Stepping into the Abyss

As the NS&I team embarked on their modernization, they faced several significant uncertainties. One executive explained: ‘‘There was no question that what we chose to do was very, very aggressive—the outsourcing route enabled us to bring a degree of certainty to the timescale for modernization.’’

To win the work, Newport Systems had to define the cost of running the operation posttransformation and to start charging at that rate on day one. One executive recalled: ‘‘There was a peak of borrowing at the outset to pay to operate under the old model. NS&I was to be charged about 100 million ($166 million) at the start with the intention that the two lines on the graph would converge in the future.’’ In addition, Newport Systems was required to determine service levels for all NS&I activities and hit performance targets to avoid incurring penalty fees (see Exhibit 1.6). Up until that point, key performance indicators (KPIs) had not existed. According to a Newport executive, ‘‘Record keeping could have been improved—everyone knew what they were doing, but no one could spell it out crisply.’’

Exhibit 1.6: Key Performance indicators.

Newport Systems focused on executing an effective transition process to start the relationship off on the right foot. This included clear models for human relations support and counseling as people changed employers.

One Newport Systems executive stated proudly: ‘‘By sticking close to the unions, and being open and honest with them early on, we headed off the people issues before they became grounds for serious concern.’’ The transfer on the day went very smoothly indeed. The next step was to reduce the cost of operations. The executive continued: ‘‘We made an offer for voluntary redundancy, and many people were happy to take the generous payoff. So the transition never caused the industrial relations fallout that would have been painful for Newport, NS&I, and its customers.’’

One of Bareau’s first moves after his original strategy had been approved was to ask the current board members to resign and recompete for their positions. He also invited several members of the Treasury to enter the process. As a result, the composition of the board changed markedly. Bareau explained: ‘‘These people weren’t unprofessional, they were just associated with the old way of doing things.’’

As Newport Systems stepped into the maelstrom of organizational transformation, it faced massive challenges. The scale was daunting. Said one seasoned executive: ‘‘It always looks easy when you have a blueprint, but it’s much more complicated in real life.’’ Newport planned to implement an entirely new IT platform, including hardware, networks, and software. It would transfer existing products to the new platform over one year. At the same time it would develop new products, implement new business processes, start up call centers and imaging centers, train employees, and keep the old systems running until all the migrations were proven effective. (Exhibit 1.7 shows Newport Systems’s plan for the first year of activities.)

Exhibit 1.7: Newport System’s gradual approach to the development and implementation of IT and human resource solutions.

Newport considered the technology implementation fairly straightforward. For example, it phased in intelligent character recognition hardware that would allow payment documentation to be processed automatically. Newport had a core expertise globally in that kind of hardware. Other aspects of the transformation were more problematic. One executive explained, ‘‘The change process took more time than we envisaged, and we found that it not only took longer to make staff reductions but that the operation might ultimately require more staff than we originally planned to run it.’’ Although some deadlines were missed, by the end of 2002, through a combination of redeployment and voluntary release, Newport had reduced the staff by 50 percent and introduced eight new or substantially improved products, at least one of which was the first of its type in the industry.

During this period, Newport Systems was undergoing a massive transformation of its own. It came to the partnership with obvious strength in technology, but a less solid footing in the banking industry and administrative service management. Steve Owen commented: ‘‘It’s hard to transform a business process when you don’t know the business you’re in. We had to do more work than we expected to help them understand banking. They’re also coming up the learning curve on business process outsourcing. But they bring a huge technology capability that we couldn’t have tapped into ourselves. Together, we’re a great team.’’

Newport had committed to redeploy 1,200 of the displaced NS&I workers to service new clients. In 2001, Newport was able to win a large contract from a UK bank for back-office processing services that required a staff of 700. An executive asserted: ‘‘Newport could never have won the deal without the experience it gained on the NS&I account.’’ The UK bank had administrative functions like checking account address changes dispersed in numerous branches around the UK. As part of its grand strategy, the bank wanted to focus all its employees in High Street branches on customer-facing activities. It needed a whole new back office, so it sought a partner with people, space, and expertise. Newport Systems won the profitable deal against stiff competition.

It was also able to win an additional piece of work with the UK Passport Service within its existing UK government contract. The Passport Service wanted a seventh regional office, and Newport won with the proposal to build it in the NS&I facility in Durham.