How Outsourcing Helped a Utilities Company Save $16 Million While Lowering Security Risk, Improving Client Satisfaction, and Flexibly Working through an Extremely Challenging Acquisition | Article
In 2003, the new CIO at Public Service Enterprise Group (PSEG), a fully integrated utility company headquartered in New Jersey, stepped up to address a credibility gap in the company’s perception of IT performance.
The company’s management of personal computers for approximately 10,500 employees in faciliites throughout the United States was fragmented across multiple groups with a mix of processes, control systems, and resources. The department had not operationally integrated processes, which created overlap, duplication of effort, and confusion on the part of end users. The situation impacted user productivity, increased support costs, and made the work environment vulnerable to security risk.
PSEG had many different kinds of PCs of different ages and on different operating systems. It couldn’t upgrade to new virus protection because the new codes took up more memory than the old PCs could support. Deploying new PCs took up to nine months, and by the time they deployed some PCs, they were already one year into a three-year warranty.
The CIO decided to rationalize — yet also optimize — the company’s IT spend. The goals: predictability of costs, following a life cycle plan, and establishing a strategy for aligning IT spend with business objectives. The goals were part of a larger initiative aimed at enabling the company’s ability to focus on its core business and thus increase value to PSEG’s customers, says Karen Sidie, director Operational Excellence at PSEG. “In addition to getting more value for our IT spend, we also looked for opportunities to drive down costs on a year-over-year basis,” he says.
Why PSEG chose CompuCom
Through an extensive Request for Proposal process and due diligence, PSEG narrowed the initial 11 bidders to eight, then to two. As a starting point in the selection criteria, PSEG wanted to partner with a service provider that had industry-standard processes, had the required technical competencies, and was rated as one the top three providers in the Gartner or the Forrester profiles.
“Cultural fit was important to us then and still is,” states Chouthai. “We scored the providers’ management direction, their integrity and ethics policies, corporate governance, and security principles. We looked especially closely at how they treat their people and their ethics in that dimension.”
He adds that “a very important aspect of cultural fit for us was the provider’s degree of flexibility.”
Chouthai recalls that CompuCom first demonstrated a partnering approach — and flexibility — in the handling of PSEG employees whose jobs might be impacted by outsourcing. “We were trying to find other jobs internally for our employees; but we also discussed rebadging them onto CompuCom’s staff, and through that whole process, they were very flexible. They decided to mirror benefits and compensation that we had, and they made our people feel wanted. They developed an incentive plan with a year-end bonus for employees who stayed during the transition period.”
“They looked more at the spirit of the deal than the terms and conditions. Our CIO at that time and I were very impressed by that. Right from the start, we knew CompuCom was a very good fit for us,” he adds. “They demonstrated that they had the same values we do.”
PSEG’s other major selection criterion was that the service provider would provide “continual learning and improvement. In fact, their contract specifies that CompuCom must provide two ideas for continuous improvement per quarter.
The utilities company chose CompuCom to manage the assessment, design, and deployment of a comprehensive desktop management, asset management, hardware refresh, break-fix, IMAC, and Level 1 and 2 help desk solution for approximately 10,500 employees in over 80 locations.
The partners signed their contract in June 2004 and achieved a successful go-live date four months later. They planned extensively for the “big bang” transition and planning paid off — the transition was seamless, and they encountered no challenges.
Demonstrating maximum flexibility
The first major challenge to the relationship — and consequently the need for a major demonstration of mutual flexibility — occurred a year later when PSEG went through a merger/acquisition process with another company. The acquisition company had outsourced IT to another service provider.
“That pretty much put everything on hold,” says Sean Muto, senior client executive, CompuCom. “We went through discussions as to what services we would retain versus what would go to the other service provider, or what would go out in a collective new RFP for services.” The companies also had to renegiate planned hardware refreshes under a new mindset.
“It definitely changed the terms of our relationship with CompuCom,” says Chouthai. “We had to put planned deployments on hold and severely curtail the demand for the volume of work that we had anticipated because of the acquisition. It was as big a change as anyone could encounter.” He says PSEG gave CompuCom as much notice as it could so the provider could redeploy some of its staff and the hardware.
Both companies were flexible throughout the give-and-take discussions and renegotiations, aiming always for a win-win outcome.
But 22 months later came another dramatic call for flexibility — the to-be-merged companies called off the acquisition. PSEG and CompuCom then had to negotiate changes again and CompuCom had to ratchet back up quickly to meet PSEG’s needs.
Manoj comments, “Our relationship was pretty solid by the time of the acquisition. That laid the foundation for the flexibility and give-and-take for the acquisition and then calling off the acquisition.”
Muto agrees. “We had a very collaborative relationship from the outset, and that is a key to success in being flexible and acting from the spirit of the deal.” Also, by the time they called off the acquisition, PSEG already considered CompuCom a trusted advisor. CompuCom had demonstrated flexibility time and again and delivered all that it promised, which built trust.
Muto points out that CompuCom’s size allows it to be a much more nimble provider than the larger IT providers with which it competes. “Along with thought leadership, part of the value we bring to our clients is flexibility. Flexibility is in our corporate DNA.”
Both companies believe there is no value in taking a hard line that will impact the relationship or future mutual business opportunities. “If either party pulls out the contract to look at the letter of the law instead of trying to figure out how to be flexible so we can do what is best for both companies, then we’ve got big problems,” states Muto.
