Communicating with Other Stakeholders


Some transforming executives recognize how important it is to communicate with employees, but they pay less attention to other critical stake- holders. What they really need is a concerted communications campaign that covers all the bases. This includes addressing the concerns of investors, customers and community leaders (see Exhibit 8.1).

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Exhibit 8.1: Stakeholder interests should drive the communications agenda.

Outside Investors

Outside investors are probably the easiest to deal with, so let’s start there. A study in August 2000 by Stern Stewart showed that investors reward companies that outsource. They looked at the stock market performance of 27 companies that had recently signed major IT outsourcing contracts. On average, these companies outperformed the market by 5.7 percent, measured by stock price, for the four-month period surrounding the announcement. Sixty-two percent of the companies in the sample showed a positive impact from announcing outsourcing in the short term.

If we can extrapolate from these results to outsourcing in general, we can conclude that investors are positively predisposed to outsourcing. That makes communicating with them somewhat easier. Executives can lay out the business case, the financial projections, and the timing in a fairly straightforward manner. That said, executives should realize that financial analysts can discount earnings that result from nonrepeatable financial engineering. For example, when J. Sainsbury and Accenture formed a joint venture to manage the supermarket chain’s IT activities, analysts were less than effusive about the quality of the earnings improvements. One report in May 2001 downgraded J. Sainsbury stock and said: ‘‘The Sainsbury and Accenture joint-venture vehicle was set up on 12 November 2000 to procure and build a totally new IT system. However, six months on, there are many aspects of this deal that we find unclear, potentially misleading to investors, and of a real concern to us is how future IT costs are being manipulated to provide substantial increases in profits in the next few years. How,’’ the report wondered, ‘‘is 35 million [$58 million] in cost savings achieved before any real IT investment has actually been made?’’[2] Regardless of the real impact on earnings, analysts’ and therefore investors’ perceptions are colored by complex, non- transparent financial arrangements. In the post-Enron era, it behooves executives to stand up for innovative initiatives that make good, long-term financial sense and to communicate these clearly and openly to shareholders.

(Just to bring the record up-to-date, it has been two years since Sains- bury’s outsourced almost its entire IT function, and the company is seeing real cost savings that will amount to more than 200 million ($332.8 million) a year. In addition, it is also beginning to tap the new levels of flexibility and innovation that were an important part of the transformational outsourcing agenda.[3])

Community

A second important outside constituency is the larger community that gives a company its physical context. This means politicians and special- interest groups. One NS&I executive remarked: ‘‘We ran a very big campaign in all the operations sites to let people know that outsourcing would not only be good for the customer and taxpayer, but it also would create jobs. At the local level of Parliament, the thing they’re most interested in is how many jobs will be in that constituency, not who they work for.’’ Although the Newport Systems staff that would be dedicated to NS&I was expected to drop, the partnership actively encouraged the provider to bring new work into the operational centers. Executives anticipated that this new work would absorb many of the excess employees.

Politicians have less influence over transformational outsourcing in the private sector, but that does not mean that local community leaders should be ignored in a communications campaign. They will be especially interested in movement of jobs and tax revenues. They may even be willing to make concessions that will change the financial appeal of one bid or another, depending on how these issues fall out. Executives will want to include community leaders in the communications agenda and solicit their participation in creating the best overall partnership for the companies and the community.

Customers

Customer communications require a great deal of judgment. Customers can react strongly to news that a company is having financial difficulty. One executive involved in a transformational outsourcing initiative recounted, ‘‘You have to be careful. You don’t want the information going out in the press. One of the retailers in our area suffered from this problem; when consumers thought the company was in trouble, they took their business elsewhere. We didn’t want our customers to think we were in dire straits. It’s hard to strike the right balance between being honest with our employees and not letting news of our difficulties get out.’’ This company decided that it was essential to communicate openly with employees. The senior leadership took workers into their confidence. They explained the potential consumer reaction to them and asked them to support the company by keeping confidential information confidential. It worked. The company’s temporary financial troubles and its outsourcing initiative were not covered by the press.

Owners

Owners and parent companies also require special handling. In most situations, they have to approve outsourcing initiatives, and they have a complex set of appetites and interests that color their views of these types of initiatives. For example, Thomas Cook AG is owned by public companies with obligations to outside investors. It has an overall strategy that gives it competing priorities for both capital and management attention. The individuals making decisions at the parent board level have their own attitudes about outsourcing and risk profiles. Yet they had to be convinced in order for Alan Stewart’s initiative to proceed.

Peter Bareau faced a similar structure at NS&I with the UK Treasury. He commented: ‘‘Early on, I realized that we had to involve the Treasury. All the big decisions are ones that the Treasury makes. The Treasury officials advise the ministers, so it is absolutely critical that these [decisions] carry their support. They are involved in big decisions on procurement, but also all the decisions on annual plans and targets, the amount of money we’re going to raise, and new products have to be agreed with Treasury. We propose the plans, but they have to agree.’’

Executives structure relationships with their owners that range from contractual to committed. The way they communicate with owners depends on the type of relationship they have and they type they want. For example, Peter Bareau changed the management board structure and invited the Treasury officials onto the board. He involved them in his strategic planning and in his team’s process of deciding to outsource. He deliberately cultivated a collaborative relationship. In fact, if you look at NS&I’s annual report, you’ll see photographs of Treasury officials standing alongside the organization’s executives.

Alan Stewart also had an arm’s-length relationship with parent company executives, but played his cards differently. Instead of inviting them into his decision process, he crafted a compelling business case for outsourcing and used it to convince them to approve the initiative. Ultimately, he had to put his own job on the line to overcome the board’s concerns. This difficult process had a happy ending, however. As Thomas Cook turned in the results they had contracted for, management credibility grew, and their relationship with the board improved. This sets the stage for a different communications approach for the next phase of Thomas Cook’s strategic agenda.

[2]Mike Dennis, ‘‘Beware the Black Swan,’’ SG Equity Research, May 30, 2001.

[3]‘‘Case Study: Going Gangbuster at Sainsbury’s,’’ Retail Week, April 25, 2003.




Outsourcing for Radical Change(c) A Bold Approach to Enterprise Transformation
Outsourcing for Radical Change: A Bold Approach to Enterprise Transformation
ISBN: 0814472184
EAN: 2147483647
Year: 2006
Pages: 135

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