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Information Technology Sourcing: More Than A Decade of Learning. Mary C. Lacity. Visit to January 24, 2003. Presentation Outline. Research Methods One-to-one IT Sourcing: Overall lessons One-to-many Netsourcing The Big Yawn

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information technology sourcing more than a decade of learning

Information Technology Sourcing: More ThanA Decade of Learning

Mary C. Lacity

Visit to January 24, 2003

presentation outline
Presentation Outline

Research Methods

One-to-one IT Sourcing:

Overall lessons

One-to-many Netsourcing

The Big Yawn

Business Process Outsourcing:

BAE SYSTEMS Case Study

research method case studies
RESEARCH METHOD:Case Studies

Thirteen year study with multiple coauthors:

90+ case studies, 130 decisions in US, Europe, and Australia

Outsourcing: n= 98 decisions

British Aerospace DuPont Inland Revenue Enron GM

IRS Rigg’s Bank South Australia Swiss Bank

Insourcing/Backsourcing: n= 18 decisions

Continental Baking Brown Group MEMC

Occidental Petroleum Ralston Purina Vista Chemicals Westchester County

Netsourcing: n=10 decisions

Corio EDS Host Analytics mySAP Zland

Business Process Outsourcing: n = 4 decisions

BAE SYSTEMS Lloyd’s of London

dupont
Dupont
  • 1997 Signed $4 billion in contracts with CSC & Accenture
  • Outsourced IT infrastructure, applications maintenance, desktops
  • 3100 people transferred
  • Contracts in 22 countries
  • Contract is 30,000 lines long, 600 SLA
  • Decision process took 18 months
  • Transition period took 2 years
research method case studies1
RESEARCH METHOD:Case Studies

Multiple stakeholders interviewed at each site...

  • Senior executives (CFO, COO, CEO, Treasurer, etc..)
  • Chief Information Officers (CIO)
  • Contract managers
  • Supplier account managers and executives
  • Key end-users
  • Consultants, internal and external lawyers, union leaders
research method surveys
RESEARCH METHOD:Surveys

CIO-level surveys of Outsourcing experiences:

UK & US (1997, n=101 useable surveys)

Scandinavia (1998, n = 40 useable surveys )

CIO-level survey of Netsourcing experiences & plans:

28 countries, (2001, n = 274 useable surveys)

success rates over time

Year Decision Was Made

YES, most expectationmet

NO, most expectation not met

MIXED results

Total

1984-1991

14

(48.3%)

12

(41.4%)

3

(10.3%)

29

1992 to 1998

41

(73.2%)

8

(14.3%)

7

(12.5%)

56

TOTAL # OF DECISIONS

55

(64.7%)

20

(23.5%)

10

(11.8%)

85

Success Rates Over Time

CONTRACT DATE(n=85 outsourcing decisions with discernible outcomes)

customer rating of supplier performance one to one outsourcing
Customer Rating of Supplier PerformanceOne-to-One Outsourcing

1997 US & UK data

Overall, suppliers are

earning a “good” report

card, but there were many

opportunities for

improvement.

proven practices in it sourcing
Proven Practices in IT Sourcing

Selective Sourcing rather than total outsourcing

Joint Senior executive/IT decisions

Internal & External Bids

Short Term Contracts

Fee-for-service contracts

selective sourcing
Selective Sourcing

N = 102 decisions with discernible outcomes

managing sourcing decisions through six phases

Scoping

Phase

Evaluation

Phase

Negotiation

Phase

Transition

Phase

Middle

Phase

Mature

Phase

  • Identify core IT
  • capabilities
  • Identify IT
  • activities for
  • potential
  • outsourcing
  • Measure baseline
  • services & costs
  • Create RFP
  • Develop evaluation
  • criteria
  • Invite internal and
  • external bids
  • Conduct due
  • diligence
  • Negotiate SLA
  • Create responsibility
  • matrices
  • Price work units
  • Terms of employee
  • transfer
  • Negotiate
  • mechanism for
  • change
  • Distribute contract
  • to users
  • Interpret contact
  • Establish post-contract
  • management infra-
  • structures & processes
  • Consolidation,
  • rationalization,
  • standardization
  • Validate scope, costs,
  • levels, service levels
  • Managed additional
  • service requests
  • Foster realistic expectations
  • of supplier performance
  • Publicly promote contact
  • Manage customer/supplier relationships
  • Benchmark
  • performance
  • Realign the contract
  • to reflect changes
  • in technology &
  • business.
  • Recalibrate
  • investment
  • criteria
  • Determine
  • if relationship
  • is extended
  • or terminated
Managing Sourcing Decisions Through Six Phases
core it capabilities
Core IT Capabilities

