In the good old days, telephony was a regulated industry. Carriers had to worry about customer service, not competition. That changed radically for BT, a British telecommunications company, in 1984, when Parliament opened up competition.
Unfortunately, BT’s new competitors were able to sell the same service for less. Back in the day, most of BT’s cash flow came from its residential customers. “They were the easiest for our competitors to attack and attract,” Sue Gooch, HR Outsourcing Manager, reports.
And along the way, the Internet changed the telecommunications world. Today BT earns its revenue from the wider communications market, including mobile, broadband, and network services. Where was the capital investment for these new activities going to come from?
“We had to reinvent who we are,” says Gooch. “We had to get much leaner to offer the most competitive prices we could and find money to invest in new areas. We felt outsourcing was one of the key ways to free up the needed capital.”
The Early Years with Accenture HR Services
BT felt it had strong HR experience, so it wanted an HR partner “who could match our strengths with their strengths.” BT outsourced resourcing, performance, benefits, HR advisory services, and pensions to the joint venture, which also took over BT’s internal HR contact center.
“This was the first time BT got a true understanding of its real HR costs,” says Duncan Mears, Senior Client Director, Accenture HR Services.
BT transferred 1,100 HR employees into the JV in 2000, with the retained HR organization numbering some 700. While the joint venture was an innovative concept, in hindsight, it also introduced other issues. “It was trial and tribulation,” says Mears. The reason: BT employees didn’t behave differently and didn’t fully use the new outsourcing model designed to make the HR operation more efficient, and the transitioned employees did not fully appreciate the commercial change in orientation.
“BT wanted increased innovation and creativity. We struggled to respond,” says Mears. “It took us a year to enforce the new commercial approach,” Gooch recalls.
In 2002 BT sold its share of the JV to Accenture HR Services to focus on its core business of telecom and to relieve pressure on its balance sheet, which had been strained by high license costs for new mobile services. In addition to adding needed cash to the bottom line, the relationship became a true outsourcing relationship. “Halfway through we realized we had to become more commercial if we were going to derive value from our relationship. We asked Accenture HR Services to help us develop complementary services and products that could take us forward,” Gooch says.
Given the joint venture legacy, however, things got off to a slow start on both sides. “By 2003 we saw some complacency. The services were OK, but Accenture HR Services wasn’t bringing us the ideas we needed to transform us,” says Gooch. BT, for its part, expected Accenture HR Services to provide changes to the scope of service at no additional charge.
BT initiated a dialogue and challenged Accenture HR Services to come up with ways “to make this relationship more effective.” She says the supplier heeded the wake-up call. “Both sides recognized there were issues, and both sides wanted to get it right,” adds Mears.
To Renew or Not To Renew
The contract came up for renewal in 2005. By then HR outsourcing as an industry had grown up and there a host of new players with HR expertise who wanted this contract. “We had to decide what to do,” says Gooch. “We looked at whether we should go to the marketplace and see if we could get a better deal. Then we reflected on the relationship we had with Accenture HR Services. We evaluated the fact they understood our business. They had worked with us to deliver some high-value initiatives, and that was something we valued.”
BT conducted a benchmark exercise to see how Accenture HR Services stacked up in the crucible of competition. “Accenture came out on top in all but two categories. We knew we had a good contract,” says Gooch.
At the same time, BT had customers in well over 50 countries. This time around, the telecommunications company wanted the engagement to cover its HR administration worldwide. That meant studying how other countries’ HR practices differ from those in the UK. Today the contract includes 102,000 employees and 182,000 former employees worldwide.
Finally, BT realized its business environment was still changing, but this time at warp speed. “We felt a period of HR stability would be important,” the BT executive continues.
So BT decided to stay put. “We realized we had a good deal and a good relationship with a supplier that’s already delivering value. And Accenture HR Services had a global footprint,” says Gooch. So she told the supplier BT wanted to continue with all the current services but with a more efficient and transparent pricing model. “If they could do that, the deal was theirs,” she says.
