1 business process outsourcing mary c. lacity “in the mountains,” 1867, albert bierstadt...

1

Business Process Outsourcing

Mary C. Lacity

“In the Mountains,” 1867, Albert Bierstadt 1830-1903

2

Readings

Lacity, M., Feeny, D., and Willcocks, L., "Transforming a Back Office Function: Lesson from BAE Systems' Experience with an Enterprise Partnership," MIS Quarterly Executive, Vol. 2, 2, September 2003, pp. 86-103.

Feeny, D., Lacity, M., and Willcocks, L., "Taking the Measure of Outsourcing Providers," Sloan Management Review, Vol. 46, 3, Spring 2005, pp. 41-48.

3

Business Process Delivery

Customized Applications

Standard Applications

Application Operating Infrastructure

Hosting Infrastructure

Network Services

Network Connectivity

The Netsourcing Service Stack

One-to-Many Business Models(merges to one-to-one)

4

What Customers Want FromBack Office Transformation

Lower costsBetter serviceVariable costsScalabilityFlexibilityTrust

Back Offices:•Human Resource Management•Procurement•Finance•Accounting•Etc…

5

Governance

Capabilities Needed For Back Office Transformation

Lower costsBetter serviceVariable costsScalabilityFlexibilityTrust

Service Excellence

Process Improvement

People Empowerment

Technology EnablementPro

ject

Man

agem

ent

Cha

nge

Man

agem

ent

6

Sourcing Options for Back Office Transformation

1. Do It Yourself (Insourcing)

2. Management Consultancy (Time & Materials)

3. Business Process outsourcing (Fee for service)

4. Equity Swap

5. Joint Ventures

6. Enterprise Partnership

7

Business Process OutsouringWith BPO, the supplier owns and operates the resources, includinginfrastructure, applications, and people, to deliver a businessprocess as a service to customers.

This a fee-for-service business model.

8

BPO Survey: Size of Marketn = 120

Source: Scholl, Rebecca, “BPO at the Cross Roads”, presentationAt World Outsourcing Summit, Orlando Florida, 2002.

1012.4

33.4

21.624.8

13.4

20.623.1

67.6

43.145.8

26.1

0

10

20

30

40

50

60

70

80

Administration Finance & Accounting Human Resources Payment Services Supply Chain Sales, Marketing,Customer Care

US

$ B

illio

ns

2000 2005

9

Enterprise Partnerships

•New business model•Most of our research is based on Xchanging•Customers will be very interested in this model

“An enterprise partnership is a business model that createsA 50%-50% enterprise between the customer and supplier whoseprimary mission is to share the cost savings generated from thesupplier’s transformation of the customer’s back office operations. A secondary mission is to generate and share revenues from external sales to other customers after the transformation is complete.”

10


Customer Spends~$100 million

A year

Supplier takes overResources & staff,

Transforms function, and shares in savings.

11


Customer Spends~$100 million

A year

Supplier takes overResources & staff,

Transforms function, and shares in savings.

$110 million transfers

Supplier rebates say15% = $16.5 million

Any extra savings are the supplier’s revenues. Thus ifthe supplier can deliver the baseline services for$80 million, they would earn $13.5 million

12

How Joint Ventures differfrom Enterprise Partnerships

• Purpose of the Joining• Division of Risk• Management Responsibility• Asset Base

13

Xchanging Insurance Services (XIS)

Xchanging Claims Services (XCS)

Xchanging Human Resource Services (XHRS)

Xchanging Procurement Services (XPS)

14

Transforming Back Office to Front Office:

and Enterprise Partnership for

Human Resource Management

Mary LacityDavid FeenyLeslie Willcocks

15

Xchanging Human Resource Services (XHRS)

10 year, £250million deal

Benefits to BAE after 20 months:

• Promised cost savings on baseline services delivered• 400 HR services levels have stay same or improved• Web-enabled HR system rolled out to 40,000 BAE users• 462 HR staff transferred to XHRS have been re-oriented• New HR facility built and occupied• Remaining HR staff focus on strategic HR activities

16

Research Method

Face-to-face interviews with 15 people including: HR Director, BAE SYSTEMS Enterprise Relationship Director, BAE SYSTEMS SBU HR Director, BAE SYSTEMS CEO of Xchanging Member, BOD, Xchanging Managing Director, XHRS 3 transferred BAE managers, now:

CFO, XCSHead of Service, XCSHead of Resources, XCS

6 practice directors (Service, Process, Technology, Environment, People, Implementation)

Documentations such as financial reports, practice manuals, performance assessments, annual reports, memos.

