Business Process Outsourcing

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
The Netsourcing Service Stack
One-to-Many Business Models(merges to one-to-one)
4
What Customers Want FromBack Office
Transformation
Lower costs Better service Variable
costs Scalability Flexibility Trust

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

5
Capabilities Needed For Back Office Transformation
Governance
Service Excellence Process Improvement People
Empowerment Technology Enablement
Lower costs Better service Variable
costs Scalability Flexibility Trust
Project Management Change Management
6
Sourcing Options for Back Office Transformation

• Do It Yourself (Insourcing)
• Management Consultancy (Time Materials)
• Business Process outsourcing (Fee for service)
• Equity Swap
• Joint Ventures
• Enterprise Partnership

7
Business Process Outsouring
With BPO, the supplier owns and operates the
resources, including infrastructure,
applications, and people, to deliver a
business process 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, presentation At World Outsourcing Summit,
Orlando Florida, 2002.
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 creates
• A 50-50 enterprise between the customer and
  supplier whose
• primary mission is to share the cost savings
  generated from the
• suppliers transformation of the customers back
  office operations.
• A secondary mission is to generate and share
  revenues from
• external sales to other customers after the
  transformation is
• complete.

10
Enterprise Partnerships
Customer Spends 100 million A year
Supplier takes over Resources staff, Transforms
function, and shares in savings.
11
Enterprise Partnerships
110 million transfers
Customer Spends 100 million A year
Supplier takes over Resources staff, Transforms
function, and shares in savings.
Supplier rebates say 15 16.5 million
Any extra savings are the suppliers revenues.
Thus if the 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 Human Resource Services (XHRS)
Xchanging Procurement Services (XPS)
Xchanging Insurance Services (XIS)
Xchanging Claims Services (XCS)
14
Transforming Back Office to Front Officeand
Enterprise Partnership for Human Resource
Management
Mary Lacity David Feeny Leslie 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, XCS Head of Service,
XCS Head 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
About Xchanging
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
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.
Astute
Destroyer
Eurofighter
19
About BAE SYSTEMS
January 1999, British Aerospace announced merger
with Marconi to create BAE SYSTEMS Investors
promised 275 million in annual cost savings
within 3 years
"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,
senior level 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
FROM DECENTRALIZED
Head Office
SBU Managing Director
SBU Managing Director
SBU Managing Director
SBU Managing Director
Group HR
SBU Managing Director
SBU HR Director
SBU HR Director
SBU HR Director
SBU HR Director
SBU HR Director
Transactional Activity/ Professional Services
Transactional/ Professional
Transactional/ Professional
Transactional/ Professional
Transactional/ Professional
Head Office
TO SHARED SERVICES
SBU Managing Director
SBU Managing Director
SBU Managing Director
SBU Managing Director
Group HR
SBU Managing Director
Transactional Activity/ Professional Services
SBU HR Director
SBU HR Director
SBU HR Director
SBU HR Director
SBU HR Director
22
Sourcing Options Considered

• Do It Yourself (Insourcing)
• Management Consultancy (Time Materials)
• Business Process outsourcing (Fee for service)
• Enterprise Partnership

23
BAE/Xchanging Timeline
January 2000 David Andrews proposes enterprise
partnership Spring 2000 Invitation to
bid June 2000 Letter of Intent signed
with Xchanging June 2000 to February 2001
Contract Negotiations May 1, 2001 Go Live
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
?
May 2000

Would accept BAE transfers -- Use Exults
existing staff Complete attention to BAE --
Just signed other megadeals Take service as-is
-- BAE to clean up mess first
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
BAE/Xchanging NegotiationsJune 2000 February
2001
50/50 Joint Ownership 50/50 split in cost
savings, estimated baseline 25m/year YEAR
2001 2002 2003 2004
2005 Percent 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
BAE/Xchanging NegotiationsJune 2000 February
2001
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
Contract in Effect in May 2001
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How Did Xchanging Complete the Transformation?
Xchangings management believes that the
capabilities required to transform a back office
to a front office requires 7 generic business
competencies rather than domain specific
knowledge
31
Transformation is Implemented in Four Phases
Preparation
Streamlining
Realignment
Continuous Improvement
2-3mths
3-6mths
6-9mths
Operational
Critical activity
Preparation
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 Xchangings
senior management -- Induction Programs to 430
transfers within 6 weeks -- Management
training -- New job descriptions -- New
Customer-focused culture
33
People Competency
Continuous Improvement
Streamlining
Preparation
Re-alignment
Mourning
Forming
Storming
Norming
Performing

• Mechanisms
• Deliverables
• Measures
• Benchmarks
• Gate

• Mechanisms
• Deliverables
• Measures
• Benchmarks
• Gate

• Mechanisms
• Deliverables
• Measures
• Benchmarks
• Gate

• Mechanisms
• Deliverables
• Measures
• Benchmarks
• Gate

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 Competency
Service Objective
Service Specification Reports
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 spend Was
uncovered for fleet, contract labor, recruiting,
stationary, And travel! HR was buying services
from over 200 suppliers, All in decentralized
budgets.
38
Sourcing Competency
Xchanging Procurement Services (XPS)
Separate Enterprise Partnership signed November
2001 Worth 800 million over 10 years
39
Sourcing Competency
Car Fleets Non-technical contract labor Learning
Development Health Care Recruitment Renumeration
Benefits Stationary
80 million
40
Sourcing Competency
41
Example of Un-bundling
Key Cost Elements of Car Leasing
42
Outcomes First Year on XPS

• It took 8 months, not 2, to transfer spend
• Only 35 million in 7 categories was transferred
• To make up difference, BAE transferred 8 more
  categories
• Travel, Printing, Office Furniture, Computer
  Consumables,
• Mobile Phones
• On average, 12 savings delivered on categories
  transferred
• 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 facility By February
2002 Occupancy held up by IT contract with CSC
44
Environment Competency

• Preston

45
Environment Competency

• Preston Ready!

