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The Kobayashi Maru scenario or “everything I know about outsourcing negotiation, I learnt from Star Trek…”

For those not several light years into the sad zone, the Kobayashi Maru was a no-win training exercise in Star Trek, famously beaten by one James T Kirk. Though it may not be immediately obvious, there are some lessons here for businesses negotiating outsourcing deals. How? Well, in Kobayashi Maru you are:

• outmatched by an opponent

• unable to withdraw

• given insufficient resources to complete the job

• faced with Klingons off the starboard bow

Sound familiar? Maybe not that last one, but the reality that bites many organisations trying to cut an outsourcing deal is that the suppliers often have far more experience, a bigger team and more information on which to draw.

What was Captain Kirk’s solution? He reprogrammed the simulator to change the rules of the game. So what’s the ‘game’ in our world of outsourcing negotiation and how do we reprogram it?

“Simplify, simplify, simplify”

In a complex game of trade and counter trade, suppliers have the advantage: simplify the questions and concentrate on the critical elements of the deal where there is genuine room for movement. These critical elements will vary from company to company depending on the nature of the business, so it’s worthwhile investing the time up front to get agreement on those that are most important. For example, for one recent client, protection of intellectual property was critical; for another the focus was around personal data import/export limitations. Each should be a standalone discussion – don’t allow your critical elements to be wrapped into a package of trades.

“I’ll buy that service for a penny”

Avoid ‘moroccan bazaar’ approaches. Don’t take extreme positions simply because you expect to negotiate down. That simply encourages the other side to adopt the same extreme positions, extends the negotiation timescales and, again, plays into the hands of the more experienced team. Too often, clients tie themselves in knots around things like limits of liability, service credits and total amount at risk, when in the vast majority of cases agreements end up in the ‘normal’ range. Bidders know this, so don’t play the game. We advise clients to start in the ‘normal’ range and focus the discussion on what is important.

“The engines cannae take it, Captain”

Stress and brinkmanship are common negotiation tools but rarely available for the purchaser. “Head office won’t accept that clause” is almost a catchphrase during some negotiations. Assuming you haven’t adopted the Moroccan bazaar approach, your position should be reasonable and not a total departure from what the supplier market can accept, so call their bluff. Make it clear what you are doing and, if push comes to shove, wave goodbye to that bidder. Once suppliers have got over the shock, they will start to trust you to set reasonable positions and respond in kind. We supported a client who rejected a potential supplier because there were far too many ”we’d like to discuss” responses to the contract clauses. In a subsequent competition, the same supplier provided full and detailed responses with no ”reserved positions” and, eventually, won the deal.

“The final frontier?”

And, of course, remember to do all this while there are still multiple suppliers in the competition. Don’t wait until you have selected your preferred supplier before starting the hard yards of agreeing the details, because these hard yards will turn into hard miles and the “one or two details left to resolve” will turn into complete renegotiation (with the bidder having the leverage, not you).

Although the number of organisations pursuing strategic outsourcing initiatives continues to rise, numerous studies reveal that more than half of these investments fail to return the benefits executives expect; derailing an organisation, losing significant time and money in sunk investment, and in some cases harming the relationships with customers.

There are a broad range of contractual, operational, political and cultural risks that can quickly derail an outsourcing initiative. Many executives struggle to manage this uncertainty.

While there are different explanations for sourcing failures, each can be traced back to a fundamental lapse in managerial understanding, oversight and control; in affect to a failure in governance.

There are serious practical obstacles in trying to apply outsourcing governance, efficiently and continuously on a day to day basis. The first problem organisations encounter is difficulty in indentifying and analysing risks, the first step towards managing them.

Common risks: that cause failed outsourcing initiatives

• Organisations take for granted certain risks - which can focus resources on lower priority risks and ignore more critical or impacting risks.

• Certain risks exist naturally as a result of outsourcing - many organisations assume sourcing to be the same as procurement and too little attention is paid to the understanding of the wider risks.

• Risk is everywhere – but very few organisations attempt to establish a coherent view of risk.

• Risk is personal – consequences of risk are visited on all stakeholders, yet most organisations task a handful of personnel to make sourcing decisions.

• Risk cannot be delegated – regardless of whom risk is delegated to, and who may assume it, the originator is still responsible; senior management typically do not have an organisation-wide deep understanding of all dimensions of risks, and as such, cannot manage risk on their own.

• Risk is probabilistic – there are always a set of circumstances that can bring about the outcome least desired – yet very few organisations attempt to mitigate for these.

• Risk has both positive and negative outcomes – too many organisations focus on the negative aspects of risks. An understanding of the positive aspects of risks can bring about substantial additional value.

Risk management has unfortunately developed as a separate function within many large organisations, and is only today being recognised as a fundamental tenant of good governance. All too often, risk has been narrowly confined to financial and market risk. However a broader category of risk needs to be assessed and adequately managed. These broader risks include decision risk and operational risks.

The traditional approach to risk has been to view it as a negative outcome - nevertheless it is also worth stating that risk can have positive impact and an organisation must balance risk with reward. Innovation and new ideas come with risk. Without risk there would be little innovation. In this sense it is important for the leadership to provide the boundary conditions, direction and guidance that helps set the tone for appropriate risk taking.