17

Xchanging provides human resources, procurement, customer administration and accounting services to over 200 customers including BAE Systems, Lloyd's and the London Insurance Market.

Xchanging employs over 1,100 people.

Xchanging takes responsibility for the entire back office, specific functions or a particular business process and transforms them into fit for purpose services. In short, Xchanging cost for profit.

Founded by David Andrews in 1999

About Xchanging

18

About BAE SYSTEMS

Prime contractor and systems integrator in the air, land, sea, space, and command and control market sectors.

Defense, commercial, civil markets

World-class capabilities in naval platforms, military aircraft, electronics, systems integration and other technologies.

Eurofighter Astute Destroyer

19

About BAE SYSTEMS

January 1999, British Aerospace announced merger withMarconi to create BAE SYSTEMS

Investors promised £275 million in annual cost savings within 3years

"The proposed merger with Marconi Electronic Systems is an important step in the consolidation of the industry in Europe and creates a strong and highly capable business with significant cost benefits." -- Sir Richard Evans, Chairman of the Board, BAE SYSTEMS

20

BAE SYSTEMS’ HR

In 1999, Terry Morgan, Group HR Director charged with delivering 15% to 40% cost savings on annual HR spend of £25 million

Group HR was small, focusing on senior pay & benefits, seniorlevel development, organizational design

700 HR professionals in SBUs at 70 sites doing transactional activities such as payroll, benefits, recruiting, training, HR procurement

Shared Services as solution to cost reduction…

21

SBUManagingDirector

SBUManagingDirector

SBUManagingDirector

SBUManagingDirector

SBU HRDirector

SBU HRDirector

SBU HRDirector

SBU HRDirector

TransactionalActivity/

ProfessionalServices

Transactional/Professional

GroupHR

Head Office

SBUManagingDirector

SBU HRDirector

SBUManagingDirector

SBUManagingDirector

SBUManagingDirector

SBUManagingDirector

SBU HRDirector

SBU HRDirector

SBU HRDirector

SBU HRDirector

GroupHR

Head Office

SBUManagingDirector

SBU HRDirector

FROM DECENTRALIZED:

TO SHAREDSERVICES:

TransactionalActivity/

ProfessionalServices




22

Sourcing Options Considered

1. Do It Yourself (Insourcing)

2. Management Consultancy (Time & Materials)

3. Business Process outsourcing (Fee for service)

4. Enterprise Partnership

23

January 2000: David Andrews proposes enterprise partnership

Spring 2000: Invitation to bid

June 2000: Letter of Intent signed with Xchanging

June 2000 toFebruary 2001 Contract Negotiations

May 1, 2001 Go Live

BAE/Xchanging Timeline

24

Enterprise Partnership?

Because, against their normal practice, BAE SYSTEMS did not do a formal request for proposal, the HR team wanted to step back and invite Xchanging and another supplier to compete.

At this stage in April 2000, Xchanging's team was devastated:. "When we told Xchanging that we were going to do a beauty parade with Xchanging and another BPO supplier, I have to say I have never seen David Andrews so shell-shocked." -- Chris Dickson, Relationship Director, BAE SYSTEMS

25

Enterprise Partnership?

Would accept BAE transfers -- Use Exult’s existing staff

Complete attention to BAE -- Just signed other megadeals

Take service as-is -- BAE to clean up mess first

May 2000

26

BAE/Xchanging NegotiationsJune 2000 – February 2001

Scope Reduction: Eliminate North America Only 462 UK people to transfer rather than 560

"It is my perspective and obviously it is not perfect information but certainly I had a very, very strong view that there were some people in BAE SYSTEMS that had decided to de-scope the deal; who never really knew what the scope was but decided what scope they would find politically acceptable and that was it, that was the deal they wanted" - David Bauernfeind, CFO "So we ended up drawing a line in slightly the wrong place, in my view, so we still had some people in BAE SYSTEMS’ retained HR who were never going to play the strategic role as designed." – Steve Hodgson, Head of Resources,XHRS

27


50%/50% Joint Ownership

50%/50% split in cost savings, estimated baseline £25m/year:

YEAR 2001 2002 2003 2004 2005Percent 10% 15% 15% 15% 15% Delivered as a rebate, if £25million costs transferred, Xchanging would only charge £22.5million

50%/50% split on new revenue generation from external sales

28


Services: As-is measured within 6 months By year 5, improvement to upper quartile

Governance:Joint Board of Directors: CEO of Xchanging and Group HR Head BAE

3 Xchanging execs & 2 BAEs non-execs Purpose: Protect the Rights of Shareholders

Service Review Board: 3 members from BAE, 3 members from Xchanging Service specifications, price approval Purpose: Service performance monitoring

