At the time it was formed in June of 1997, DuPont’s IT Alliance was the single largest technology management agreement in the information technology industry; but it wasn’t just another outsourcing deal. By combining the IT resources of both companies, part of their strategy was to launch a new CSC business unit focusing on solutions to the chemicals industry; and both DuPont and CSC reaped new revenue potentials.
The $4 billion transaction is a relationship that will span ten years, it’s not possible to foresee at the outset all the scenarios that could happen. Its success, therefore, will require flexibility on the part of both sides to do what is best for that partnership interest, rather than trying to design everything into the contract. A year and a half later, both parties acknowledge that flexibility in dealing with continuing changes requires effort. Frank Conway, DuPont’s Global Information Technology Alliance Manager, explains that DuPont had been given advice along this line from the consultancy firms it used in the down-select process. “We were reasonably well prepared, but it has been a little more involved and required even more effort than we initially anticipated,” he says. “It would be naive for companies to think that they don’t have to put some ongoing effort into the care, feeding and management of the overall relationship.” Both parties agree that their relationship is more like a marriage than a contract.
Driving the strategic alliance from DuPont’s perspective, was the company’s changing business model. DuPont was moving away from wholly-owned operations and IT organizations to more joint ventures, partnerships, and spinoffs. It needed increased flexibility and speed of responsiveness from an IT perspective, to accommodate its many partners, various lines of business and frequent acquisitions and divestitures. Besides the number one criteria of flexibility, DuPont needed state-of-the-art business solutions from its supplier.
Computer Sciences Corporation (CSC) was the supplier selected, first and foremost, for its demonstrated willingness to meet the primary requirement of DuPont — flexibility. CSC was a match also because of its global presence, IT expertise and its cultural compatibility with DuPont.
The Better Half
In a good marriage, there truly is no “better half;” together, they are each made better than they are without each other. In addition to increased flexibility, another DuPont objective at the outset was professional and career development for its IT staff. DuPont outsourced 2,600 employees to CSC, and their many years of industry experience and insight have been invaluable in CSC’s new chemicals business unit.
DuPont is the anchor client of the new unit. CSC will handle all of DuPont’s global information systems and technology infrastructure, as well as more than half of all current applications work, and DuPont will help CSC be successful and gain deep industry-specific skills and knowledge. As CSC does a good job for DuPont and begins to market its new chemicals expertise, it hopes to have DuPont’s recommendation to other companies and participation in collaborating in some of the new types of outsourcing partnerships that are evolving. The Alliance also includes a revenue-sharing agreement between CSC and DuPont.
Tying the Knot
Conway states that, although flexibility is really an ongoing process, some flexibility was built into the contract. DuPont, for example, wanted the ability to have variability in its IT spending. The Alliance is structured so that changes can be accommodated with minimal restructuring. DuPont will pay for IT services on an as-needed basis at a particular point in time, depending on where the company is in its acquisition or divestiture of various businesses. “Built into the contract are certain base lines that we projected, then certain minimum requirements,” Conway says, “because we were asking CSC to make some long-term commitments. In order for them to do that, they had to be guaranteed a certain volume of business. But within that guarantee, there is a broad range of flexibility that DuPont has, to go both up and down.”
All in all, both agree that their partnership has worked as they had intended; they are achieving their objectives. But Conway says that, if they had to go through this type of transaction again, “we probably would pay a little more attention to establishing the ongoing operating team a little earlier. We had the team that was working on the deal, and we scrambled a good bit in putting in place the team that would operate the deal. If I had to do it all over again, we would have the operational people named, in place, and participating in the final aspects of doing the deal.”
Who Empties the Trash
In a marriage, arguing about whose turn it is to empty the trash won’t accomplish the task. Those kinds of debates won’t help in a long-term outsourcing agreement, either; yet, it is inevitable that some things won’t be completely finished at the time the transaction goes into operation. “A key element for success,” Conway says, “is continuity of experience in the ongoing operation of the deal carrying over from actually negotiating the deal. In large, complex transactions, it’s hard to dot all the i’s and cross all the t’s beforehand; therefore, it’s important that there’s some continuity of experience that knows the intent behind the deal, such that you can work out details without a lot of difficulty.”
He offers other advice to companies considering outsourcing, regarding allowing for flexibility. “The tendency within the industry has been to utilize, in essence, the down-select process and analysis as the basis for the operating model going forward, and that’s not necessarily the best thing to do,” he states. A lot of the tuning DuPont and CSC have had to do centers around the original business intent and making sure that a service is provided in a way that is natural for the business unit to consume it, rather than along the lines of how it was sourced and priced as the deal was being signed.
“From the moment you actually go live with the arrangement, things start to change,” explains Conway. “There are twists and turns in the road that you have to deal with; that’s just part of doing business.” As in a marriage, from time to time the relationship will be 60/40 or 70/30 instead of 50/50. In efforts to keep flexibility, both must do more than realize what needs to be changed, and when. The importance of relationship skills and soft skills cannot be overestimated; they are really what carries the partners through the maintenance of a long-term relationship.
Lessons From the Outsourcing Primer:
To build for flexibility in costs, (a) structure the contract so that changes can be made with minimal restructuring, and (b) use minimum requirements for a guarantee, with the ability to go up or down on an as-needed basis.
- Establish the ongoing operating team early and involve them in the final aspects of negotiating the deal.
- It is essential to have continuity of experience in the ongoing operation carrying over from the negotiation of the deal so that details can be worked out by someone who knows the original intent.
- Service should be provided in a way that is natural for the business unit to consume it, rather than along the lines of how it was sourced and priced when the deal was signed.
- The importance of relationship and soft skills cannot be overestimated n the maintenance of a long-term relationship