Business and IT Vision

Business Systems

Thinking

Relationship

Builder

Contract

Facilitation

IS

Leadership;

Informed

Buying

Design of IT

Architecture

Delivery of IS

Service

Contract

Monitoring

Technical

Architecture

Technical

Doer

Vendor

Development

managing sourcing decisions through six phases1

Scoping

Phase

Evaluation

Phase

Negotiation

Phase

Transition

Phase

Middle

Phase

Mature

Phase

  • Identify core IT
  • capabilities
  • Identify IT
  • activities for
  • potential
  • outsourcing
  • Measure baseline
  • services & costs
  • Create RFP
  • Develop evaluation
  • criteria
  • Invite internal and
  • external bids
  • Conduct due
  • diligence
  • Negotiate SLA
  • Create responsibility
  • matrices
  • Price work units
  • Terms of employee
  • transfer
  • Negotiate
  • mechanism for
  • change
  • Distribute contract
  • to users
  • Interpret contact
  • Establish post-contract
  • management infra-
  • structures & processes
  • Consolidation,
  • rationalization,
  • standardization
  • Validate scope, costs,
  • levels, service levels
  • Managed additional
  • service requests
  • Foster realistic expectations
  • of supplier performance
  • Publicly promote contact
  • Manage customer/supplier relationships
  • Benchmark
  • performance
  • Realign the contract
  • to reflect changes
  • in technology &
  • business.
  • Recalibrate
  • investment
  • criteria
  • Determine
  • if relationship
  • is extended
  • or terminated
Managing Sourcing Decisions Through Six Phases
strategic sourcing decision framework
Strategic Sourcing Decision Framework

Business Factors

Economic Factors

Technical Factors

managing sourcing decisions through six phases2

Scoping

Phase

Evaluation

Phase

Negotiation

Phase

Transition

Phase

Middle

Phase

Mature

Phase

  • Identify core IT
  • capabilities
  • Identify IT
  • activities for
  • potential
  • outsourcing
  • Measure baseline
  • services & costs
  • Create RFP
  • Develop evaluation
  • criteria
  • Invite internal and
  • external bids
  • Conduct due
  • diligence
  • Negotiate SLA
  • Create responsibility
  • matrices
  • Price work units
  • Terms of employee
  • transfer
  • Negotiate
  • mechanism for
  • change
  • Distribute contract
  • to users
  • Interpret contact
  • Establish post-contract
  • management infra-
  • structures & processes
  • Consolidation,
  • rationalization,
  • standardization
  • Validate scope, costs,
  • levels, service levels
  • Managed additional
  • service requests
  • Foster realistic expectations
  • of supplier performance
  • Publicly promote contact
  • Manage customer/supplier relationships
  • Benchmark
  • performance
  • Realign the contract
  • to reflect changes
  • in technology &
  • business.
  • Recalibrate
  • investment
  • criteria
  • Determine
  • if relationship
  • is extended
  • or terminated
Managing Sourcing Decisions Through Six Phases
unbridled demand major source of cost creep
Unbridled Demand: Major Source of Cost Creep

Example: Outsourcing Chauffeur Services at British Aerospace

Before outsourcing, demand was constricted by 4 car fleet

After outsourcing, demand is unbridled and supplier has

increased fleet to 24 cars to meet demand.

managing sourcing decisions through six phases3

Scoping

Phase

Evaluation

Phase

Negotiation

Phase

Transition

Phase

Middle

Phase

Mature

Phase

  • Identify core IT
  • capabilities
  • Identify IT
  • activities for
  • potential
  • outsourcing
  • Measure baseline
  • services & costs
  • Create RFP
  • Develop evaluation
  • criteria
  • Invite internal and
  • external bids
  • Conduct due
  • diligence
  • Negotiate SLA
  • Create responsibility
  • matrices
  • Price work units
  • Terms of employee
  • transfer
  • Negotiate
  • mechanism for
  • change
  • Distribute contract
  • to users
  • Interpret contact
  • Establish post-contract
  • management infra-
  • structures & processes
  • Consolidation,
  • rationalization,
  • standardization
  • Validate scope, costs,
  • levels, service levels
  • Managed additional
  • service requests
  • Foster realistic expectations
  • of supplier performance
  • Publicly promote contact
  • Manage customer/supplier relationships
  • Benchmark
  • performance
  • Realign the contract
  • to reflect changes
  • in technology &
  • business.
  • Recalibrate
  • investment
  • criteria
  • Determine
  • if relationship
  • is extended
  • or terminated
Managing Sourcing Decisions Through Six Phases
relationship management a stakeholder perspective
Relationship Management: A Stakeholder Perspective