By this time offshoring was an important factor in outsourcing pricing. Accenture was able to deliver “significant savings over the previous contract” by moving a large portion of the services offshore. Gooch says the initial contract produced a five percent saving year-over-year. The current contract promises a 25-30 percent cost reduction over the 10-year period.
The move gave BT a new pricing model. “Now we had transaction pricing. This gave us clarity of cost,” she says.
Gooch says the first contract sent a small amount of HR work offshore. “The initial trials went well, so we were happy to explore more offshore activity in the second contract,” says Gooch.
BT moved the work to India in stages. “We constantly look for more services to move to Bangalore, Prague, and other delivery centers,” Gooch says.
Accenture HR Services’ key Indian staffers came to the UK and spent eight weeks with their British Accenture colleagues. Gooch also traveled to Bangalore after the transition.
“We truly have a global delivery model,” she points out. Accenture HR Services’ Prague office handles European HR. The Chicago, Illinois office handles the US employees. Bangalore is handling some UK, some other European countries, and Asia Pacific.
Gooch adds that some BT executives worried about differences in data protection legislation across all the countries where it operated and where services would be delivered. Gooch says BT worked with Accenture HR Services to ensure that the data, wherever processed, had the same level of protection and security as it would in the country it originated from.
The two parties refined their governance structure in the second contract. “We manage our outsourcer; we don’t let them run,” says Gooch.
BT has 189 HR products and each one has at least one service level agreement (SLA). SLAs are based on time, quality, or customer satisfaction. The original contract had just nine.
“There are more SLAs in the new contract because we differentiated the products to get more granularity,” says Gooch. At the same time, BT relaxed other SLAs. “We realized we wanted to pay less,” she says.
Twice a year, the key HR players from both organizations meet. BT executives share the company’s strategic priorities, then the two parties try to ascertain what services Accenture can provide to meet them. “This sets the direction for the next six months,” she says.
Every month the partners hold a global governance forum. The key players look at monthly performance and financial data. They check performance against the SLAs. “We talk about issues. We want to know their root-cause analysis and the corrective action they took,” says Gooch.
Gooch also has customer-satisfaction surveys; she discusses the relevant feedback at these forums. There’s also a forum for pensioners. “We want to make sure we capture learning issues and pressure points,” says Gooch.
The partners have day-to-day issue management. “You need to work with your partner and understand what the issues are. It’s not just changing them; it’s changing us, too. We have to ensure both the people and the process are working smoothly. We’ve had pressure points over the years, but we sat down and worked them out together,” notes Gooch.
Mears says there are always times a supplier doesn’t get things quite right. “That’s why you have metrics. Then there are no surprises. We are not fearful about being open,” he says.
“No outsourcing agreement can expect to always have a smooth road. There will always be challenges. But things work out if you have commitment,” the Accenture executive says.
“Achieving competitive advantage through cost leadership is our No. 1 priority,” says Gooch. Moving to a transactional pricing model means BT only has to pay for the services it actually uses. “That gives our people a more informed view of the true value they are getting and helps us more effectively manage our costs,” she says.
Another strategic priority was to put broadband at the heart of the company’s offerings. Accenture and BT jointly developed the technology and systems to launch broadband to BT’s own employees within an innovative tax framework that provides savings to both employee and employer.
BT was able to introduce broadband services to its employees at a reduced price thus increasing its broadband revenue and creating thousands of employee “ambassadors.”
Gooch says Accenture HR Services helped BT hire skilled people for many of its new business ventures. “Accenture HR Services insured the program they developed for these new hires had a high retention rate,” she says.
At the same time, Accenture HR Services helped BT exit 1,500 redundant employees. BT management wanted HR to complete this assignment in three weeks. “This was a significant challenge because Accenture HR Services had to estimate the benefits for 40,000 people if they stayed or left. But we agreed because we knew Accenture HR Services would come through,” says Gooch.
During this time Accenture HR Services operated a help desk which fielded 10,000 calls to help BT employees make a wise decision. “Accenture had a fast, effective response to a business challenge. We couldn’t have done this ourselves,” says Gooch.
