BAE Systems & Xchanging HR Services Case Study

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Leading with Service

by Bryony Moore, former Co-Founder & Chief Customer Officer14th May 2014

Welcome

• What is Service?

• What does HR do?

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BAE Systems

• Formed in November 1999• Merger between Marconi Electronic Systems & British Aerospace• Employees – 100,000+ est.• UK Locations – 50+• Promise to the City of synergies leading to savings

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1999 Turnover £8.9 billion Net Profit £328 million

2000 Turnover £12.2 billion Net Profit (£19) million

2001 Turnover £13.1 billion Net Profit (£128) million

Xchanging Ltd

• Formed February 1999 by David Andrews, ex Anderson Consulting Partner

• Objective: ‘Turning back offices into flourishing enterprises’• 8 Co-Founders plus 8 support staff by early 2000• Serviced office in Berkeley Square (approx 100 sq metres)• £50m draw down facility funded by General Atlantic Partners, USA• Revenues in 1999 and 2000 zero

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First Customer

• Contract with BAE Systems UK to deliver transactional HR Services signed February 2001

• Came from a targeted letter to Terry Morgan, Grp HR Director, BAES from the CEO of Xchanging

• Took one year to land the deal• Value £250m (£25m p.a. for 10 years)• 460 HR employees, in 30 UK locations, transferred into XHRS Op Co• 3 Xchanging founders transferred onto XHRS Op Co Management

Board

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What is Partnering?

Guaranteed cost savingsService assurance

50/50 share of upside

What are the Benefits?

• A jointly owned commercial business

• Xchanging has operational control

• Partner has board seats

• Partner contributes resources / people

• Xchanging brings management, expertise, know-how and independence

• A true open-book partnership

• Alignment of interests through profit sharing

• Capital upside

• Enables large complex undefined functions to be transformed into commercial businesses

The Value Proposition

37

… to maximise value together

Service1st – What?• Brought HR in from the shadows and focused on it• Defined the scope of the project• Uncovered inaccuracies, black holes, wastage, duplication, £m opportunities,

hidden talents, etc.• Introduced transparency of HR activities, customers and their requirements• Highlighted both the actual and the potential value of HR• Changed the mindset of the HR staff from back office operators to front

office service deliverers• Paved the way for other competencies to apply their non-HR expertise, e.g.

Process, Procurement, Environment, People, Technology• Grew the base business with BAE Systems• Delivered an improved set of services for a predictable, reduced price• Created additional revenues via 3rd party sales

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Service1st – How, short term?• Established hand picked team of Relationship Managers from customer

transferees and specialist recruits• Engaged continually with XHRS employees, retained BAES HR staff &

customers of HR• Drew a line in the sand, i.e. established ‘as is’ services• Defined:

• service classes• customer types• established volumes• performance metrics and standards

• Secured buy-in from all stakeholders to a baseline definition of services being delivered on day one

• Regularly told everyone what we were going to do, when we were doing it and when we had done it what we had found or produced

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Service1st – How, mid term?

• Established a Service Review Board, which met monthly• Produced one page performance dashboards for 15 BAES businesses• Surveyed the customer base for their opinions and requirements• Created two way communications mechanisms• Agreed what was important to measure and to what standard• Established and agreed a ‘should be’ set of services and raised

standards• Established and measured the ‘quality’ of the relationship• Invested in training

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Service1st – How, long term?

• Expanded the range and scope of services under the existing contract with BAE Systems

• Used spare operational capacity to expand services• Grew revenue by offering services to 3rd parties• Refreshed HR knowledge from 3rd party customers• Enhanced Xchanging’s expertise and experience by association and

collaboration with BAE Systems• Introduced a price-for-service, rather than an annual contract price• Facilitated buyout of BAE Systems share of XHRS JV by Xchanging plc

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Key Considerations

• Pace• Scope• Vision• Perception• Communications• Moving goalposts• Senior leadership ownership• Proven, repeatable methodology

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Learning

• Seek out brave leaders faced with burning platforms• People require training to ‘manage a service’ rather than ‘managing

people’• Be flexible about the pace, priorities and direction of change• Quickly identify supporters and champions of the project at senior levels• Seek out resentment/unhappiness/resistance and extinguish asap• Dolphins vs Whales• Perception is often more powerful than the truth• You can never do enough communication• You can’t measure everything

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Value Generation, examples• 1.5m items of data cleansed over 2 years, driving data accuracy to

98% accuracy• 27 BAE Systems HR legacy IT systems consolidated to one in 3 years• 1500+ standard recruitment letters, reduced to less than 20• XHRS created an eHR capability in 6 months and rolled it out to

38,000 employees paid for by savings in the first year of the contract• Improved services at reduced price• No external consultancy fees during transformation project• £100m of value, of which £57 capital upside delivered to BAE Systems

in 6 years (March 2007)

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Conclusion

• Innovation gives competitive advantage• Service is all about a detailed, tangible, systematic approach• Consistently meet, rather than exceed, your customers expectations• A base of trust leads to business growth• A small, energetic, focused team can move mountains• Focus releases value

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Bryony Moore MBA• History

• Black & Decker - Sales, Customer Service, NPD Marketing (6 years)• Braun UK & Ag - Marketing, International Business Development (6 years)• BME Limited – International Management Consultant (9 years)• Xchanging plc - Co-Founder & Chief Customer Officer (8 years)• Association of MBAs – Trustee (3 years)

• Current• MetaValue - Associate Director (1 year)• Brunel Business School - Member & Deputy Chair (4 years)• Headington School, Oxford - Governor & Marketing Committee Member &

Deputy Chair (2 years)• Henley Business School – Pioneer (1 year)• Steak of the Art, Restaurant, Bristol – Investor (1 year)©MetaValue Ltd 2013. No part of this document may be circulated, quoted or reproduced without prior approval of MetaValue Ltd. 15