Customer

Senior

Business

Managers

IT

Managers

IT Staff

IT

Users

Trade Union

Subcontractors

Senior

Managers

Account

Managers

IT Staff

Supplier

quotations from participants
Quotations From Participants

"A good contract does not ensure a good relationship, but a bad contract does ensure a bad relationship." -- Bob Ridout, Chief Information Officer, DuPont

“This is a commercial business transaction, not a partnership. Suppliers have to keep earning the business everyday.” – Global Alliance Manager, DuPont

success rates over time1

Year Decision Was Made

YES, most expectationmet

NO, most expectation not met

MIXED results

Total

1984-1991

14

(48.3%)

12

(41.4%)

3

(10.3%)

29

1992 to 1998

41

(73.2%)

8

(14.3%)

7

(12.5%)

56

TOTAL # OF DECISIONS

55

(64.7%)

20

(23.5%)

10

(11.8%)

85

Success Rates Over Time

CONTRACT DATE(n=85 outsourcing decisions with discernible outcomes)

over time deals are starting to look alike
Over Time: Deals are startingto look alike!

Neoclassical Contracts:

SLA

Penalties for non-performance

Variable Pricing

Mechanisms for change

Relationship Management:

Boot camps

Transition Phase Activities

Problem Resolution Systems

Joint supplier/customer teams in trenches

sources of customer learning institutional isomorphism
Sources of Customer Learning:Institutional Isomorphism

Customer’s own mounting experience:Customer’s Industry Contacts

Incremental outsourcing

Past outsourcing successes and failures

Customer’s use of external consultants Customer’s outsourcing sources

Technology Partners Incorporated ITTUG

($175 billion worth) Outsourcing Summit

Gartner Group Sourcing Interest Group

Michael Corbett & Associates

Customer’s use of external legal firms Customer’s use of private & public

Millbank & Tweed research

Shaw & Pittman Gartner, Yankee, Cutter, IDC

Over 100 books on Outsourcing

Customer’s use of external benchmarkers:

Gartner Group

Compass

netsourcing business applications
Netsourcing Business Applications

Netsourcing is the practice of renting or "paying as you use" access to centrally managed business applications, made available to multiple users from a shared facility over the Internet or other networks via browser-enabled devices.

Netsourcing allows customers to receive business applications as a service.

Netsourcing is a delivery channel

Netsourcing is a pricing model

wacky world of alphabet
Wacky World of Alphabet …

Netsourcing

BSP

SSP

FSP

ASP

MSP

VSP

CSP

xSP

business process outsouring
Business Process Outsouring

With BPO, the supplier owns and operates the resources, including

infrastructure, applications, and people, to deliver a business

process as a service to customers.

bpo survey size of market n 120
BPO Survey: Size of Marketn = 120

Size of Market:

Year 2000: $119.4 billion

Year 2005: $234.0 billion

US & Europe comprise 84% of market

Source: Scholl, Rebecca, “BPO at the Cross Roads”, presentation

At World Outsourcing Summit, Orlando Florida, 2002.

bpo survey size of market n 1201
BPO Survey: Size of Marketn = 120

Source: Scholl, Rebecca, “BPO at the Cross Roads”, presentation

At World Outsourcing Summit, Orlando Florida, 2002.

bpo survey top drivers n 120
BPO Survey: Top Driversn = 120

Source: Scholl, Rebecca, “BPO at the Cross Roads”, presentation

At World Outsourcing Summit, Orlando Florida, 2002.

slide36

Prompted by M&A, fragmented, decentralized HR

  • Ten Year Contract
  • $1.1 billion over 10 years
  • 700 HR employees transferred to Exult
  • Exult delivers:
  • Accounts Payable Benefits
  • Payroll Regional Staffing
  • HR Call center
  • HR technology
  • Guaranteed cost savings to Bank
  • Bank took equity share in Exult & will share in future profits
slide37

Xchanging Human Resource Services

(XHRS)

Xchanging Procurement Services

(XPS)

Xchanging Insurance Services

(XIS)

Xchanging Claims Services

(XCS)

transforming back office to front office and enterprise partnership for human resource management

Transforming Back Office to Front Office:and Enterprise Partnership for Human Resource Management

Mary Lacity

David Feeny

Leslie Willcocks

slide39

Xchanging Human Resource Services

(XHRS)

10 year, £250million deal

  • Promised benefits to BAE:
  • 15% savings on baseline HR services
  • Service improvement to upper quartile by end of year 5
  • £20 million investment in technology, facilities & experts,

including web-enabled e-hr

  • 50% share in profits from external sales
research method
Research Method

Face-to-face interviews with 15 people including:

HR Director, BAE SYSTEMS

Enterprise Relationship Director, BAE SYSTEMS

SBU HR Director, BAE SYSTEMS

CEO of Xchanging

Member, BOD, Xchanging

Managing Director, XHRS

3 transferred BAE managers, now:

CFO, XCS

Head of Service, XCS

Head of Resources, XCS

6 practice directors (Service, Process, Technology, Environment, People,

Implementation)

Documentations such as financial reports, practice manuals,

performance assessments, annual reports, memos.

about xchanging
About Xchanging

Xchanging provides human resources, procurement, customer administration and accounting services to over 200 customers including BAE Systems, Lloyd's and the London Insurance Market.