Technology Review Board: Joint board to ensure £20 million investment

29

D avid O ldf ie ldH R B u s in ess P artner

J im M eechanH ead of R esou rc ing

Joan ne C arrH ead of G radu ate R ecru itm en t

& D evelopm en t

S arah K enn yH ead of R em u neration

& B enef its

H ow ard M cC allumH ead of Train ing

C hris C ableH ead of In ternational A ss ignm en ts

N eil W atk in sonH ead of E m ployee D evelopm en t

& H ead of P rocess

M ark H oggartR em & B en S trategy

S teve H odgsonH ead of R esou rces

T ina Jam esH ead of P ens ion s

S teve D ru ryIT D evelopm en t M an ager

A nn TaylorC ustom er S upport

Team M an ager

R ich ard B eckettF ac ilities M an ager

togeth r

T im H ollan dH R IT O peration s

M an ager

A ndrew P etrieP rojec t M anager

togeth r S ervice C en tre& H ead of In fo S ervices

M ike M argettsH ead of Im plem en tation

P h il B u tlerF inan c ial C on troller

D avid B auern feindC F O

S am S parkesC ustom er R elationsh ip M anager

A vion ics

S im on M ilnerC ustom er R elationsh ip M anager

O perations & A irc raf t S ervices

R u th C ravenC ustom er R elationsh ip M anager

H O

R ach el Ton ucc iC ustom er R elationsh ip M anager

C S & S

L uc inda H ew itsonC ustom er R elationsh ip M anager

P rogram m es

B ryony M ooreH ead of S ervice

A lan B aileyN ew B u sin ess D evelopm en t

R ich ard H ou gh tonC E O

Contract in Effect in May 2001

30

Xchanging’s management believes that the capabilities requiredto transform a back office to a front office requires 7 genericbusiness competencies rather than domain specific knowledge…

How Did Xchanging Complete the Transformation?

31

OperationalCritical activity Preparation

Service

Set-Up

Process

People

Technology

Sourcing

Environment

Preparation Realignment Streamlining Continuous Improvement

2-3mths 3-6mths 6-9mths

Transformation is Implemented in Four Phases

32

People Competency

People Competency builds champion teams from transferred employees by unlocking their talent and energy, primarily through extensive training programs and direct contact with Xchanging’s senior management:

-- Induction Programs to 430 transfers within 6 weeks

-- Management training

-- New job descriptions

-- New Customer-focused culture

33

Preparation Re-alignment Streamlining ContinuousImprovement

MourningForming

StormingNorming

Performing

•Mechanisms•Deliverables•Measures•Benchmarks•Gate




People Competency

34

Service Competency

Define the as-is service, measures service, and agrees to service targets through a disciplined methodology called Service1st

The goal is to provide the same levels of service during transition then move to customer-negotiated service levels based on individual customer needs.

35

Service Specification& Reports

Service Objective

Customer Type Service Class

Customer Service Item

Customer Service

Metrics e.g.• accuracy

• cycle time• frequency

• quality• volume

& Standards

Service Competency

36

Service Competency

37

Service Competency

XCS Service Team:

As-Is Service: 400 service levels drafted Service Review Board approved in October 2001

But an extra £80 million a year in indirect procurement spendWas uncovered for fleet, contract labor, recruiting, stationary,And travel! HR was buying services from over 200 suppliers,All in decentralized budgets.

38

Xchanging Procurement Services (XPS)

Separate Enterprise Partnership signed November 2001

Worth £800 million over 10 years

Sourcing Competency

39

Sourcing Competency

Car FleetsNon-technical contract laborLearning & DevelopmentHealth CareRecruitmentRenumeration & BenefitsStationary

£80 million

40

Sourcing Competency

Xchanging Confidential. No part of this information may be circulated, quoted, or reproduced without prior written approval of Xchanging.1

Baselining + Gainshare

Spend‘Unitisation’ of

category

BaselinePriceper unit

Gainshare Delta

Baseline price

New Buying price

Core

CEO

41

Example of ‘Un-bundling’

Profit

Costs OfCosts Of

Car LeasingCar Leasing

Insurance

Car Purchase

Maintenance Costs

ResidualValue / Depreciation

Fuel Costs

Tax

VAT, Road

Accident Management

Breakdown/Roadside Recovery

Profit

Costs OfCosts Of


Insurance

Car Purchase

Maintenance Costs


Fuel Costs

Tax

VAT, Road

Accident Management


Costs OfCosts Of


Insurance

Car Purchase

Maintenance Costs


Fuel Costs

Tax

VAT, Road

Accident Management

Breakdown/Roadside RecoveryInsurance

Car Purchase

Maintenance Costs


Fuel Costs

Tax

VAT, Road

Accident Management


Key Cost Elements of Car Leasing

42

Outcomes First Year on XPS

o It took 8 months, not 2, to transfer spend

o Only £35 million in 7 categories was transferred

o To make up difference, BAE transferred 8 more categories:

Travel, Printing, Office Furniture, Computer Consumables,Mobile Phones

o On average, 12% savings delivered on categories transferred

o Margins range from 5% to 45% depending on category

43

Environment Competency

Goal: create modern and well-branded physical spaces to build a visible front office for customers.

