuine customer success.
"We are entering a new era in business -- something we, at BT, are calling the digital networked economy." Leigh explains. "It's a relatively new way of working, brought about by the convergence of IT and communications technology on one hand, and the globalisation of business on the other. In this new economy, we face a global market where vendors are going to have to be able to sell services across the world at the best price point possible. One way to make this work is to concentrate on what you do best and outsource the rest."
BT seems to be thriving in this marketplace so far, with a number of new outsourcing contract wins under its belt. The mix of networks and IT services it offers is proving a big sell with companies. Recent headline deals have included a 'blockbuster' $3 billion deal with Reuters; a Â£25 million three-year IP VPN project with Visa across Europe; a seven-year contract with Unilever managing its global communications infrastructure across 104 countries, including the development of new technologies; and the upgrade and management of Manpower's worldwide data network encompassing 3,200 sites in 63 countries.
The company also practices what it preaches. As Leigh says: "We have done it for ourselves, so we know what we are talking about. We have outsourced call centres to developing countries. We have outsourced our HR administration to Accenture and our payroll and purchasing functions to Xansa. If you ask us if we believe in outsourcing, we have solid business evidence to say we get value from it ourselves, both as a user and a vendor. And that's pretty unusual."
So what's the secret of success? Leigh, who has 30 years' experience in the computer services industry, working for Meta Group and Gartner before joining BT, offers a number of down-to-earth pointers.
Firstly, he says, when you go from doing things yourself to being a company that outsources, you have to change your skill set. He describes this as giving up managing assets and starting to manage results. He then explains what he means in an example that demystifies the usual approach to the subject:
"Imagine that you and your partner used to clean your house yourselves. You're busy people, so you decided to hire a cleaner to do it for you. When you did the work yourself, you didn't really have to think about it that much, because you had years of experience in the area and knew exactly what to do. Now you have to explain exactly what you need cleaning, how you like it to be done, how often, using what products and even how shiny you want it.
"Instead of buying cleaning products -- in effect, managing the assets used to do the job -- you've started defining what you want done -- that is, managing the results. And this is the issue. Most of the confusion around outsourcing is based on the fact that many purchasers don't really accept -- on an emotional level -- that a service provider doesn't instinctively know what they want. And some vendors fail to make the fact plain. Indeed, customers find it quite irritating when a vendor claims to be able to run their processes more efficiently than they can themselves."
Understand exactly what services you want, the quality at which they need to be delivered and how to measure both.
Another stumbling block, according to Leigh, is demonstrated by research BT recently conducted with Industry Direct Ltd. Summarised in a white paper titled Strategic outsourcing to advance the organisation, cost control remains the primary objective for organisations embarking on outsourcing agreements.
Leigh explains: "The issue is not that cost is unimportant -- we in BT know that reducing the costs of ICT is a core skill -- but that most contracts are overly focused on direct cost, not value. And value is much more difficult to quantify. If you were to focus on the direct cost of e-mail, for example, you simply wouldn't have it. But e-mail has a value that can't be expressed in direct cost -- for example, in allowing things to happen much faster."
Organisations should quantify the performance of their IT systems and make sure they understand the balance between direct cost and the value. Then value can be built into the contract.
"I tell my clients that, if you want to cut your costs, you should take a benchmark, decide what industry best practice performance would be and ask us to deliver to that standard," Leigh notes. "But don't just tell your supplier to take 30 per cent out of your direct costs. You might not have that kind of slack, and both you and the supplier could waste a lot of time trying to reduce the cost of something you have already optimised. You don't want to do that. Services are unusual. Their costs are embedded in the proposition, so there are only a limited number of ways to reduce them. The easiest is probably the least acceptable: to reduce the resources used to deliver the service. Other options include consolidation, standardisation, the use of new technology and offshore provision."
Know with great clarity what strategy the customer and vendor will apply together to reduce the operating costs.
So bearing these first three factors in mind, what else is important? "My fourth pointer," says Leigh, "is to reduce the risk as far as possible. Take scale, for example. Is the company you are looking at big enough to fulfil your needs?"
Reduce the risk by making sure the supplier has the scale and resources you need.
"Sure, if you are outsourcing your only helpdesk to an IT shop around the corner, this may not apply,"Leigh notes. "But on a larger scale, any outsourcing project that includes a change management element carries risk of failure. We know that, and our job is to reduce the risk for our customers. But you know by our very size, scale and scope that you are taking a lower risk. Size mitigates risk -- just as it helps to have access to a powerful engine in your car. You may not need it often, but it certainly helps when you need to get yourself out of a difficult situation."
His fifth pointer, he says, is to look at depth of capability: "What I tell clients is that they should look at the investment model of the company they are looking to do business with. Where are they investing? If you are looking at buying a network, you can see that BT is planning to invest over Â£2 billion a year building a state-of-the-art IP network to support its customers across the world. If you visit BT's technology centre at Adastral Park, you can see the depth of our R&D and that we are people who are spending serious money advancing our network capability. Some of our competitors may be doing the same, but not all outsourcing companies are."
Check to see where the supplier is investing. Is it in areas that will help them deliver for you?
The deal clincher
And finally -- and this, he says is the real clincher -- you need to be clear how your service provider justifies its efficiency.
"If I go to a customer saying I can do this better than you can, I'd better have real evidence to back up my claims.
"For example, if you asked BT to show you why its network operation centres are more secure than your own, we could take you through our approach in detail. We could show you how our security works and explain why, because of what we invest in this area, we lose only a tenth of what most similar companies would lose through hacking and unauthorised access.
"Or if we are saying we can run your call centres more cheaply, I'd be able to show you how our CRM methodology allows us to maximise the impact of technology investments. If you wanted to offshore as well as outsource, I'd be able to show you our capability in India, and I'd be able to show you our capability to deploy customer data more effectively through a wide area network and our unique management package."
Ask to see evidence that backs up the supplier's claims.
In addition, Leigh says, it's vital that you chose a vendor that fits your needs: "Most companies just chose from the top five or six brands, so they start with a list that contains unsuitable partners from the outset. I think companies should start by taking a serious look at the outsourcing market and making sure they really understand the value propositions of the main players.
"It may sound simplistic to say you need to know your own needs and wants, but often they can be difficult to reconcile within the political environments of large corporates. In fact, often the most difficult thing to do is to agree a set of expectations with all the stakeholders. You know what happens -- the finance director wants the lowest cost, the business unit leaders want better service, the marketing director wants access to new know how, etc, etc."
In conclusion, he notes: "Outsourcing isn't about perfection. But what you do have to be is better. People are looking for improvement, not nirvana.
"So what I say to my clients is: focus on the two or three things that will really make a difference. If cost is one of them, your supplier needs to show that its business model will demonstrably deliver better costs, and not just offer a facile statement of intent. Then make sure all your stakeholders understand what they are going to get before negotiating to get those things -- no more, no less. And once you've done that, set measurable targets for the improvements you want so you can check you get them. It may not be simple but it is straightforward. A science, perhaps, but not a black art." n