Xchanging employs over 1,100 people.

Xchanging takes responsibility for the entire back office, specific functions or a particular business process and transforms them into fit for purpose services. In short, Xchanging cost for profit.

Founded by David Andrews in 1999

about bae systems
About BAE SYSTEMS

Prime contractor and systems integrator in the air, land, sea, space, and command and control market sectors.

Defense, commercial, civil markets

World-class capabilities in naval platforms, military aircraft, electronics, systems integration and other technologies.

Astute

Destroyer

Eurofighter

about bae systems stock price
About BAE SYSTEMSStock Price

Interim Financial Results

Reported Sept 12

52 week high:£385.50 on Thursday, April 11, 2002

52 week low: £158.00 on Wednesday, November 13, 2002

Average Price: £194.10 (50-day)   299.37 (200-day)

about bae systems3
About BAE SYSTEMS

January 1999, British Aerospace announced merger with

Marconi to create BAE SYSTEMS

Investors promised £275 million in annual cost savings within 3

years

"The proposed merger with Marconi Electronic Systems is an important step in the consolidation of the industry in Europe and creates a strong and highly capable business with significant cost benefits." -- Sir Richard Evans, Chairman of the Board, BAE SYSTEMS  

bae systems hr
BAE SYSTEMS’ HR

In 1999, Terry Morgan, Group HR Director charged with

delivering 15% to 40% cost savings on annual HR spend of £25 million

Group HR was small, focusing on senior pay & benefits, senior

level development, organizational design

700 HR professionals in SBUs at 70 sites doing transactional activities such as payroll, benefits, recruiting, training, HR procurement

Shared Services as solution to cost reduction…

slide48

FROM

DECENTRALIZED:

Head Office

SBU

Managing

Director

SBU

Managing

Director

SBU

Managing

Director

SBU

Managing

Director

SBU

Managing

Director

Group

HR

SBU HR

Director

SBU HR

Director

SBU HR

Director

SBU HR

Director

SBU HR

Director

Transactional

Activity/

Professional

Services

Transactional/

Professional

Transactional/

Professional

Transactional/

Professional

Transactional/

Professional

Head Office

TO SHARED

SERVICES:

SBU

Managing

Director

SBU

Managing

Director

SBU

Managing

Director

SBU

Managing

Director

SBU

Managing

Director

Group

HR

Transactional

Activity/

Professional

Services

SBU HR

Director

SBU HR

Director

SBU HR

Director

SBU HR

Director

SBU HR

Director

four options for implementing shared services
Four Options forImplementing Shared Services
  • Do It Yourself
  • Management Consultancy
  • Fee-for-service outsourcing
  • Enterprise Partnership

Early 2000

enterprise partnership

Spring 2000

Enterprise Partnership

David Andrews proposed that BAE SYSTEMS and Xchanging should form a fifty-fifty jointly-owned enterprise.

The enterprise would be operated as a strategic business unit within Xchanging, giving Xchanging the responsibility and accountability for implementation and subsequent operations.

But both BAE SYSTEMS and Xchanging would sit on the JointBoard of Directors to ensure continued customer involvement and oversight.

The enterprise would initially behave as a traditional outsourcer by transferring BAE SYSTEMS HR assets and personnel to the enterprise governed by a ten-year contract.

The enterprise, in turn, would implement the shared services concept and deliver HR services back to BAE SYSTEMS.

But in the long run, the enterprise would further leverage the HR assets and personnel to attract external HR customers, of which profits would be shared 50/50 with BAE SYSTEMS.

enterprise partnership1
Enterprise Partnership

"We soon came up with a story--and Terry really pushed this with his colleagues--about what the real risk is: 'I have got the same people tomorrow doing the job they are doing today. In addition to that, I have got all these new resources with different skill sets that are coming to help these people do it better than they did it before and I have got twenty five million dollars over a five year period to invest in technology that I have not got today. It is guaranteed, it is part of this contract. So it is the same people doing the same job. In addition to all these other resources that are going to help make it move, with some incentives to make it happen that we haven’t got today, what is the risk because if it all goes wrong and these are bad managers, then we just TUPE transfer everybody back and we take it back again, so what is the real risk?'" -- Alan Bailey, XHRS

enterprise partnership2

?

