Chapter One: The Parent Says Goodbye
They sold our colleagues. They also sold our entire IT infrastructure. The new owner was supposed to provide IT support services to us after the sale. But it was a very loose deal, the price was astronomical and we had no measures for penalizing them if they didn't give us good service.
So begins the non-fictional tale of what happened to Simon & Schuster, Inc., the New York-based publishing arm of Viacom, Inc. Two-thirds of Simon & Schuster's business and several facilities including the IT department were acquired by another company in 1998. Although the plan called for the acquiring company to provide IT services via a shared services model for three years to the one-third of the company not acquired, it became obvious within a year that there were problems.
Unable to meet their business objectives without adequate IT support, Simon & Schuster decided late in 1999 to separate from the shared services environment -- but not to go it alone. They opted, instead, for an outsourcing partner.
Anne Mander, CIO, recalls the difficulties in structuring a Request for Proposal (RFP) to outsource the data center, network, help desk, desktop, asset management, applications development and maintenance and Web hosting/support functions.
In a shared environment, including "homegrown" systems and 65 applications, it became a "gigantic effort" to obtain all the details they needed in order to scope the IT assets and service requirements for an RFP that made sense.
Chapter Two: The Parade
Because the scope of services required was so broad, most responding providers joined forces with other companies, proposing a best-of-breed approach for the various functions. All 15 paraded their wares. A lean operation itself, Simon & Schuster was concerned about the potential expense of managing multiple organizations. Fortunately one member of the parade was very different.
Lockheed Martin's outsourcing solution stood out in the provider parade, not only with its proposal of a single-provider approach for all the requested services, but also in its consistency on pricing issues as details changed during the due diligence and contract negotiations. According to Mander, that consistency gave Simon & Schuster faith that Lockheed had been very thorough and had given its proposal a lot of thought in the beginning.
Chapter Three: The Joy of Outsourcing
Already-unhappy because they suffered poor service and the problems associated with a non-integrated environment, Simon & Schuster users were initially concerned about outsourcing. Even though there were problems in the complicated shared services environment, the IT people were their former handholding Simon & Schuster peers. They also feared Lockheed Martin would not possess the necessary knowledge for 15-year-old systems that had been written by employees no longer with the company.
CIO Mander says Simon & Schuster and Lockheed Martin designed and conducted an internal survey of typical users to help design how the desktop process would work. They conducted a follow-up survey nine months after the cutover to Lockheed Martin's services, which clearly showed a measurable improvement in user satisfaction.
After migrating the work to the new provider, Simon & Schuster proceeded to "give them some really tough challenges." Mander says their business went through major change, but "Lockheed Martin was always able to respond to the substantial work that had to be done."
That flexibility has strengthened their relationship. Mander reports Lockheed Martin often provides valuable advice and doesn't charge for it. This free advice occurs in areas where Lockheed Martin does not have full responsibility and when there have been performance challenges. "We have asked Lockheed Martin how we could improve things in this complicated environment," explains Mander. "We both knew that this was quite over and above their obligations. But they came back with some really excellent ideas of how to improve stability and speed. They've also done the same thing for us in other areas."
The provider, for example, came up with a more efficient way to solve a customer invoice problem in SAP, even though this would result in taking a server out of the environment -- reducing the provider's monthly revenue. In Simon & Schuster's project to change its disaster recovery process after the September 11 World Trade Center attacks, Lockheed Martin suggested innovative ways to save money by "cleverly using" assets already in the Simon & Schuster environment.
Chapter Four: Living Happily Ever After
The publishing giant appreciates Lockheed Martin's proactive stance in reducing the complexity of the environment and overall costs. "If they see something that could be better, they come to us and tell us," says Mander. "It's not an antagonistic environment where people are looking at the contract to see whether they should do it. There's an atmosphere of thoughtful cooperation and helpfulness on both sides."
Incentives were not part of their original agreement; but a year later, the publishing company was so pleased with Lockheed Martin's track record of coming up with innovative ways to reduce costs that it added a gainsharing addendum to the contract. As Mander says, "Typically, savings for us means declining revenue for them. There had to be some equitable approach to that, because we want them as a permanent player in our environment."
The CIO reports that more functions in the Simon & Schuster environment are moving to the outsourcer's -- "because we trust them." Trust was not automatic, though. Mander, who had never been involved with outsourcing prior to this arrangement, says she was skeptical at first.
"Because they weren't our own employees, I wasn't sure they would have that same level of interest in actually coming up with ideas and working with us," she states. "But it has been the opposite. We have access now to the huge body of knowledge at Lockheed Martin and benefit from getting their ideas as well as those of our own employees. I think outsourcing has given us a huge advantage."
Mander credits part of their happy relationship to "a product of work to create an integrated environment, which involves relationship-building and putting things on a personal level to tie the two groups together." Both believe their relationship has been remarkable.
Like the childhood game where one is supposed to carry out only instructions preceded by the words, "Simon says -- Simon & Schuster might well say, "Simon says: Don't do shared services. Outsource."
Lessons from the Outsourcing Journal:
- Usually in a shared services environment, interests are not aligned for mutual benefit and success in achieving a customer's business requirements.
- Outsourcing is an enduring relationship. When the provider's best practices and innovations achieve operational savings for the buyer, it usually also means declining revenue for the provider. A gainsharing mechanism can serve as an incentive and equitable approach to this challenge.
- Trust and relationship-building, as well as putting things on a personal as well as corporate level to tie the two companies together, are necessary for success in outsourcing arrangements.