“They worked with us to reinvent our HR approach,” says the BT executive. For example, Accenture HR Services worked with BT to revamp BT’s long-term sick absence policy. “We wanted to drive down our absence rate and bring people back sooner in a supportive way,” says Gooch. This was important because BT was paying both the employee and the person who they brought in to do the work.
The result: the annual sick absences cost is significantly lower than it was three years ago. “We’ve driven absence rates down 27 percent,” Gooch reports. “A key thing we do is help BT change the behavior of its people,” adds Mears.
In the managed performance area, Accenture helped BT managers better understand what constitutes world-class performance management. “We coach managers, helping them set and measure the right objectives,” says Mears. Ditto for filing grievances. “BT employees now clearly understand their company’s policies. We have a rigorous and consistent process.”
The supplier also worked with BT to complete a total refresh of BT’s health and safety strategy. The telecommunications company’s reportable accident rate has fallen by 60 percent over the last three years. “This benefited both our employees and our bottom line,” says Gooch.
Making the Relationship Work
“We communicate, and then we communicate some more,” says Mears. He says he doesn’t think of himself as an Accenture HR Services employee even though that’s what his paycheck says. “I feel like I’m part of BT’s executive team. BT treats us that way,” he adds.
In this long-term relationship, “Accenture HR Services constantly strives to move up the value chain for us. Their team wants to create value for us. Now they actually contribute directly to the business debate,” says Gooch.
In an age when the Internet, broadband, and wireless have transformed plain old telephone service, it’s clear that BT is no longer just a telephone company. In partnership with Accenture, it is setting new standards of performance in HR as well.
Accenture HR Services’ Top 10 Rules for Governance
- Create a sound governance structure
At the beginning of an outsourcing arrangement, senior executives need to ensure there is a clear governance structure in place with proper representation from both client and provider.There are three levels to consider in the governance structure:
- Strategic – to decide what to change
- Tactical – to make change happen
- Operational – to deliver service
The diagram below illustrates what an actual governance structure may look like.
- Ensure senior commitment
The art of good governance is involving the right people at the right level of seniority at the right time. The governance structure should facilitate participation from people with the appropriate levels of strategic and operational responsibility and focus them on contributing in specific, defined ways.
- Share cultures and values
The governance team can improve results by identifying and building on the shared strengths of each party. Additionally, both buyer and provider need to understand each other’s business drivers
- Use experts
If there are gaps in knowledge within the company about how to manage an outsourcing relationship and run a governance team, then organizations should acquire that knowledge; the buyer must either have or acquire the skills to manage the supplier.
- Understand and communicate with all stakeholders
The governance team’s purpose is to ensure the smooth running of the relationship and to resolve issues. To do its job properly, the team must understand the motives and business needs of each stakeholder group, from senior executives and managers through to professional staff, service delivery teams, and users.
- Keep to commitments
This may seem a basic requirement, but failure to keep promises and fulfill commitments can cause extensive damage to a relationship. Delivering on commitments builds credibility and fosters a more collaborative environment where the focus is on achieving high performance.
- Be outspoken
Governance team members need to speak out when they perceive a problem. Keeping lines of communication open across all levels and functions is critical to successful outsourcing, as is the ability to address issues in an open and honest manner.
- Measure, evaluate, report
Buyer and supplier should agree on service level agreements and ‘reverse SLAs’ (which obligate the buyer to the provider), along with key performance indicators (KPIs), at the start of the deal. They must build them into the contract and measure them at regular intervals. However, SLAs and KPIs are often not enough to gauge the success of the outsourcing relationship; the governance team’s ultimate focus should be on delivering customer satisfaction.
- Innovate and improve continuously
Providing value for money is the foundation of any outsourcing agreement. However, leading-edge clients who seek to transform their HR function should expect their service providers continuously to add value – through process transformation, for example, updating and improving technology platforms, redesigning processes, and suggesting innovative ways of tackling problems.
- Nurture and engage your people
Finally, good governance is about people, about creating strong human relationships that foster trust among all parties. Regular communication that is honest and open builds personal trust and confidence and creates a joint commitment to organizational success. In turn, organizations that work hard to develop their relationships with all stakeholders, from managers to employees, will have a positive outsourcing relationship that is truly transformational.