Enterprise Partnership

Because, against their normal practice, BAE SYSTEMS did not do a formal request for proposal, the HR team wanted to step back and invite Xchanging and another supplier to compete.

At this stage in April 2000, Xchanging's team was devastated:.

"When we told Xchanging that we were going to do a beauty parade with Xchanging and another BPO supplier, I have to say I have never seen David Andrews so shell-shocked." -- Chris Dickson, Relationship Director, BAE SYSTEMS

enterprise partnership3

?

May 2000

Enterprise Partnership

Would accept BAE transfers -- Use Exult’s existing staff

Complete attention to BAE -- Just signed other megadeals

Take service as-is -- BAE to clean up mess first

letter of intent
Letter of Intent

June 2000

"When I told the CEO of the alternative bidder that they hadn't been chosen, he did say to me, 'okay, but I would like to thank you for the fairness of the way the parade went... it was actually a very thorough process, we had been given a fair crack of the whip.'"-- Chris Dickson, Relationship Director, BAE SYSTEMS

Goal was to sign a contract by September 2000, but…

bae xchanging negotiations june 2000 february 2001
BAE/Xchanging NegotiationsJune 2000 – February 2001

Scope Reduction: Eliminate North America

Only 462 UK people to transfer rather than 560

"It is my perspective and obviously it is not perfect information but certainly I had a very, very strong view that there were some people in BAE SYSTEMS that had decided to de-scope the deal; who never really knew what the scope was but decided what scope they would find politically acceptable and that was it, that was the deal they wanted" - David Bauernfeind, CFO

"So we ended up drawing a line in slightly the wrong place, in my view, so we still had some people in BAE SYSTEMS’ retained HR who were never going to play the strategic role as designed." – Steve Hodgson, Head of Resources,

XHRS

bae xchanging negotiations june 2000 february 20011
BAE/Xchanging NegotiationsJune 2000 – February 2001

50%/50% Joint Ownership

50%/50% split in cost savings, estimated baseline £25m/year:

YEAR 2001 2002 2003 2004 2005

Percent 10% 15% 15% 15% 15%

Delivered as a rebate, if £25million costs transferred,

Xchanging would only charge £22.5million

50%/50% split on new revenue generation from external sales

bae xchanging negotiations june 2000 february 20012
BAE/Xchanging NegotiationsJune 2000 – February 2001

Services:As-is measured within 6 months

By year 5, improvement to upper quartile

Governance:

Joint Board of Directors: CEO of Xchanging and Group HR Head BAE

3 Xchanging execs & 2 BAEs non-execs

Purpose: Protect the Rights of Shareholders

Service Review Board:3 members from BAE, 3 members from Xchanging

Service specifications, price approval

Purpose: Service performance monitoring

Technology Review Board: Joint board to ensure £20 million investment

slide59

How Did Xchanging Complete the Transformation?

Xchanging’s management believes that the capabilities required

to transform a back office to a front office requires 7generic

business competencies rather than domain specific knowledge…

slide60

Set-Up

Service

People

Process

Technology

Environment

Sourcing

Transformation is Implemented

in Four Phases

Preparation

Streamlining

Realignment

Continuous Improvement

2-3mths

3-6mths

6-9mths

Operational

Critical activity

Preparation

people competency
People Competency

People Competency builds champion teams from transferred employees by unlocking their talent and energy, primarily through extensive training programs and direct contact with Xchanging’s senior management:

-- Induction Programs to 430 transfers within 6 weeks

-- Management training

-- New job descriptions

-- New Customer-focused culture

people competency1
People Competency

Continuous

Improvement

Streamlining

Preparation

Re-alignment

Mourning

Forming

Storming

Norming

Performing

  • Mechanisms
  • Deliverables
  • Measures
  • Benchmarks
  • Gate
  • Mechanisms
  • Deliverables
  • Measures
  • Benchmarks
  • Gate
  • Mechanisms
  • Deliverables
  • Measures
  • Benchmarks
  • Gate
  • Mechanisms
  • Deliverables
  • Measures
  • Benchmarks
  • Gate
people competency2
People Competency

On business as usual in short-term: 

"Richard Houghton was saying, it’s business as usual today guys because we don’t want to upset the service. We are not going to go around now to BAE and say, 'I’m not doing that for you any more Mr. Customer because it’s not in the service definition yet.' We have a philosophy that says if he wants you to do something, you just do it. If there is a commercial consequence of that we will worry about it later and talk to your Line Manager but it is a yes to the customer, not a no." -- Alan Bailey, XHRS

people competency3
People Competency

On business not as usual in long-term: 