At the end of the acquisition saga, they did pull out the contract again. Once PSEG called off the acquisition/merger, so many things had already been on hold or needed to change again, both companies took the opportunity to rethink their contract. They improved several aspects and signed a new five-year deal.
Chouthai says the relationship with CompuCom helps PSEG be more operationally efficient. The utility achieves 90 percent first-call resolution rates compared to industry standard rates of 54 percent; this also significantly reduces user downtime and infrastructure management delivery costs.
The nuclear piece of PSEG’s business relies on a predictable turnaround from outages. “CompuCom gives us the ability to be very predictable in coming out of an outage, and that is a competitive advantage for us,” says Sidie. “Also, there is only a short period of time during the year when we can do upgrades and refreshes for the nuclear piece of the business. If we miss that window of opportunity, then the next time would be a year later.” CompuCom ensures they don’t miss it.
PSEG also enjoys the advantage of CompuCom’s ability to ramp up and down for specific projects. PSEG has around 3,000-4,000 ruggedized laptops in its service delivery trucks which, when Microsoft issues a patch or upgrade, users have to take to a regional PSEG facility for the patches. The thousands of laptops also have to patch into the network through a cable before doing the upgrades. It also requires 50 extra people to perform the upgrades or patches during a weekend. “It’s a logistical challenge,” states Sidie. “When we did this in house we could not ramp up to do this. But CompuCom has the people to flex up and down to do this for us. To me, it’s one of the biggest benefits of the relationship.”
Sidie mentions another business benefit. “CompuCom’s piece of the IT pie helps us provide a lower cost structure overall than our competitors. Also, we were able to use some of the cost savings for some additional capital improvements for IT.”
PSEG achieved year-over-year savings and realized nearly $16 million in IT cost savings during the first three years. CompuCom cut in half PSEG’s IT expense run rate during the same period, providing a 46 percent return on investment.
“Continual improvement and year-on-year savings are baked into our agreement. If we don’t change any of the requirements or scope during the year, they’re going to provide services year-over-year for less money, based on how they continuously improve,” explains Chouthai.
As an example of the two quarterly continuous improvement ideas, CompuCom provides Intel’s vPro technology. “In addition to the cost-savings aspect, we explained to PSEG how the technology could improve our distribution of software applications, patching, and updates, making sure we patch its environment with the latest security, which is mission critical to its business,” says Muto.
One of the PSEG’s provider selection criteria was providing the utility company with constant learning. “We give them a lot of visibility into leading-edge and bleeding-edge technologies and how they would fit into PSEG’s environment and provide benefits,” he adds. They also help PSEG build its business case for new technologies.
As another example of ideas to achieve cost savings, during CompuCom’s data-gathering and management process, CompuCom determined increasing failure trends for some of PSEG’s PCs. CompuCom proactively engaged with the manufacturer of equipment PSEG was purchasing. As a result, the manufacturer gave CompuCom new parts and cost recovery to proactively replace the high-failure parts for all of the machines during off hours to avoid any downtime impact to PSEG’s users.
Why this relationship works
The biggest foundation PSEG and CompuCom have for ensuring their interests remain aligned, says Chouthai, is their quarterly governance meetings. Both companies’ leadership teams meet together to review the prior quarter and discuss plans for the upcoming quarter.
CompuCom’s program executive, Brent Mehrmann, is on site daily at PSEG and is responsible for the daily operations and attainment of the SLAs and for making sure both parties’ interests are aligned. Muto’s role is primarily is to oversee operations from a client satisfaction perspective but also maintain relationships with PSEG’s senior executives.
“I would have to grab at straws to come up with a challenge that resulted from ineffective communication in this relationship,” states Sidie. “This relationship is very strong, and the communication is very effective.” She attributes this to the fact that both companies are mature but, more importantly, that both have people with “the ability to rationalize and wade through emotions. CompuCom is good at listening to both sides of an issue and being fair. At PSEG, we are aggressive, but we also like to be fair.”
She also notes that both companies’ approach to working together is to accept failures, try not to make the same mistake twice, and learn from mistakes.
“For both of us, the whole focus is on doing the right thing for both companies,” says Sidie. Though she realizes it’s an overused word, she says the PSEG/CompuCom relationship is a “true partnership focused on mutual wins — whether you slice it by performance, price, or across the board.”
Chouthai agrees that the relationship works successfully because both companies focus on “being flexible in doing the right thing” for mutual success. Like the constant learning and operational improvement PSEG initially sought in an outsourcing provider, he says, “We started off on a good foundation; but this is a relationship that is evolving and, through flexibility and collaboration, constantly improving.”
Lessons from the Outsourcing Journal:
- Flexibility in outsourcing goes beyond enabling a buyer to ramp services up or down as its business needs change. It is a give-and-take and partnering approach that allows the parties to work through unanticipated challenges and resolve issues in a way that is the best outcome for both the buyer and provider.
- A key enabler of mutual flexibility in outsourcing arrangements is the parties establishing up front a collaborative relationship with a structure for open discussions about business needs and changes.
- A best practice for ensuring both companies achieve their cost, performance, and innovation objectives is to include a continual-improvement mechanism in the contract.
Criteria for the Most Flexible Award: Both parties demonstrate flexibility in resolving issues that arise over time as business needs of either or both companies change. They demonstrate flexibility by their willingness to seek mutually beneficial solutions in both short-term and long-term outcomes and readiness to work through new challenges that arise by taking a partnering and “spirit of the deal” approach rather than a strict contractual approach.