Physical spaces also foster a front office mentality

Xchanging built, bought furniture, and decorated new facilityBy February 2002

Occupancy held up by IT contract with CSC

44

Preston


45

Preston Ready!


46

Preston Ready!

47


"Space has a big impact on people's morale and the perception of their value-- Mike Margetts, Implementation Practice Director, Xchanging

48

Process CompetencyGoal is to redesign business processes to reduce costs and to improve quality through Six Sigma quality improvementdiscipline.

DPMO

6 3.4 99.99966%

5 233 99.9770%

3 66,807 93.3%

ProcessCapability

Defects Per Million YieldOpportunities

%

4 6,210 99.37%

2 308,000 69.2%

49

Process Competency

Process Head &Master Black Belt: Mentors

Black Belts: Full Time

Green Belts: Part-time

50

Process Competency

Redesigning Processes such as Senior Leader Peer Review

Old process: 640 senior leaders did paper-based peer reviews, assisted face-to-face by HR personnel

New process: e-hr online peer review

"What would have happened before, thirty people would have happily expanded a task to fill three months and as it is now, eight people have been busy for a month--bang! Done." -- Mike Margetts, Head of Implementation, Xchanging HR Services

51

Technology Competency

Goal: Build and implement enabling technology on componentdriven architecture.

Goal: Build and implement e-HR within 6 months

Went on a recruiting rampage on May 1, 2001

Hired 19 full time technology managers, architects & specialists

PeoplePortal went live on October 4, 2001

52

Reference Performance

People Relationship

Portal

ContactManagement

HRKnowledge andContent Mgmt.

ServiceManagement

eForms

CCI

PerformanceControl

Core Enterprise HRIS

ESS/MSS

Core DW(Time Rel)

Data and Process Integration

CTRXchanging Self Service

e-HR Application Framework

http://www.sap.com/index.asp

http://www.reuters.com/home.jhtml;$sessionid$S1YNRGYAADBWCCRBADLCFEYKEEANOIV2

http://www.hire.com/index.php

53

Implementation Competency

Goal: to orchestrate the timing and resources required for theOther six competencies.

54

Implementation Competency

55

Implementation CompetencyPreparation Realignment Streamlining Continuous

ImprovementJune 2000 to May 2001

May 2001 to October 2001

November 2001 toDecember 2002

December 2002To May 2011

Data collected on BAE finances & peopleService objective & preliminary service definition Structure & people plansCost modeling Financial reporting & control plans Technology architecture designedConstantcommunication with targeted transfers

430 BAE staff are transferred & re-oriented, & retrained Detailed "as is" service specification defined & approved Black belts trained and working on first set process improvements; recruiting process redesigned & implemented PeoplePortal launched

New Organizational design

Shared Services established

Preston Service Regional Teams established

Downsized staff

3 more versions of Peopleportal

Process Improvements to more HR services

Future challenges: Attract external customers to increase revenues

Sustain cost cuts and service improvements

Upper quartile performance in all HR service areas

56

2005 Update

• Obtained new business, including a £500,000 deal with Spirit Group for HR services in 2005

• Partnership has earned numerous nominations and awards including UK’s National Outsourcing Association (2004) and BAE’s HR Excellence Award (2005)

57

Findings as of 2005

Prior to the Xchanging partnership, HR at BAE SYSTEMS

and CA at Llyod’s: (a) lack of investment, (b) lack of leadership, (c) lack of employee motivation, (d) lack of customer-focused service, (e) bureaucratic and inefficient processes, and (f) outdated and non-integrated technology.

Preliminary findings assess the effectiveness of using an enterprise partnership as a vehicle for transforming this low functioning back office into a commercial enterprise.

58

Finding 1: The Enterprise Partnership model creates a clash of cultures, but cultural incompatibility may be just what you need.

"What was obvious to me, the Xchanging people were part of a small company desperate to succeed, and that desire to succeed just didn't exist in the BAE SYSTEMS HR culture." -- David Bauernfeind, CFO

“If you left work at half past six, you were having a late night at BAE. I mean, that is the BAE culture. I was in at ten to seven this morning and I'll be here at nine o'clock tonight and that is the Xchanging culture.”

