When ABB Power Generation Ltd. decided earlier this year to outsource the operation of the client server infrastructure for their total office environment, the Switzerland-based company’s reason was clear. They wanted secure access to resources and skills.
“This was the most important reason from my point of view,” says Jens Knoop, Ph.D., chief information officer. “IT resources are quite rare.”
The company, which manufactures power plants, has 43,000 people working in Switzerland, the U.S., Italy and Malaysia. The project covers the Windows NT environment for 2,800 office employees. It includes technical user support, Microsoft applications support, operation of the help desk, and operation and monitoring of the total local area network (LAN) of the company.
ABB Power Generation, an ABB Switzerland Group company, was already a veteran in outsourcing. They previously had outsourced the Unix server infrastructure in their engineering division, the client server infrastructure and LAN for their factory in Switzerland and the Unix server environment for their SAP system.
“The only thing that is not outsourced is the Unix environment belonging to our core business, which is engineering and research and development. This we still do ourselves,” says Knoop.
Banking on Experience
All of the earlier contracts were with Digital, now Compaq. When the company decided to outsource the office environment, they turned again to the outsourcer they knew.
“We had our own experience in our group,” says Knoop. “I also had a lot of discussion with my colleagues, IT managers from other ABB companies. And in Switzerland, the market share of Compaq/Digital was quite high. It’s one of the big three.”
ABB’s objectives also were clear. The company wanted to improve IT efficiency and achieve cost transparency and cost reduction. “We wanted to concentrate, from an IT point of view, on applications, because within applications, we support our business processes,” says Knoop. I wanted to improve the knowledge and skills for our internal applications and, of course, for the standard applications that we use in the company.”
The new relationship began in July. ABB achieved some of their cost objectives in negotiations, setting a target of 20 percent cost reduction. That target was achieved.
“Achieving cost reduction with negotiation is quite easy,” says Knoop. “What’s more complicated is when you talk about what is to be delivered…It’s really tough to get the right thing for the right price, but I think we came to a good agreement for both parties.”
Despite ABB’s experience in outsourcing and prior relationships with Compaq, the new relationship was not all smooth sailing. Because of senior management pressure to move quickly, negotiations began in February, and the contract took effect July 1, with no transition phase.
“The expectations from the first of July were 100 percent, and of course, we couldn’t achieve this,” says Knoop. “The processes were different from before, so we had a lot of internal resistance in the beginning. When there’s internal resistance, it’s difficult for an outsourcing partner to deliver the right thing.”
Several factors contributed to that resistance, according to Knoop. The company has five divisions, each of which had IT resources. Although most of the managers wanted to outsource, some did not. Knoop says that another factor was that the company, faced with the short time frame, failed to do an adequate job of defining the processes.
“So a lot of misunderstandings happened in the first quarter,” he says, “but this is quite normal.”
On the supplier side, Knoop says Compaq contributed to the situation by not assigning enough resources to the relationship. “In the beginning, an outsourcer should bring more resources to the project and then reduce them within a half year, because the expectations in the beginning are quite high. Compaq, in the first two or three months, had not enough resources to fulfill the expectations of the company. But this has changed, and it’s much better now.”
A Change for the Better
Although Knoop says the general arrangement has worked quite well for ABB Power Generation, the parties have already made some changes in the contract. They expect to make more changes next year.
One of the changes already made is in the penalty structure. Performance now is measured monthly, and the response time to problems has been shortened from three months to one month.
“We reduced the penalty, but it’s done in a shorter period,” says Knoop. “Three months response time is too long. Compaq agreed that this made sense, because they said customer satisfaction will improve with these kinds of metrics. And customer satisfaction is important to the outsourcing company.”
Better communication is a goal Knoop has set. For example, he says, in October, the company was experiencing ‘a huge problem’ with its LAN. They discovered the problem was not with the network itself but with changes the outsourcer had made without informing the company.
“They corrected the changes, and the performance of the network is increasing again,” says Knoop. “We should communicate better. When they do changes in the system, the IT guys are always trying to optimize IT operations, but they should try to optimize the performance for the customer. This needs some discussion. The sales guys understand it, but when I talk with the IT operations men, it’s much more difficult, because they have a different point of view. They are trying to find synergies within IT operations.”
Knoop says another challenge has been providing centralized desktop support for a decentralized organization. Because each division has different needs, the current relationship is not fulfilling the total requirements of all of the divisions. That situation occurred, he says, because he underestimated the support needs.
“Each division has specific needs because they have different applications,” says Knoop. “Sales is different from assembly, and engineering is different from manufacturing. I’m in discussion with Compaq about how to provide specific applications support, because this is what they need to improve the productivity of their users.”
Overall, Knoop says the relationship is working well. “It’s been quite a short time, just six months, but I think we’re on track,” he says. “There’s still space for improvement, but this is a process where we should work together.”
Lessons from the Outsourcing Primer:
- Internal resistance created challenges for the outsourcer in delivering services.
- Adequate definition of processes is essential to smooth implementation of a relationship.
- Outsourcers should assign more resources in the beginning of the contract period when expectations are high.
- Lowering penalties and shortening the allowed response time can deliver improved customer satisfaction.
- In a decentralized organization, centralized support of desktop services should address the specific needs of individual divisions or units.