46

• Preston Ready!

47
Environment Competency
"Space has a big impact on people's morale and
the perception of their value-- Mike Margetts,
Implementation Practice Director, Xchanging
48
Process Competency
Goal is to redesign business processes to reduce
costs and to improve quality through Six Sigma
quality improvement discipline.
s
DPMO

ProcessCapability
Defects Per Million
Yield Opportunities

6 3.4 99.99966
5 233 99.9770
4 6,210 99.37
3 66,807 93.3
2 308,000 69.2
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Process Competency
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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
component driven 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
e-HR Application Framework
Portal
Data and Process Integration
Reference
Performance
HR Knowledge and Content Mgmt.
Performance Control
Service Management
Core DW (Time Rel)
eForms
People
Relationship
ESS/MSS
Contact Management
CTR

Core Enterprise HRIS
CCI
53
Implementation Competency


Goal to orchestrate the timing and resources
required for the Other six competencies.
54
Implementation Competency


55
Implementation Competency


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 UKs National Outsourcing
  Association (2004) and BAEs HR Excellence Award
  (2005)

57
Findings as of 2005

•  
• Prior to the Xchanging partnership, HR at BAE
  SYSTEMS and CA at Llyods
• lack of investment,
• lack of leadership,
• lack of employee motivation,
• lack of customer-focused service,
• bureaucratic and inefficient processes, and
• 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 dont do
it within three to six months then you dont 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.
Were just having a review on that at the moment.
At the moment that communication isnt clear and
it does look as if costs are going up. But in
reality, were doing a review of it and were
doing some investigation on it, in reality it
probably isnt going up because of Xchanging. It
just means that we need to probably transfer
budget over that hasnt 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 cant 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 its because we did it.
Its 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
havent 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 theyll 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 lets
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
12 Capabilities to evaluate in your supplier
70
12 Capabilities to evaluate in your supplier
Relationship Competency
Planning Contracting Organization Design
Customer Development
Governance
Leadership Program Management
Business Management
Process Re-engineering
Behavior Management
Transformation Competency
Delivery Competency
Technology Exploitation
Domain Expertise
Sourcing
71
Delivery Competency is based on capabilities
which determine the extentto which a supplier
can respond to a customers day-to-day
operational services

• minimum requirement that customers seek in all
  suppliers
• includes suppliers domain expertise, business
  management capabilities, etc.
• a suppliers 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.

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

74
Domain Expertisethe 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.

75
Business Managementthe 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

   
76
Behavior Managementthe 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 100 to
1000 to minimize time zone effects
77
Sourcingthe capability to access whatever
resources are required to deliver service targets

• Customer wants to benefit from suppliers access
  to
• economies of scale
• lower unit labor costs from suppliers offshore
  operations
• scarce professional skills
• superior infrastructure

78
Process Improvementthe 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 level 4 or 5
U.S. customers were all at level 2 or below
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

80
Program managementthe 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

Source Xchanging
81
Customer Developmentthe capability to
transition users of an internally provided
service to customers who make informed
decisionsabout 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

82
Planning and Contractingthe 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.
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 Designthe capability to design
and implement organizational arrangements to
realize plans and contracts

?
85
Organizational Design Offshore
Architects/ DBAs/etc.
Offshore Supplier Delivery Team
Onsite Supplier Engagement Manager
Offshore Supplier Delivery Team
Project Managers
PMO
Local Business Units
Offshore Supplier Delivery Team
86
Organizational Design Offshore
87
Organizational Design Offshore
Kaiser Hawk, 2004
VP IS
Relationship Manager
Director
Anchor
Project Manager
Anchor
Team Lead
Team Lead
Team Lead
Team Lead
Development Staff
Development Staff
Development Staff
Development Staff
88
Organizational Design ExampleXchanging BAE
Systems XHRS

• 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.

89
Organizational Design Xchanging BAE Systems
XHRS

90
Governancecapability to define, track, assess
and fix performance

• Fee-for service governance in offshore
• Customers complain they cannot rely on
  suppliers internal governance mechanisms
• Customers designing dashboards
• Customers designing and demanding daily status
  reports

91
Governancecapability to define, track, assess
and fix performance

Example of Strategic/Enterprise Partnerships

• Joint Boards of Directors can create a
  managerial schizophrenia
• Multiple Joint Boards help provide checks and
  balances among competing objectives
• Joint Board of Directors
• Joint Service Review Board
• Joint Technology Review Board

92
Leadershipthe 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 suppliers A team
• Often customer demands a change in leadership
  with first few monthson both sides!

93
Prioritize suppliers competencies based on your
outsourcing objective
94
Supplier Perspectives on Client
HIGH
Develop
Re-commit
Potential Growth Value of Client
Reap and Retain
De-commit
LOW
HIGH
LOW
Present Revenue Value of Client
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 Lloyds 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.