59

Finding 2: The Enterprise Partnership model uses multiple short-term implementation phases that yield faster results and pose less risk than a single, large-scale project.

"Innovation doesn't need to be a big idea, it can be lots of little things...What we like doing is introducing a bit of change every three months because it has much more immediate impact rather than building a great big filthy system." -- David Andrews, CEO Xchanging "If you don’t do it within three to six months then you don’t do it." -- Mike Margetts, Implementation Director, Xchanging

60

Finding 3: The Enterprise Partnership model views technology not as a solution, but rather as an enabler.

"People are altogether more flexible and creative and clever to fit around a system." -- Mike Margetts, Implementation Director, Xchanging

"I wanted to see what happened if you improved business processes and services without touching IT. That was just a quirk of mine which was a very lucky break because in fact what we found was that we could engineer a huge improvement and do it on the back of the old legacy system." -- David Andrews, CEO, Xchanging.

61

Finding 4: When employing Fee-for-Service Outsourcing or an Enterprise Partnership model, be sure to manage user demand.

"We are seeing some evidence of increased demand with Xchanging HR Services. It's the early days yet, but demand for service before XHRS was always restricted because as an HR Director, you only have the number of people that you could get your MD to agree to, so that effectively capped it. Of course, we have taken that away now and people can demand ever more and more." -- Steve Hodgson, Head of Resources, XHRS.

62

Finding 5: Both Fee-for-Service Outsourcing and The Enterprise Partnership Model uncover spend previously hidden in decentralized budgets.

"The cost has increased quite substantially. We’re just having a review on that at the moment. At the moment that communication isn’t clear and it does look as if costs are going up. But in reality, we’re doing a review of it and we’re doing some investigation on it, in reality it probably isn’t going up because of Xchanging. It just means that we need to probably transfer budget over that hasn’t traditionally sat within the HR team, so that it's all as one and recharged against that, that total mass, rather than part left within the business. But it is a concern." -- Kim Reid, HR Director, BAE SYSTEMS

63

Finding 6: The Enterprise Partnership model delays due diligence until after the contract is in effect, which speeds the negotiation process and more fairly distributes the burden of newly discovered costs.

"The quality of the data about the HR function in terms of not just what salaries people were on but just who was there, how many to within 10%. Really, really surprising and if anything that experience, if I ever needed drilling home about why BAE needed to do the deal, that did it. If you can’t tell how many people are in your own function within 10% to 20% what chance have you got of providing value added HR for a business? It was just shocking." -- David Bauernfeind, CFO, XHRS

64

Finding 7: The Enterprise Partnership model aligns incentives better than fee-for-service outsourcing.

"So if it was a traditional customer/supplier relationship, I think it would be very much customer/supplier which perhaps may not be totally joined up in the middle. You would get the instance that the customer would blame the supplier for not delivering a service. For me, the partnership means that the accountability for delivering the service into the business is mine. I have to make sure that it delivers a seamless service so that myself and my other HR directors in this business will not say ‘the reason this went wrong was because Xchanging did this’. If something goes wrong it’s because we did it. It’s very much a partner type relationship." -- Kim Reid, HR Director, BAE SYSTEMS

65

Finding 8: The Enterprise Partnership model does not perfectly align incentives.

In the past, the joint governance between customers and suppliers we studied led to a managerial schizophrenia. Because the enterprise's primary customer is also an owner, the customer has two competing goals: to maximize cost-efficient service delivery from the enterprise and to maximize the revenue of the enterprise. How can the customer do both? Furthermore, if the same executives sit on the Board of Directors of the customer company and the enterprise company, which hat should they wear? Should they be pushing for more services at a reduced cost, thereby squeezing as much as they can from the enterprise? Or should they push for generating more revenues, which distract the enterprise from their needs?

66

Finding 9: The Enterprise Partnership model benefits from generic business competencies rather than domain-specific knowledge.

"I always say the best HR people are people who haven’t been in the HR function all their lives. You need a different view. So the Xchanging team, although they are not HR professionals, it works probably better that they are not because if they go in understanding all the pitfalls that there may be, then they’ll never make any changes, so sometimes it is better." -- Kim Reid, HR Director, BAE SYSTEMS

67

Finding 10: The Economics of the Enterprise Partnership Model need to Work for the Client and Supplier Without Over-Reliance on Third Party Revenues.

