Industry news

Last week, I set the scene by examining the importance of critical intangibles in maintaining sourcing relationships. In the next few weeks, I would like to consider some of these critical intangibles in more detail, and explain why they can have such a dramatic impact on a sourcing relationship and its success.

The first point of discussion is whether one should adopt a cooperative or competitive style in working with the supplier market. Looking across some of the organisations with mature sourcing arrangements, we can see they vary the style they use according to their requirement. For instance, if you are outsourcing a basic service, such as a desktop, one can adopt a competitive style. This is because with this type of service, price matters – there are plenty of suppliers that can provide much the same service, and so the cheaper the deal, the more likely the supplier is to win more business. If you are outsourcing something that is commodity, a competitive style is key, because you as a client have the power: The power to choose your supplier, and therefore the power to go somewhere else.

However, if one is outsourcing a strategic service, such as a major finance transformation, adopting a cooperative style is critical to success. Indeed, success will depend on sharing – equal sharing of the risk, upside and downside. Success will depend on ensuring that there is a joint understanding of the key deliverables and the key drivers. Success will depend on an understanding - of the culture of the supplier and of what is driving the team.

When it comes to choosing one style over the other, many clients aren’t necessarily adopting the correct strategy to fit the situation. For a desktop deal, adopting a cooperative style wouldn’t be disastrous, but you could waste a considerable amount of management effort. Conversely, by being more competitive in that same situation, you would be saving both time and energy. If however, you were to adopt a competitive style in a strategic situation, you could be risking the success of your sourcing relationship.

British Waterways has renewed its contract with communications services expert NextiraOne for a three-year period; it will continue to provide ongoing support and managed services across the nation-wide waterways network.

The contract covers the nationwide infrastructure, Local Area Networks and the Wide Area Network and including Alcatel-Lucent voice and Cisco data networking equipment via NextiraOne’s Welcome Centre. The Welcome Centre provides a single point of contact which manages the lifecycle of faults, from initial fault logging to resolution.

Under the agreement, NextiraOne will continue to provide managed services and nationwide support for the British Waterways communications network, ensuring the reliability and availability of voice and data communication services and the long-term health and stability of the infrastructure.

NextiraOne supports British Waterways’ communications infrastructure with a comprehensive managed services agreement and support contract that delivers end-to-end service.

British Waterways manages the canals and inland waterways of the UK, supporting over 2,200 miles of canals and rivers and a diverse range of leisure, sporting, commercial, industrial and residential activities.

In continental Europe, NextiraOne has been awarded the contract to build ICT Network for the National Stadium in Warsaw, a multi-functional facility which is being prepared for major events, including the UEFA European Football Championship, EURO 2012.

Under the contract, NextiraOne will deliver, install and commission network equipment together with security components, implement system and applications software for the new stadium’s network and conduct all necessary project and integration work. In addition, NextiraOne will provide training for system users together with ongoing support and maintenance.

According to the terms of the agreement, the new network for the National Stadium will be completed by mid February next year.

The Legal Ombudsman has selected systems integrator 2e2 to provide its critical business services over the next three years.

2e2 will provide business applications, on-premises services, on and off-premises service management, datacentre hosting, security, network services and end user training to the new body, which will be based in central Birmingham.

2e2 has been working on the project since March this year, and expects to complete the integration of its end-to-end IT services well before this date.

The Legal Ombudsman is a new body being established by the Office for Legal Complaints to ensure consumers of legal services have an independent and impartial way to resolve disputes involving their lawyer. It expects to be up and running by early October.

Times are tough, it goes without saying. The Cabinet Minister’s decision to meet with the Government’s biggest suppliers to ask them what they can do to help cut the cost of their services is just the most recent example.

When news broke that Cabinet Minister Francis Maude had requested the meeting with the likes of IBM, BT, Hewlett Packard, Serco, Capita, Capgemini and Steria the idea of contract re-negotiation started to loom in people’s minds.

The matter is not black and white. While the coverage has tended to look at the matter as though the Government were in a position of dominance, the reality is otherwise.

To begin with, it is unlikely that the Government wants to engage in litigation disputes and pay termination fees left, right, and centre. Also, suppliers may be being asked to revise their pricing but where they do, they will most certainly receive something in exchange like a contract extension for example.

But more importantly the Government needs to consider the reasons for which it has decided to outsource – which may include capacity along with cost.

"What the Government fails to understand is that the main benefit of an outsourcing relationship enables them to focus on the work that is core to their value proposition,” says Ferenc Szelenyi, Dell Services' VP EMEA, public sector services.

The relationship between the Government and its suppliers is a symbiotic one, but it is also one that evolves over time. Every private/public partnership is cemented on the belief that the work being outsourced is unique and must be managed uniquely.

“The Government expects its outsourcing service providers to maintain the complexity rather than to simplify and standardise the work processes. [For example, when] processes and people are moved to the provider in their existing state and are independently managed next to countless similar processes of other companies, the cost and service benefits of standardisation and simplification are lost," observes Szelenyi

Similarly, if we look at the existing relationships between various Government bodies and private suppliers (i.e. Capgemini’s handling of tax collection or more recently the award of a £415m contract by the Ministry of Justice to Serco to manage prisons), it is clear the Government cannot extirpate its relationships from suppliers. In the end is in the best interest of both parties to collaborate for mutually beneficial gain.

