Bringing the work back in-house on expiry of the contract was clearly no answer - Hay acknowledges that far too much corporate knowledge has been exported for that. Instead, DVA looked at available market offerings and the arrangements other Commonwealth agencies had recently negotiated in the marketplace, entered into intense negotiations with IBM and was "eventually satisfied with what the costs were for the services that we wanted to get".
It started by renegotiating that contract at the end of the fifth year (in 2002) based on a careful examination of the nature of the services it wanted, and drawing on advice from industry about comparable arrangements in the market.
"At the end of the day we made our own market assessment as to what the new renegotiated arrangements would be, and came to the conclusion that it was still value for money to extend that agreement," Hay says. "So we extended that agreement for a three plus one timescale, which still essentially kept it within the original nine-year time frame. At the moment we're just over the first year of that three-year extension."
Before doing so, DVA made a concerted effort to get a feel for its present and future cost drivers and the nature of its future business and future infrastructure, and examined ways to control those costs. It changed some fundamental principles of its operations, which would, over its forward year time frame, provide the agency with a controlled environment in terms of understanding its costs and cost drivers, and give it the ability to map its changing needs on a consumption basis to the services provided. Hay says the outcome was "quite an effective cost projection model" allowing it to achieve a good handle on its costs.
Naturally enough, the major cost drivers lay with the mainframe (which provides a core environment for most major applications), followed by disk storage and support costs to DVA's 60-odd sites around Australia. Changing the infrastructure in order to reduce those costs thus became a priority for both DVA and IBM. The answer ultimately proved to be to centralize the major service, and move to a different, thin-client technology. That transition - a joint project between DVA and IBM - has just been completed.
"It's a joint project between ourselves and IBM because infrastructure provides the mechanism to operate, but clearly, applications and the operating environment on that need to be jointly managed," says Hay. "So the project has essentially operated under a joint management arrangement, and has been very tightly controlled in terms of what needs to be done. It's an interesting example of where we, as a government organization, have worked very closely with a non-government organization in managing resources which are available to both parties."
Hay says the exercise - which required significant culture change within both organizations - has been a highly effective exemplar of how two organizations can work cooperatively and achieve common objectives. It also illustrates a mature understanding about the roles both sides have to play and the nature of the cooperative relationship required for outsourcing to work effectively.
"We see IBM as a strategic partner, and while there's still obviously a commercial relationship between us, we've found that the working relationship has been very effective in achieving both our own objectives," Hay says. "It's a matter of us understanding what their drivers are and them understanding what our drivers are, and recognizing where we need to work together to achieve that. So I think that's been a very good example of where we have been able to work effectively with a private sector organization."
The next step was to look at the full range of services to be outsourced and to identify which as a business IBM was really interested in supporting, to identify which other service providers specialized in particular fields, and whether at the end of the day it was better value to go down a different path. The outcome is a long list of activities that are now unbundled and sourced through other arrangements, including:
- capacity management
- disaster management / recovery / disaster recovery plans
- building environmentals (previously IBM was responsible for UPS, air-conditioning, and so on)
- software management (DVA is now responsible for all software management, including upgrades)
- certain movements, additions and changes applying to phones, desktop devices
- management of PABX operators
- various procurement activities
- hardware and software refresh strategies other than those specifically identified in the contract
- voice facility management
- printing services.
"The new agreement enabled us to get much greater clarity about all the other elements of the services that we're providing, from mainframe CPUs to server costs, to disk storage charges et cetera, et cetera, which under a bundled arrangement you don't get to see," Hay says.
"And that's one interesting aspect in terms of business operations. Where you've got a corporate resource, it's often taken for granted that these resources are always available to other areas of the organization without actually understanding what the true costs are. It's therefore a particular emphasis that we are now focusing on: How do we provide much greater transparency to the business areas, about the nature of the resources and therefore the IT costs that they are consuming?"
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