"We started up by saying 'these are the cost reduction commitments', I said 'we’d have to double productivity in five years', I said 'in so far as we can off-set that through third party revenues by effectively using spare capacity to deliver services to third parties we will, but that’s what we are going to do'. " -- Richard Houghton, CEO, XHRS

people competency4
People Competency

On training results:

"The transferred employees had seen Xchanging's management team, because we all went to these things, did Q & As, stood on the stage and answered all their questions, Richard Houghton did all of them, he was committed to doing these. The employees hadn’t seen that before. They had been in an area where they didn’t see the management very often, didn’t get access to them and then all of a sudden, this is an enthusiastic team that they are now seeing and they were part of it, they went back buzzing." -- Alan Bailey, XHRS

service competency
Service Competency

Define the as-is service, measures service, and agrees to service targets through a disciplined methodology called Service1st

The goal is to provide the same levels of service during transition then move to customer-negotiated service levels based on individual customer needs.

slide67

Service Competency

Customer Type

Service Class

  • Customer Service
  • Metrics e.g.
  • • accuracy
  • cycle time
  • • frequency
  • • quality
  • volume
  • & Standards

Customer

Service Item

Service Objective

Service Specification

& Reports

service competency1
Service Competency

XCS Service Team:

As-Is Service:

400 service levels drafted

Service Review Board approved in October 2001

But an extra £80 million a year in indirect procurement spend

Was uncovered for fleet, contract labor, recruiting, stationary,

And travel! HR was buying services from over 200 suppliers,

All in decentralized budgets.

slide70

Sourcing Competency

Xchanging Procurement Services

(XPS)

Separate Enterprise Partnership signed November 2001

Worth £800 million over 10 years

slide71

Sourcing Competency

Car Fleets

Non-technical contract labor

Learning & Development

Health Care

Recruitment

Renumeration & Benefits

Stationary

£80 million

slide72

Sourcing Competency

Category Expertise

Sourcing

Tools

Spend

Aggregation

slide73

Sourcing Competency

  • On average, 12% savings delivered on categories transferred
  • Margins range from 5% to 45% depending on category
example of un bundling
Example of ‘Un-bundling’

Key Cost Elements of Car Leasing

environment competency
Environment Competency

Goal: create modern and well-branded physical spaces to build a visible front office for customers.

Physical spaces also foster a front office mentality

Xchanging built, bought furniture, and decorated new facility

By February 2002

Occupancy held up by IT contract with CSC

environment competency2
Environment Competency

"Space has a big impact on people's morale and the perception of their value-- Mike Margetts, Implementation Practice Director, Xchanging

process competency
Process Competency

Goal is to redesign business processes to reduce costs and to

improve quality through Six Sigma quality improvement

discipline.

s

DPMO

%

ProcessCapability

Defects Per Million Yield Opportunities

6 3.4 99.99966%

5 233 99.9770%

4 6,210 99.37%

3 66,807 93.3%

2 308,000 69.2%

process competency1

Process Head &

Master Black Belt: Mentors

Black Belts: Full Time

Green Belts: Part-time

Process Competency
process competency2
Process Competency

Redesigning Processes such as Senior Leader Peer Review

Old process: 640 senior leaders did paper-based peer reviews,

assisted face-to-face by HR personnel

New process: e-hr online peer review

"What would have happened before, thirty people would have happily expanded a task to fill three months and as it is now, eight people have been busy for a month--bang! Done." -- Mike Margetts, Head of Implementation, Xchanging HR Services

technology competency
Technology Competency

Goal: Build and implement enabling technology on component

driven architecture.

Goal: Build and implement e-HR within 6 months

Went on a recruiting rampage on May 1, 2001

Hired 19 full time technology managers, architects & specialists

PeoplePortal went live on October 4, 2001

slide84

Xchanging Self Service

e-HR Application Framework

Portal

Data and Process Integration

Reference

Performance

HR

Knowledge and

Content Mgmt.