“Just as the Government seeks to save money, reduce risk, and/or enhance the quality of its operations, the service provider seeks to earn a profit, build on its service capabilities, and leverage its growing expertise for the future. The most successful outsourcing relationships are those that lead to long- term value creation for both parties. It is critical that the Government never loses sight of the fact that the relationship is a bilateral one,” concludes Szelenyi.

Law firm Morrison & Foerster LLP (MoFo) has named Christopher Ford, a partner in the firm's Washington DC office, to the position of chair of Global Sourcing Group.

Chris focuses on advising customers on the full life cycle of their complex information technology and business process outsourcing transactions.

He has advised on many substantial transactions in recent years, including in relation to a $1.4bn IT outsourcing for one of the largest US states, a $600m renegotiation of a global manufacturing company's IT outsourcing agreement, and a $450m transaction whereby a major transportation company outsourced its IT infrastructure and managed voice and data networks.

Ford succeeds Alistair Maughan, a partner in the firm's London office, who has taken on a new role as co-chair of the firm's Technology Transactions Group, alongside Paul Jahn, who is based in San Francisco.

DLA Piper was awarded Adviser of the Year at the inaugural European Outsourcing Association (EOA) Awards, set up to reward best practice in pan-European outsourcing.

The DLA Piper’s European team regularly undertakes project work spanning international borders. Examples of recent cross-border deals include: COLT (in Belgium on a major data centre outsource project), UCB Pharmaceuticals (on both ITO and BPO projects), National Bank of Greece (on its card processing outsource deal), the National Bank of Georgia, and for HCL Technologies (in respect of major outsourcing projects in the UK, Scandinavia and continental Europe).

Other major clients the law firm has worked with on outsourcing projects include UBS, Lloyds Banking Group, RBS, Tesco Personal Finance, Investec, Accenture, Cognizant, Sodexo, Verizon and the Department of Work and Pensions.

DLA Piper’s public sector focused team is dominant in the UK and is the predominant advisor to Government departments which account for over a third of the total public sector spend on IT/outsourcing (including NHS Connecting for Health, DWP, Ofsted, PADA, King's College Hospital, the Northern Ireland Department of Health and related bodies, the British Council, the Foreign & Commonwealth Office, WCA, the Pensions Regulator, and the OGC itself).

The ceremony was held at the 2010 EOA Summit in Brussels, an event that brings together the world’s leading outsourcing suppliers, end users and support service providers for a two-day conference focusing on the latest innovations, trends and developments in outsourcing.

BASF IT Services, a subsidiary of German chemicals company BASF Group has awarded Mahindra Satyam a three-year outsourcing contract.

The deal, awarded to Mahindra Satyam following a competitive bidding process aims to enhance BASF’s capacity to provide managed services for the company’s extensive installed base of SAP, messaging and groupware as well as user administration.

The contract, based on a 100% outcome oriented model, is for a three-year period with a two times one year extension option.

Swiss bank UBS has selected US technology group CSC to carry out a five-year voice and data network, security and telecommunication services outsourcing contract.

The total contract value of the deal is estimated to be up to $580m for the entire contract’s duration.

The contract is a master services agreement, a type of deal that is highly detailed and establishes clear expectations on rates, responsibilities and services provided.

All of the agreements are subject to regulatory and other approvals and notifications, including consultation of relevant workers councils.

Outsourcing firm Mphasis is opening a centre in Colombo which will offer legal, finance and accounting services.

The centre will be operational from next year. The office will recruit 600 employees in the first year and expand to 2,000 within three years. The company is investing $2.5m in the first stage of operations.

The global business process outsourcing (BPO) industry has been hit by a global slump, with much of its green pastures in Europe and North America drying up due to inward looking policies forced upon the private sector by governments to save local jobs.

USAID Jordan Economic Development Program (SABEQ) partnered with DHL Express Jordan to promote the outsourcing sector and position the country regionally and globally.

The programme's mission is to support sectors and activities in alignment with King Abdullah's vision for a knowledge-based economy, by inserting Jordanian enterprises into global value chains, promoting investment, and improving the enabling environment to generate value added jobs, exports, foreign direct investment, and sector revenues as a powerful engine of economic growth.

The outsourcing campaign that has been running for the past couple of years is defined as a true Public Private Partnership. Partners include the Development Zones Commission (DZC), King Hussein Bin Talal Development area, Jordan Investment Board (JIB), the Information Technology Association of Jordan (Int@j), and the USAID Jordan Economic Development Program (SABEQ),as well as a number of rising private sector outsourcing companies.

The USAID Jordan Economic Development Program (SABEQ) is a five year broad economic development initiative implemented by Deloitte Consulting LLP and a sizeable team of international and Jordanian partner firms.

DHL Express sponsorship of this activity highlights the partnership that supports the outsourcing activities and promotes the sector globally.