"The business development in year one at this stage was almost zero because the focus was let’s get our act together in delivering this to BAE SYSTEMS first before we all turn salesmen and go out and start selling ourselves. It is always a hard decision to make because our future relies on getting third party business…" -- Alan Bailey, New Business Development, XHRS

68

Can Success be Replicated?Ideal Customer Profile

The customer has a large back office spend of at least £25 million per year and at least 500 employees, making the deal large enough to attract a competent external supplier The customer's back office operations are highly decentralized, allowing the opportunity for significant savings from centralization and standardization The customer's back office operations have not received high management attention historically, allowing the opportunity for significant savings and service improvement from better management The customer's organization would resist centralizing and standardizing themselves due to internal political resistance, unwillingness of senior management to make the required upfront investment, or lack of skills and experience of back office staff to make the transformation.

69

RESOURCES

CAPABILITIES

COMPETENCIES

12 Capabilities to evaluate in your supplier

70

Relationship Competency

TransformationCompetency

DeliveryCompetency

Planning &Contracting

Organization Design

CustomerDevelopment

BehaviorManagement

Governance

Leadership;Program

Management

12 Capabilities to evaluate in your supplier

ProcessRe-engineering

TechnologyExploitationSourcing

BusinessManagement

DomainExpertise

71

Delivery

Delivery Competency is based on capabilities which determine the extent

to which a supplier can respond to a customer’s day-to-day operational services

minimum requirement that customers seek in all suppliers

includes supplier’s domain expertise, business management capabilities, etc.

a supplier’s delivery competency--although crucial for success--may not serve to meaningfully distinguish suppliers.

72

Transformation Competency is based on capabilities which determine the extent to which

a supplier is equipped to delivery radically improved services in terms of cost and quality

vitally important if the customer is seeking radical transformation of its back office from the outsourcing relationship.

includes the supplier's capabilities to exploit technology, redesign business processes, and empower staff to a customer-focused culture.

transformation capabilities must be exploited for the customer's benefit, not just to increase the supplier's margin.

Transformation

73

Relationship Competency is based on capabilities which determine the extent to which a supplier is willing and able to align with the

customer's needs and goals

The relationship competency uses innovative plans, aligned contracts, and governance structures and processes to ensure the promise of win/win relationships.

This is the most difficult competency to find in a partner.

Size of deal important factor

Relationship

74

Domain Expertise:the capability to apply and retain

sufficient professional knowledge of the process domain to meet user

requirements

Customer wants the supplier to manage transitioned staff to eliminate poor performers, adjust capacity, leverage untapped potential of best people

For body-shop outsourcing in which the customer hires suppliers for specific tasks, the customer should retain most of the domain expertise.

For outsourcing relationships where the supplier has more responsibility, it may be more economical and effective for the supplier to employ most of the domain experts.


Organization Design

CustomerDevelopment

BehaviorManagement

Governance

Leadership;Program

Management ProcessRe-engineering


BusinessManagement

DomainExpertise

75

Business Management:the capability to consistently deliver against both customer service level

agreements and suppliers’ own required business plans

Savvy customers know that it is in their best interest to protect and ensure the supplier's financial health

Savvy suppliers are upfront about their margin requirements

Supplier

Winner's Curse

12 Cases

3 Cases

No Curse 19 Cases

51 Cases

Negative Outcome

Positive Outcome

Customer


Organization Design

CustomerDevelopment

BehaviorManagement

Governance

Leadership;Program



BusinessManagement

DomainExpertise

76

Behavior Management:the capability to motivate and

manage people to deliver service with a “front office” mindset

How do suppliers orient new employees to their culture?

How do suppliers reward and incent desired behaviors?

S2Tech, an Indian offshore supplier, hires only Indians with a minimum six years experience living in the U.S. & sets their hours as 1:00 to 10:00 to minimize time zone effects


Organization Design

CustomerDevelopment

BehaviorManagement

Governance

Leadership;Program



BusinessManagement

DomainExpertise

77

Sourcing:the capability to access whatever resources are required to deliver

service targets

Customer wants to benefit from supplier’s access to:

economies of scale lower unit labor costs from supplier’s offshore operations scarce professional skills superior infrastructure


Organization Design

CustomerDevelopment

BehaviorManagement

Governance

Leadership;Program



BusinessManagement

DomainExpertise

78

Process Improvement:the capability to design and implement changes to services processes to meet

improvement targets

Six Sigma, CMM, ISO certifications are only indicants of process improvement capability

Customers complain certifications benefit suppliers more than customers

Indian suppliers were all at level4 or 5

U.S. customers were all at level2 or below


Organization Design

CustomerDevelopment

BehaviorManagement

Governance

Leadership;Program



BusinessManagement

DomainExpertise

79

Technology Exploitationthe capability to swiftly and effectively deploy technology in support of critical

service improvement targets

Technology is expensive and must be the servant, not the master

e-HR to implement standardization, shared services, and self-service CGI co-develops annual technology plan with customer and supplier Customer verses supplier investment


