Mark Richards, manager network operations, for TransAlta, an investor-owned Canadian electrical utility company, views problems in outsourcing from a slightly different perspective than many others in the marketplace. First, his company and their vendor Compaq (then Digital Equipment Company) tackled major relationship problems and solved them so successfully that they won InfoServer’s “Most Improved Relationship” award last year. Secondly, Richards spent three years on the applications development side of TransAlta before recently assuming management of network operations.
“I’ve seen it from both the end user perspective and heading up multi-million dollar projects where you know what you do is going to end up being supported by the outsourcer,” says Richards.
From that vantage point, he shares the strides his company and Compaq have made, as well impressions gleaned from conversations with executives in other companies that have outsourced.
The Management Hurdle
TransAlta’s original contract with Digital in 1992 was a classic data center operations outsourcing, which was later amended to include voice system support. The difficulties, according to Richards, stemmed from a common problem cited by many outsourcing experts, a lack of overall relationship management.
“There was no one really managing the larger scope of services,” says Richards. “Compaq (or Digital) hadn’t anted up for it, and neither had the TransAlta IS group. Things were in a real decentralized mush. Our business lines were getting frustrated, as we moved from a mainframe to a decentralized client server environment with much more use of PCs in business lines that had never had them before.”
The two parties addressed those issues in a new contract signed in 1996. The new agreement covers all of TransAlta’s infrastructure operations, plus the help desk. The parties employ benchmarking of pricing and customer satisfaction surveys to track how well the relationship is doing. Richards says the steps that have been taken has helped TransAlta move beyond some of the problems he hears about from other companies
More Than a Money Game
Based on conversations with executives at other companies, Richards says that deals that are having problems frequently are done at the executive level with an emphasis on saving money. While he concedes that outsourcing should be a business decision and cost containment is important to productivity improvement, he says a successful outsourcing relationship should reach beyond that emphasis.
“It’s not just a money game,” he says. “You really have to be getting something extra from that outsourcing partner. For us, that is the ability to leverage that entire Compaq organization and the relationships they have with suppliers. And to do that, you have to be involving them in your planning, your architecture, the business objectives coming up. You have to open the door a little bit for them and be willing for them to come in and share some of their expertise.”
Richards says when outsourcers are kept in ‘pure operational kind of task space,’ they can be blind-sided by sudden changes in direction that they didn’t know were coming. “If they knew what was coming, they’d probably be in a much better position to respond,” he says.
Freeing Compaq from that ‘task’ orientation of the original contract is one way TransAlta has been able to move forward, according to Richards. The 1996 contract focuses on service levels, the scope of services being provided and mechanisms for ongoing benchmarking and service level measurements, which TransAlta does monthly.
“If you get into managing service levels, then you’re saying to the vendor, ‘here’s what service my business needs. Now you go away and figure out how to do it, and by the way, I want to make sure I’m getting the competitive price,'” says Richards. “Then you’re not tying their hands behind their backs in terms of saying they have to do it this way or that way. When you let them do that, you can get pleasantly surprised.”
The Problem of Uncertainty
Some of the problems Richards has observed in other companies result from not having those service and price measurements in place.
“They’re not clear on service levels,” he says. “They get suspicious around what they’re being charged. It’s hard for them to assess what value they’re getting, because they generally haven’t focused on what their service levels are. I’ve heard of some deals where nothing gets done unless it’s specifically covered in the contract. In that case, you start to lose.”
TransAlta has moved beyond those problems to other challenges — such as good asset management — related to rapid changes within the company.
Moving to the Next Level
“We’re on to the next level of issues, not the base kind of keeping the data center or the network running,” says Richards. “We’re into how we can improve asset reporting so the business units take ownership of IT equipment in such a way that they’re making good business decisions, how we can engage outsourcing in helping the marketing group move into electronic commerce strategy.”
An important element of that, he says, is remembering that the outsourcing people operating the help desk are going to be dealing with company employees. Richards gives high praise to the Compaq personnel who staff TransAlta’s help desk and offers a word of advice to other companies who outsource that service.
“If you want to give your employees good service,” he says, “you’d better make sure that your outsourcing people know what the heck you’re doing as you roll out applications.”
While the recentralization of IT reporting and the standardization of infrastructure and applications has enabled TransAlta to lower support costs and provide better service, there are still challenges in reporting. The goal, says Richards, is to give the business lines an understanding of how outsourcing supports their business and accountability for the impact of their decisions on the cost of outsourcing.
“Once you start to involve them in the decision-making process…and they start to see how the outsourcers’ costs may change because of their business decisions, I think it improves the relationship business lines have with the outsourcer,” he says.
Communicating the Future of Technology
One common problem that TransAlta still struggles with is consistency of communication around such topics as new software standards, according to Richards.
“As an IS group, we’ve not been clear to the rest of TransAlta about where we’re moving with certain aspects of technology,” he says. “That puts a burden on the outsourcer, because they’re the ones that end up getting calls from frustrated end users.”
To give ‘air cover’ to Compaq, TransAlta is exploring the use of internet technology to improve communication with their end users. The internal web site would include a broad spectrum of information, ranging from hours of support and PC standards to ordering software, cell phones, and training and other information.
Overall, Richards is pleased with the way TransAlta and Compaq have dealt with problems and the direction they are moving.
“We’ve come a long way since pre-1996,” he says. “Our customer satisfaction reading is 8.8 out of 10. That’s a very high satisfaction level. Base service is no longer a concern. Now we’re talking about how we leverage these guys’ abilities, and we starting to look at more sophisticated stuff in terms of delivery of service.”
Lessons from the Outsourcing Primer:
- Having a clearly defined management structure can forestall or solve some common problems in outsourcing.
- A good outsourcing relationship offers more than cost savings.
- Outsourcers who are informed about upcoming changes are better prepared to respond.
- Clarity on service levels being provided can alleviate suspicions about pricing.
- When a help desk is outsourced, the outsourcer needs to be informed about application rollouts in order to deliver good service to end users.