Risk assessment and management must also be seen to be a distributed, shared activity that everyone is engaged in. It cannot be simply at the realm of a risk department, for they will have little experience of day to day operational risks. For risk assessment and management to be an enterprise activity, there needs to be a guiding hand from the senior management that provides the appetite it has for risk taking and the treatment expected of certain types of risks. Without this, anarchy will reign. The leadership must instil processes and systems for risk assessment, measurement and treatment across the enterprise.

Risk management must be one of the elements of good governance and in this sense it must be integrated with the other aspects of governance, and cannot be treated in a silo.

This feature will provide insights into the how’s whys and wherefores of developing a social media strategy that gets you connected to your customers and increases brand value.

Whether your organisation is looking at diving into social media for the first time, or is ready to expand its social media efforts, you might well be wondering: Is this something we should do ourselves, or should we hire experts to do it for us?

Social media can transform business, from engaging with customers to proving on point advertising targeted at specific demographics. The rapid expansion of social media beginning with individual users and expanding into business has become a major resource. From reaching out to individual customers and presenting a company image to delivering focused advertising, the value of well-planned social media strategy has skyrocketed in recent years.

While social media is a relatively recent platform for business, for some companies social media strategies have remained static over multiple years. The nature of technology and social media services means that platform is rapidly developing and regular strategy updates are necessary if businesses are to take full advantage of its potential.

Using analytics within social media.

Global companies and big businesses used to dominate the use of social media, however it is now increasingly valued by SMEs. Virtue, which specialises in providing social management services to global brands, have seen growth of up to 400 percent year-on-year, helped by a increasing percentage of mid-sized companies.

Richard Beattie, VP of EMEA at Vitrue, identified Social Media Management Systems (SMMS) as being used by SMEs to a greater extent: “Traditionally, it has been the Fortune 1000 companies that have utilised SMMS platforms-recently we’ve seen the emergence of mid-sized companies embracing social more”.

Four Ways to Make Social Data Work For You

Social media strategies will vary greatly from business to business. Many companies do not have the resources and time to dedicate manpower towards the updating and interaction that the effective employment of social media requires. Social media requires constant interaction and can be time consuming for those companies that choose not to use out-of-house specialists.

Raman Sehgal, owner of PR firm Ramarketing, commented: “ The golden rule for social media is if you’re going to do it, do it properly. This does not mean start a Twitter account and update it every three months. And therein lies the main barrier to the in-house approach – time”.

Effective social media strategies should seamlessly co-exist with other marketing tactics. It should provide engagement with customers, while providing insight into competitors and engaging disaffected customers while increasing presence.

Businesses need to identify and examine their goals, many will not need to outsource social expertise and technologies. Companies that are expanding with growing customer bases are much more likely to use additional resources in order to deliver an effective social media strategy. Rapidly growing businesses are also more likely to look to outsourcing such strategies to specialised companies, in order to free up human resources.

Social media strategies need to be carried out with diligence, when employing an external business to carry out a social media campaign, a clear strategy needs to be in effect before effective outsourcing can occur. Not all businesses need to outsource their social media, however all business need to ensure a well-planned and consistently renewing strategy is in place. Social media is rapidly growing and transforming, business regardless of size need to constantly engage with the social media platform if they are to reap the potential benefits.

Multi-sourcing – the challenges for Governance and Compliance

Thursday 24th May 2012

Governance and compliance are vital in creating a solid framework for multi-sourcing in preparing for success over a contracts implantation and lifetime. While multi-sourcing offers numerous benefits in flexibility and value for money, procuring multiple suppliers can also lead to downsides.

The event on the challenges faced in implementing successful governance and compliance strategies began with a presentation on the challenges of multi-sourcing from a suppliers view by CSC. Jo Carruthers and Darren Taylor talked on the critical factors necessary for success in multi-sourcing. While the objective is to avoid concentration of one single supplier Jo and Darren made the point that employing more than three or four suppliers can create difficulties in creating a unified project. As with any contract it is vital that clear guidelines are established in what the scope and responsibilities of the project will cover.

Difficulties poised by separation must not be underestimated. Multi-sourcing must not produce confrontation between suppliers and the whole process should allow for clear communication led from the client down. The presentation highlighted a staggered approach as providing the most efficient model, promoting service integration and ensuring that all stages work smoothly. CSC covered the main challenges that multi-sourcing presented.

The presentation moved to practical reflections on intent and reality, presented by David Travis & Steve Briggs from The Co-operative banking group. From the beginning the contract between suppliers and end users must set out clear and realistic expectations. The focus must be on the end goal of the project rather than on the specific contractual obligations of individual suppliers.

Craig Chaplin from DWF pointed to the need to look at the whole picture rather than a focus on the best price, while a flexible approach produces the best results. Craig focused on effective governance as key to enabling faster, better decision-making and that it is more important to long-term multi-sourcing success than any other factor.