Organization Design

CustomerDevelopment

BehaviorManagement

Governance

Leadership;Program



BusinessManagement

DomainExpertise

80

Program management:the capability to prioritize,

coordinate, ready the organization, and deliver across a series of inter-

related change projects

Multi-phased approaches

Short cycles Balance paradox

of rigorous project management with flexible pragmatism

OperationalCritical activity

Preparation

Service

Set-Up

Process

People

Technology

Sourcing

Environment

Preparation

RealignmentStreamliningContinuous Improvement

2-3mths 3-6mths 6-9mths

Source: Xchanging


Organization Design

CustomerDevelopment

BehaviorManagement

Governance

Leadership;Program



BusinessManagement

DomainExpertise

81

Customer Development:the capability to transition users of an

internally provided service to customers who make informed decisions

about service levels, functionality, and costs

Requires aggressive communication and dissemination of the meaning of the partnership to all budget holders in the customer organization.

To avoid excess costs caused by runaway user demand, customer development requires customer stakeholders to understand the financial consequences of their demands.

Customer satisfaction monitoring and reporting

Allows customers to define services, service levels


Organization Design

CustomerDevelopment

BehaviorManagement

Governance

Leadership;Program



BusinessManagement

DomainExpertise

82

Planning and Contracting:the capability to develop and

contract for business plans which deliver ‘win/win’ results for

customer and supplier over time.

One supplier quipped, "If the customer says win/win, they really mean, the customer wins twice.“


Organization Design

CustomerDevelopment

BehaviorManagement

Governance

Leadership;Program



BusinessManagement

DomainExpertise

83

Planning and Contracting

Fee-for-service contracts are suitable when customers' requirements are definable and when customers are primarily seeking modest cost reductions, variable spend, and the ability to focus on more value-added activities

Previous strategic partnerships falsely assumed the customer had exploitable world-class back offices.

Newer partnerships focus upon the customer's back office transformation first, commercial exploitation second.

84

Organizational Design:the capability to design and implement organizational

arrangements to realize plans and contracts

?


Organization Design

CustomerDevelopment

BehaviorManagement

Governance

Leadership;Program



BusinessManagement

DomainExpertise

85

Organizational Design: Offshore

Onsite SupplierEngagement Manager

OffshoreSupplierDelivery

Team

LocalBusiness

Units

Architects/DBAs/etc.

ProjectManagers


Team


Team

PMO

86

Onsite SupplierProject Managers


Team


Team


Team

Onsite SupplierProject Managers


Team


Team


Team

Architects/DBAs/etc.

ProjectManagers

PMO

LocalBusiness

Units


87

VP IS

Team Lead

Project Manager

Director

DevelopmentStaff

Team Lead

DevelopmentStaff

RelationshipManager

Team Lead

Anchor

Anchor

DevelopmentStaff

Team Lead

DevelopmentStaff

Kaiser & Hawk, 2004


88

Example of a large deal, creating an organizational structure that operates like a strategic business unit within the supplier organization is an effective design

Customer and supplier executives serve on the Board of Directors, which transforms the role of "customer" to active "partner."

The supplier account manager assumes the more empowered leadership role of CEO, including a staff dedicated to business development beyond the focal customer.

The CEO's direct reports include the supplier's Practice Directors who hold dual positions within the supplier parent organization to cooperatively share resources, best practices, and intellectual property across customer accounts.

