Keeping outsourcing on target

Aside from investing in the relationship to achieve outcomes, effective vendor management is also about minimising the risk of the types of service delivery failures that fill highlight reels for outsourcing.

Organisations have been outsourcing business processes, applications and IT management for decades, with shared service provision falling in and out of fashion since as far back as the 1960s.

Whether fairly or not, outsourcers have borne the blame for service delivery failures in some of Australia’s largest organisations in recent years.

Late last month, Commonwealth Bank staff pointed the finger at HP EDS for a patch that brought down its customer service platform, desktops and servers.

Qantas blamed long-time partner Amadeus for a series of check-in system outages that delayed thousands of passengers in November 2009 and January 2010.

And in June 2010, Queensland Health reserved the right to seek damages from IBM for a payroll bungle likely to cost the state $1.25 billion to fix.

Girn says the spotlight on outsourcing has made supplier management a make-or-break characteristic of modern CIO careers.

He advocates a structured approach to sustainable vendor management, underpinned by four “golden rules”: maintaining a strategic relationship; operational oversight; commercial oversight; and having the right internal skills to get the most out of outsourcing deals.

While different parts of an organisation could be accountable for each of the “rules” – with the CIO overseeing strategy, human resources developing internal capabilities, and procurement teams overseeing operations and commercial aspects of contracts, for example – he says there should be a single point within the organisation responsible for the deal as a whole.

One such point could be the “vendor management office”, a multidisciplinary unit gaining favour in organisations like Westpac, HSBC and AT&T, and charged with managing and facilitating contracts on the basis of strategic relationship, service delivery and commercial obligations – three of Girn’s four “golden rules”.

Girn’s alma mater, Westpac, last year revealed that it had spent some $500 million over four years to establish a new “multi-sourcing” strategy that would replace a “dysfunctional”, all-encompassing IBM contract with shorter deals with a greater number of specialist vendors.

The bank spent about a year building up a new team of commerce, legal and finance experts for a vendor management unit that spun out of its chief technology office in late 2011. Its efforts were recognised this March, when Westpac and IBM won an industry award for the “best sourcing relationship in IT outsourcing”.

Don’t forget your staff

Girn’s fourth “golden rule” is one best addressed by organisations’ human resources experts: developing a suitable in-house capability to complement – but not duplicate – outsourced work.

Earlier this month, Qantas completed a major restructure that saw it redefine about 100 roles with a greater emphasis on procurement and supplier management, after recognising that it had come to rely on outsourcers for 80 percent of its IT, but still had staff duplicating what suppliers were contracted to do.

Girn warns that large-scale – and costly – IT organisational restructures are often the result of neglecting internal skill requirements when striking outsourcing deals.

“What usually happens is that you sign an outsourcing contract and the CIO quickly cuts the size of the team,” he says. “If the outsourcer isn’t performing, [the CIO will then] increase the size of the team to compensate.”

He recommends the establishment and inclusion of internal contracts as part of organisations’ IT outsourcing strategies, so business units’ areas of responsibility and any changes in scope are clear.

iTnews is the official media partner of the CIO Strategy Summit, which will be held at Gold Coast's QT Hotel from August 28th - 30th.