Despite, or maybe because of, the recession there seems to be no downturn in outsourcing deals as large and complex businesses place more of their critical processes into the hands of IT and financial specialists. Among recent announcements Ford turned to CSC to extend its coverage to 19 European markets and UBS struck a $580 million deal, also with CSC, for networking financial services.
Risk and reward
When Infosys Technologies announced in April that it would be managing internal IT services for Microsoft Corporation in a three year deal worth over $100 million, attention was definitely grabbed. You might have thought that a financial services group like UBS would want to handle its own financial services in-house and that the IT company MSC would be happy to run its own systems.
But these are rarely new relationships. This is consolidation of work that used to be provided by multiple vendors to a single provider: “Infosys demonstrated that it understood our transformational goals by introducing a flexible and innovative end-to-end approach to manage our support infrastructure,” said Jim DuBois, general manager of service management at Microsoft.
Such deals carry a mountain of risk with them, and can go out of control unless they are carefully monitored, says Jon Fell, Partner at London law firm Pinsent Masons. “It is vital to look at the track record of the supplier of course, but you also need to be clear as to exactly what service levels you need.”
Learn from experience
If you are outsourcing business critical operations you don’t want to pay a third party to do things their way. You need a robust service credit regime in case things go pear-shaped, he continues. A service credit is a refund given by a supplier to a customer if the supplier's service fails below contractually-agreed service levels. At the end of the day, he reflects, the most effective way to get a quality service is to establish a managed relationship with the supplier through a scorecard model and regular meetings. “Learn from your experiences: it’s surprising how many people repeat their mistakes!”
Kamini Bhawnani head of financial services UK & Ireland at BPO specialist MphasiS, part of the HP group agrees: “Now, more than ever, the quality of the relationship between an outsourcer and its clients is of upmost importance. Transparency, governance and mutual respect are the foundation to good relationship between outsourcer and customers.”
Alex Blues, Head of IT Sourcing at PA Consulting Group, goes further. “Those considering outsourcing should be warned away from an excessive focus on the transaction and contract negotiations – a major cause of outsourcing relationship breakdown – and should instead concern themselves with fostering genuine understanding between the two parties and managing the associated business change,” he says.
Anything less would be unthinkable agrees Bhawnani: “At MphasiS, we track client relationships on an individual project level, providing weekly, monthly and annual commercial status reports, which give an in-depth view of project progress against agreed KPIs.” However it is crucial to keep up a constant two-way conversation with customers, to ensure there is a clear understanding of their ever-changing challenges and needs, he adds.
Building an environment of quality
So what convinces Microsoft to outsource part of what might be considered its core competency? Infosys came second in this year’s IAOP’s Global Outsourcing 100 and has run out of external benchmarks, says BG Srinivas, Head of Europe. “We invest in the best infrastructure, the best technology and continuously improve our own targets year on year. We also have a peer incentive scheme for every individual in a project to deliver on quality and improve the quality metrics.”
But quality needs to be built into every stage from design though delivery to testing, and at every phase there has to be clear metrology, he adds. “For example, the entire project team and the business analysis team are trained in capturing business requirements. Then we play it back to the client to make sure we have got it right and haven’t missed anything out. There are various elements at each milestone that have to be tracked and reviewed and monitored and all these elements are needed to deliver a quality project.”
Before the process is signed off it is thoroughly tested to filter out errors, and a user acceptance test carried out, which includes simulations. “The more comprehensive these business scenarios are the better it is when you put the new application in the production environment,” says Srinivas. “You have fewer surprises and avoid business disruption.”