Organizational Design Example:Xchanging & BAE Systems’ XHRS

89

Organizational Design Xchanging & BAE Systems’ XHRS

D a v id O ld fie ldH R B u sin e ss P a rtn er

J im M ee ch anH e a d o f R e so urc ing

Jo a n ne C a rrH e a d o f G ra du a te R e cru itm e n t

& D e ve lo p m e nt

S a rah K e n nyH e ad o f R em un e ra tion

& B en e fits

H o w a rd M cC a llumH e a d o f T ra in ing

C h ris C a b leH e ad o f In te rn a tio na l A ss ign m e n ts

N e il W atk in sonH e ad o f E m p lo ye e D e ve lo p m e nt

& H ea d o f P roce ss

M a rk H o g g a rtR e m & B en S tra te gy

S te ve H o d gsonH e a d o f R e sou rces

T in a Ja m esH e a d o f P e ns io ns

S te ve D ru ryIT D e ve lo p m e n t M a na g er

A n n T a ylo rC u s to m er S u pp o rt

T e a m M a na g er

R ich ard B ecke ttF a c ilit ie s M a n a g er

to ge th r

T im H o lla ndH R IT O pe ra tio ns

M a na g er

A n d re w P e trieP ro je ct M an a g er

to g e th r S e rv ice C e n tre& H ea d o f In fo S e rvices

M ike M a rg e ttsH e ad o f Im p lem en ta tion

P h il B u tle rF in a n c ia l C o n tro lle r

D a v id B au e rn fe indC F O

S a m S p arkesC u s tom e r R e la tio n sh ip M an a g er

A v io n ics

S im o n M iln erC u s tom e r R e la tio n sh ip M an a g er

O p e ra tio n s & A ircra ft S erv ices

R u th C ra venC u s tom e r R e la tio n sh ip M an a g er

H O

R a ch e l T o n u cciC u s tom e r R e la tio n sh ip M an a g er

C S & S

L u c in da H ew itsonC u s tom e r R e la tio n sh ip M an a g er

P ro g ram m es

B ryo n y M o o reH e a d o f S e rv ice

A la n B a ileyN e w B u s in ess D eve lo pm e nt

R icha rd H o u gh tonC E O

90

Governance:capability to define, track, assess

and fix performance

Fee-for service governance in offshore:

• Customers complain they cannot rely on supplier’s internal governance mechanisms

• Customers designing dashboards

• Customers designing and demanding daily status reports


Organization Design

CustomerDevelopment

BehaviorManagement

Governance

Leadership;Program



BusinessManagement

DomainExpertise

91

Governance:capability to define, track, assess

and fix performance

Joint Boards of Directors can create a managerial schizophrenia

Multiple Joint Boards help provide checks and balances among competing objectives

Joint Board of DirectorsJoint Service Review BoardJoint Technology Review Board


Organization Design

CustomerDevelopment

BehaviorManagement

Governance

Leadership;Program



BusinessManagement

DomainExpertise

Example of Strategic/Enterprise Partnerships

92

Leadership:the capability to identify, communicate,

and deliver the balance of delivery, transformation, and relationship

activities to achieve present and future success for both client and provider.

Requires individuals who have the vision, experience, ability, and clout to serve as "CEO" of the relationship.

76 case studies of EDS, IBM, CSC, Accenture with similar contracts found customer/supplier leadership as main explanator of customer satisfaction

Every customer expects the supplier’s A team

Often customer demands a change in leadership with first few months—on both sides!


Organization Design

CustomerDevelopment

BehaviorManagement

Governance

Leadership;Program



BusinessManagement

DomainExpertise

93

Prioritize supplier’s competencies based on your outsourcing objective

Main Customer Objective:

Supplier’s

Delivery

Competency

Supplier’s Transformation Competency

Supplier’s

Relationship Competency

Lower costs on baseline services

1st 3rd 2nd

Transformation of back office processes

2nd 1st 3rd

New business development

3rd 2nd 1st

ETC…

94

Supplier Perspectives on Client

PotentialGrowthValue

of Client

Present Revenue Valueof Client

HIGH

LOW

HIGHLOW

Develop Re-commit

De-commitReap

and Retain

95

Challenges Remain

Customer/Supplier ‘fit’ across scope and time

Reality vs. rhetoric of ‘partnership’

Difficulty of achieving sustainable success

96

Further Information:

Lacity, M., Feeny, D., and Willcocks, L., “Commercializing the Back Office at Lloyd’s of London: Outsourcing and Strategic Partnerships Revisited,” forthcoming in the European Management Journal, Vol. 22, April, 2004.

Lacity, M., Feeny, D., and Willcocks, L., "Transforming a back-office function: Lessons from BAE Systems' Experience With an Enterprise Partnership,“ MIS Quarterly Executive, 2003, pp. 86-103.(can be downloaded from www.misq.org)

Feeny, D., Willcocks, L., and Lacity, M., Business Process Outsourcing: The Promise of the Enterprise Partnership Model, Templeton Executive Briefing, Templeton College, Oxford University, ISBN 1 873955162, 2003, 44 pages.

Willcocks, L., Hindle, J., Feeny, D., and Lacity, M., " Knowledge in outsourcing - the missed business opportunity," Knowledge Management, Vol. 7, 2, November/December 2003. Hindle, J., Willcocks, L., Feeny, D., and Lacity, M., "Value-Added Outsourcing at Lloyd's and BAE Systems," Knowledge Management, Vol. 6, 4, September/October 2003, pp. 28-31.

1 business process outsourcing mary c. lacity “in the mountains,” 1867, albert bierstadt...

Documents

enterprise partnership

onetoone slide

service business model

business process outsouring

xchanging customers

business models

office function

year supplier