Chapter 8: Outsourcing

Outsourcing has come a long way from the days in which organizations saw it as a way of washing their hands of a problem and cutting costs into the bargain. Once primarily a defensive strategy - shedding non-core work - it is increasingly becoming a means by which organizations can make radical changes.

Second-Generation Outsourcing

Although the need to minimize costs still plays an important role in the decision to outsource, all three of the organizations featured in this chapter were seeking additional benefits. The Medicines and Healthcare products Regulatory Agency (MHRA) wanted to use new technology to share information more effectively while complying with increasingly stringent regulatory demands. It also looked to outsourcing as a means of improving the procedures by which medicines are approved, not simply to automate the processes it has traditionally relied upon. The UK's Vehicle and Operator Services Agency (VOSA), responsible for overseeing a range of vehicle safety and licensing operations, needed to ensure that its IT infrastructure could keep pace with its rapidly evolving role. Similarly, Sainsbury's Supermarkets was seeking to reverse a decline in margins and saw outsourcing as a way of making radical change to existing processes and systems and to improve business performance. ‘Technology change impacts people and processes too,' said Richard Wildman, from Accenture, which worked with Sainsbury's on this project. ‘We had to ensure that large-scale change could occur without disruption to Sainsbury's service levels. It was like sailing a ship while you're still building it.'

This is true for all the outsourcing projects nominated for an award from the MCA. Contrary to popular myth, good outsourcing projects are more likely to be focused on generating revenue, improving customer satisfaction and raising productivity than many other types of consulting.

However, the greater the scope of outsourcing, the greater the challenges involved. Not surprisingly, flexibility has become something a holy grail. With too many stories of companies who, having outsourced, found themselves trapped into paying over the odds for changes to rigidly defined contracts, the need to be able to accommodate change was uppermost in the minds of all the companies featured here. The MHRA needed an open-ended outsourcing contract so that new processes could be accommodated without paying premium charges. VOSA had already outsourced its IT infrastructure, only to find that it could not keep up with the level of change taking place in the business. With a workforce distributed across a network of offices, VOSA was not just interested in flexibility but in scalability. It needed a new outsourcing contract that could provide a high-level framework into which different initiatives could be slotted.

Inherent in flexibility is the idea of preparing an organization for the future, giving it operational resilience in the face of uncertainty and change. Under its contract with Sainsbury's Supermarkets, Accenture is not only taking over the operation of existing systems but is overseeing their wholesale replacement, building Europe's largest consumer database, updating buying, merchandising systems and supply chain systems and providing new HR and financial systems to support the company's 1 million employees.

Another feature of these cases is the speed with which the projects were expected to yield benefits. Because of their scale and scope, outsourcing contracts typically last for between 5 and 10 years - far longer than an ‘average' consulting project. Of the first generation of contracts, many have become mired in arguments about the quality of service provided. With most of their efforts focused on running established systems and processes, outsourcing companies found it hard to identify the areas for improvement. Although still at a preliminary stage in its planning process, the MHRA (formerly the Medicines Control Agency) needed to realize the benefits of its decision to outsource within two years, if it was to meet its business objectives. There simply was not enough time to develop the detailed definition of the outsourced service typically required in such cases.

Flexibility and speed are both made possible by a new approach to the client-outsourcing supplier relationship. Clients are rightly cynical of much of the talk around ‘working in partnership' with their suppliers. All too often, experience suggests, companies pay lip-service to this ideal without any real conception of how they are to deliver it in practice. Key to each of these three projects was the extent to which conventional customer/supplier barriers were overcome by innovative, risk-sharing contractual terms. Whereas VOSA's first outsourcing contract focused wholly on the immediate services to be provided, its deal with Atos Origin ensured that the relationship would be measured in terms of broader business goals. Neither of the conventional models for working with private sector suppliers would have worked in this case. A traditional contract would have been too rigid, but the obvious alternative - a Public Private Partnership (PPP) - was primarily designed for greenfield construction projects, not the renewal of existing information technology. With this in mind, VOSA produced a document stating its budget and its objectives; suppliers were invited to bid for specific business propositions designed to achieve those objectives, but the actual process by which they did so was not prescribed. Atos Origin also adopted performance measurements that reflected VOSA's goals, rather than via compliance to a traditional service level agreement.

Ensuring the commercial goals of clients and suppliers encouraged the high degree of openness and sense of team spirit common to all the projects in this chapter. The alignment of Atos Origin's corporate goals with those of VOSA was mirrored by ensuring that people from the two companies worked together. As Nigel Shenton, Head of IT at VOSA explained, ‘Our teams are badgeless. At the top level we're working to coordinate a number of initiatives, some of which don't even involve Atos Origin. The end-user is the same, so it's critical we work together to turn these into a coherent programme of work.'

Management Consulting in Practice. Award-Winning International Case Studies
Management consulting in practice; award-winning international case studies.
ISBN: B001K2F3T0
Year: 2003
Pages: 69 © 2008-2017.
If you may any questions please contact us: