The past decade has seen a move toward outsourcing as a way to decrease operating costs. The outcome has not been a record of unblemished success, but unanticipated results have played a role in reshaping outsourcing, according to Ellen Quinn, vice president of administration, Yankee Energy.
Most Improved Relationship: TransAlta and Digital Equipment Corporation. In 1995, TransAlta, a privately owned Canadian electrical utility company, and Digital Equipment Corporation were involved in an outsourcing relationship that was headed south in a hurry.
Commonwealth Bank of Australia (CBA), the largest bank in Australia, has 6.5 million customers. Until late last year, the bank’s internal technology services department with 1,500 people was the second largest shop in Australia. Now that scene has changed dramatically. CBA and EDS have forged a two-part relationship which includes an outsourcing services contract. The other side of the relationship is a true partnership. CBA bought 35 percent of the EDS business in Australia.
Managing an outsourcing relationship can be fraught with challenges. Day-to-day decisions impact long-term goals. Lack of planning and misunderstandings can create difficulties in implementing strategies. Personality clashes can cause rifts in smooth operations.
Anthem, Inc., a carrier of health insurance, was in the middle of an outsourcing contract when they decided to conduct a benchmark on price and service levels last spring. The reason for the company’s decision was simple. They suspected that they were paying too much for their current service. That proved to be true.
Think benchmarking, and most people think of the benefits all being on the customer’s side. However, the procedure also can benefit the vendor. In today’s market, providing customers with the ability to validate that the pricing they’re getting is market competitive also gives them the confidence to sign a long-term contract.
When companies make the decision to outsource — or they have already outsourced — they often ask the question, Why benchmark? They are confident that outsourcing will save them money, or they know they are already paying less for outsourcing than their internal operations cost. So what is the value of benchmarking?
Benchmarking Begins with the Contract. Continuous rapid change in technology that, in turn, drives changes in pricing and service levels dictates that the outsourcing customer have some mechanism for ensuring continuous improvement in its contracted pricing and service levels. Benchmarking is one of a number of tools used by outsourcing customers to maintain flexibility in their long-term outsourcing contracts.
Are you getting ready to negotiate an outsourcing contract? If so, place flexibility high on the list of negotiation goals. Many customers involved in long-term outsourcing contracts in the past have learned the hard way that the restrictive and static nature of normal contract terms can tie their hands in the rapidly changing outsourced IT environment.
A recent Coopers and Lybrand survey of 428 high-growth companies revealed some disquieting news. Over half of the companies surveyed were dissatisfied with the overall results of their outsourcing agreements. Things, they said, just didn’t get better.
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