Performance

Control

Service

Management

Core DW

(Time Rel)

eForms

People

Relationship

ESS/MSS

Contact

Management

CTR

Core Enterprise HRIS

CCI

technology competency1
Technology Competency

"I think they were absolutely astonished that we delivered on that, I don't think they expected it for one minute." -- Richard Houghton, CEO, Xchanging HR Services

"I think the peopleportal has been the first sign from within the business that something has changed, something has actually happened. I think the first time it was used, it was used for the senior leadership population, we were doing an exercise on pay review so each senior leader within the business (650) of them had access to that peopleportal. We had a lot of very good feedback, it was very good, the technology was great, it was web based, we’ve had some very good feedback but we’ve also had people who just can’t get the hang of using the technology." -- Kim Reid, HR Director, BAE SYSTEMS

technology competency2
Technology Competency

"I think technology is an expensive resource, so you’ve got to be careful with technology, as you know you can spend a lot of money and not get a lot of value. So I think technology from our perspective is very much used when it’s needed. Just because we have a service delivery platform doesn’t necessarily mean that every service we deliver has to be over the Internet, if it doesn’t make sense, we shouldn’t do it. So technology is a bit of a follower in this case, it definitely follows service, service is always first and it's rarely that we would be in there before process because I don’t want to put technology on top of a broken process." -- Steve Bowen, Technology Practice Director, Xchanging

implementation competency
Implementation Competency

Goal: to orchestrate the timing and resources required for the

Other six competencies.

implementation competency1
Implementation Competency

No Set Formula:

"I don't want to tell you the perfect process for implementation project management, I actually want to say that I am prepared to do anything I need to to get things done....basically it is an anti-approach. Methods are not really important--the end result is everything." -- Mike Margetts, seconded from his role as Practice Director of Xchanging’s Implementation competency.

implementation competency3

Preparation

Realignment

Streamlining

Continuous Improvement

June 2000 to May 2001

May 2001 to October 2001

November 2001 to

December 2002

December 2002

To May 2011

Data collected on BAE finances & people

Service objective & preliminary service definition

Structure & people plans

Cost modeling

Financial reporting & control plans

Technology architecture designed

Constant

communication with targeted transfers

430 BAE staff are transferred & re-oriented, & retrained

Detailed "as is" service specification defined & approved

Black belts trained and working on first set process improvements; recruiting process redesigned & implemented

PeoplePortal launched

New Organizational design

Shared Services established

Preston Service Regional Teams established

Downsized staff

3 more versions of Peopleportal

Process Improvements to more HR services

Future challenges:

Attract external customers to increase revenues

Sustain cost cuts and service improvements

Upper quartile performance in all HR service areas

Implementation Competency
findings as of 2002
Findings as of 2002
  • Prior to the Xchanging partnership, HR at BAE SYSTEMS:
    • lack of investment,
    • lack of leadership,
    • lack of employee motivation,
    • lack of customer-focused service,
    • bureaucratic and inefficient processes, and
    • outdated and non-integrated technology.
  • Preliminary findings assess the effectiveness of using an enterprise partnership as a vehicle for transforming this low functioning back office into a commercial enterprise.
findings
Findings

Finding 1: The Enterprise Partnership Model creates a clash of cultures, but cultural incompatibility may be just what you need.

"What was obvious to me, the Xchanging people were part of a small company desperate to succeed, and that desire to succeed just didn't exist in the BAE SYSTEMS HR culture." -- David Bauernfeind, CFO

If you left work at half past six, you were having a late night at BAE. I mean, that is the BAE culture. I was in at ten to seven this morning and I'll be here at nine o'clock tonight and that is the Xchanging culture. The Xchanging guys I just could associate with very, very, very easily. From day one I felt much, much more comfortable. The hard thing was it was a damned sight harder work, much more disciplined environment, much more focused environment. It still took me a little while to make that leap – probably two or three months."

findings1
Findings

Finding 2: The Enterprise Partnership Model offers multiple short-term implementation phases that yield faster results and pose less risk than a single, large-scale project.

"Innovation doesn't need to be a big idea, it can be lots of little things...What we like doing is introducing a bit of change every three months because it has much more immediate impact rather than building a great big filthy system." -- David Andrews, CEO Xchanging

"If you don’t do it within three to six months then you don’t do it." -- Mike Margetts, Implementation Director, Xchanging

findings2
Findings

Finding 3: The Enterprise Partnership Model views technology not as a solution, but rather as an enabler.

"People are altogether more flexible and creative and clever to fit around a system." -- Mike Margetts, Implementation Director, Xchanging

"I wanted to see what happened if you improved business processes and services without touching IT. That was just a quirk of mine which was a very lucky break because in fact what we found was that we could engineer a huge improvement and do it on the back of the old legacy system." -- David Andrews, CEO, Xchanging.

findings3
Findings

Finding 4: When employing Fee-for-Service Outsourcing or an Enterprise Partnership Model, be sure to manage user demand.