Alison Haigh Head of Procurement at UKAR presented a guide to ensuring compliance and governance in outsourcing. The UKAR guide agreed with CSC on the need to ensure clarity in the roles assigned to suppliers. While covered throughout the event the UKAR presentation took efforts to demonstrate the need to monitor the results of the collaboration on a daily basis and the need to look for undetected vulnerabilities and prepared for unforeseen obstacles.

The event presentations and group discussions saw surprise from attendees surrounding the lack of understanding regarding responsibility and the degree of inflexibility of governance within multi-sourcing. Group discussions following the presentations highlighted best practice, including the creation of an engagement model the most senior people in the process in order to avoid out-of-sight out-of-mind position.

Emphasis needs to be places on avoiding ‘loss in the noise’ by presenting a simple and clear contract. Care must be used to ensure that a one-size-fits-all approach is not followed, instead a different regime for each different project and the stages within the framework must be followed.

The information that is gathered and presented needs to be acted upon in order to make the data valuable. Lessons should be learnt from the information processed with follow-up actions resulting from results. In the end governance and compliance must be driven by business outcomes, the right behaviours that must be promoted should lead to favourable business outcomes as the end goal.

Exclusive interview with Gaurav Gupta of Mahindra Satyam, VP, Head Aerospace & Defence, Europe.

Mahindra Satyam is a leading information, communications and technology company providing a wide range of outsourcing services for a global market. The company is an expert in industry technology, functional practices and a global delivery models, ranking as one of the top 10 business houses based in India.

Gaurav Gupta is responsible for all aerospace and defence commerce within Europe, involved in collaborations and wider relationships including EADS, BAE systems and Saab , providing end-to-end engineering services and IT related services. Mahindra Satyam conducts contracts both offshore in India but also in Europe, with global centres in Hamburg and France.

What does Mahindra Satyam view as current strategic choices for destinations?

The growing relationship between France and India in the current climate, because of high defence spending, makes the country figure at the top of our list as a strategic destination to invest. Mahindra Satyam has over 1000 engineers working on Aerospace programs for global players in US and Europe, with around 200 engineers in France. With expansion into France, we expect in two or three years there will be significant demand in services based on various programs running within EADS including Airbus. From an operations standpoint this would involve creating local jobs and using talent locally which may not be available in India. This helps position ourselves slightly higher than purely providing services at a low cost. We are investing proactively in creating a local talent pool and infrastructure with a view of vision and investment.

What are the key topics and trends in Aerospace and Defence at the moment?

The Mahindra Group has made strategic investments in acquiring a couple of companies in Australia and an aerostructure components facility in India. Our relationships in Europe can be levelled to bring in technologies to other markets. Investing in the Indian defence markets would require a lot of technology and skill labour, this cannot be achieved without technology coming from the West.

With the coverage of private space shuttle flights in the UK press, what are your thoughts?

India has an established space programme, we support the programme from both an electric and a construction point of view. It is very interesting to see how the space programme can be made commercially viable in the future.

The use of open source software for running messaging infrastructure used within border control saved the Home Office £10 million. The system previously cost £12 million over a five-year period, the open source software saw the cost of upkeep fall to £2 million over the same period.

Open source software has only been adopted by a small number of departments within the public sector due to privacy concerns, despite its wide use in European governments including Germany and France.

Home Office lead IT architect, Tariq Rashid, said: “It’s not a toy, the best open source has been around for a decade.”

Google has been awarded a contract from premier Foods to provide there Apps for Business service. The service will increase the company’s web-based collaboration and communication suite.

The move comes as part of the food giants efforts to increase growth and improve the of simplicity of the business while reducing overall costs.

The move is expected to reduce operational costs by as much as 50 percent. Mark Vickery, Group IS and Change Director for Premier Foods, said: “Moving to a cloud-based system means we can now focus on how IT can strategically support our core area of expertise”.

The implementation of cloud based software by Wokingham Borough Council has reduced response times to customer emails from 10 working days to three.

The cloud contact service platform as well has reducing response times has the ability to substantially reduce savings by offering lower-cost alternatives to voice communications.

Susan Law, Chief Executive of Wokingham Borough Council, described the new service as being “very important to us as it will revolutionize the council’s customer care, whilst providing much-needed cost savings over the coming years.”

The American technology giant CSC has admitted that accounts relating to its NHS Lorenzo contract contained substantial errors.

Business accounts were found by internal auditors to contain exaggerated income figures relating to the NHS contract. The income records contained discrepancies of £15.5 million.

CSC commented that the error was “an internal CSC accounting error and has no impact on our charges made to the NHS. It is entirely a matter for CSC and does not impact the NHS”.

New research from YouGov shows that the UK government needs to increase the simplicity of information requests in order to benefit from the quality of the data.

The research showed that more that more than four in five citizens claimed that they never knowingly entered false information when completing government documentation, placing data collected by the public sector as highly reliable.

Director for the public sector at SAS, Bernard Baker, said: “If the public sector adjusts its communication methods and tools in line with this feedback, not only will response rates improve, but so will the consistency and uniformity of the data being collected, putting public servants in a much stronger position to provide citizens with improved services.”