"We are seeing some evidence of increased demand with Xchanging HR Services. It's the early days yet, but demand for service before XHRS was always restricted because as an HR Director, you only have the number of people that you could get your MD to agree to, so that effectively capped it. Of course, we have taken that away now and people can demand ever more and more." -- Steve Hodgson, Head of Resources, XHRS.

findings4
Findings

Finding 5: Both Fee-for-Service Outsourcing and The Enterprise Partnership Model uncover spend previously hidden in decentralized budgets.

"The cost has increased quite substantially. We’re just having a review on that at the moment. At the moment that communication isn’t clear and it does look as if costs are going up. But in reality, we’re doing a review of it and we’re doing some investigation on it, in reality it probably isn’t going up because of Xchanging. It just means that we need to probably transfer budget over that hasn’t traditionally sat within the HR team, so that it's all as one and recharged against that, that total mass, rather than part left within the business. But it is a concern." -- Kim Reid, HR Director, BAE SYSTEMS

findings5
Findings

Finding 6: The Enterprise Partnership Model delays due diligence until after the contract is in effect, which speeds the negotiation process and more fairly distributes the burden of newly discovered costs.

"The quality of the data about the HR function in terms of not just what salaries people were on but just who was there, how many to within 10%. Really, really surprising and if anything that experience, if I ever needed drilling home about why BAE needed to do the deal, that did it. If you can’t tell how many people are in your own function within 10% to 20% what chance have you got of providing value added HR for a business? It was just shocking." -- David Bauernfeind, CFO, XHRS

findings6
Findings

Finding 7: The Enterprise Partnership Model aligns incentives better than fee-for-service outsourcing.

"So if it was a traditional customer/supplier relationship, I think it would be very much customer/supplier which perhaps may not be totally joined up in the middle. You would get the instance that the customer would blame the supplier for not delivering a service. For me, the partnership means that the accountability for delivering the service into the business is mine. I have to make sure that it delivers a seamless service so that myself and my other HR directors in this business will not say ‘the reason this went wrong was because Xchanging did this’. If something goes wrong it’s because we did it. It’s very much a partner type relationship." -- Kim Reid, HR Director, BAE SYSTEMS

findings7
Findings

Finding 8: The Enterprise Partnership Model does not perfectly align incentives.

In the past, the joint governance between customers and suppliers we studied led to a managerial schizophrenia. Because the enterprise's primary customer is also an owner, the customer has two competing goals: to maximize cost-efficient service delivery from the enterprise and to maximize the revenue of the enterprise. How can the customer do both? Furthermore, if the same executives sit on the Board of Directors of the customer company and the enterprise company, which hat should they wear? Should they be pushing for more services at a reduced cost, thereby squeezing as much as they can from the enterprise? Or should they push for generating more revenues, which distract the enterprise from their needs?

findings8
Findings

Finding 9: The Enterprise Partnership Model benefits from generic business competencies rather than domain-specific knowledge.

"I always say the best HR people are people who haven’t been in the HR function all their lives. You need a different view. So the Xchanging team, although they are not HR professionals, it works probably better that they are not because if they go in understanding all the pitfalls that there may be, then they’ll never make any changes, so sometimes it is better." -- Kim Reid, HR Director, BAE SYSTEMS

findings9
Findings

Finding 10: The Economics of the Enterprise Partnership Model need to Work for the Client and Supplier Without Over-Reliance on Third Party Revenues.

"The business development in year one at this stage was almost zero because the focus was let’s get our act together in delivering this to BAE SYSTEMS first before we all turn salesmen and go out and start selling ourselves. It is always a hard decision to make because our future relies on getting third party business in but at the time it was a management team in XHRS and an agreement at the Xchanging group level that we would concentrate on delivering the operation, getting our act together to get our product out, get our people to pull together to get the service center in place. And it was probably only the beginning of quarter four last year that now started to be a bit more active in the market rather just being passive." -- Alan Bailey, New Business Development, XHRS

findings10
Findings

"The reality if I just look at it in XHRS is we have to really work hard not to make this business work. It is pretty easy to make this business make money, the hard bit is the time scale and the growth. So you concentrate resource and you put their management in place, you remove the weak people over time and you put in good technology. You really have to work to not make that add up to a significantly better position than you were in before." -- David Bauernfeind, CFO, XHRS

can success be replicated ideal customer profile
Can Success be Replicated?Ideal Customer Profile

The customer has a large back office spend of at least £25 million per year and at least 500 employees, making the deal large enough to attract a competent external supplier

The customer's back office operations are highly decentralized, allowing the opportunity for significant savings from centralization and standardization

The customer's back office operations have not received high management attention historically, allowing the opportunity for significant savings and service improvement from better management

The customer's organization would resist centralizing and standardizing themselves due to internal political resistance, unwillingness of senior management to make the required upfront investment, or lack of skills and experience of back office staff to make the transformation.