Selective Benefits
Although it is early days, and Hay admits the organization is yet to meet any of the potential downsides of selective sourcing, he says the benefits on offer look promising. Above all else is better transparency and more certainty over costs, he says, but that is just the start. DVA also gets the benefit of an infrastructure refresh and a new way of supporting its business operations, of which the thin-client environment is the key element.
"[Thin client] provides us with a great deal of additional benefits in terms of responsiveness, particularly in rural and remote areas. It provides us with a greater flexibility in terms of having a mobile workforce, and gives us plenty of opportunities for being able to leverage off that capability for the way we do business in the future," Hay says. "Apart from giving us an updated platform, it gives us an opportunity to look at how we do business better in the future."
Employees in the regions are also happier because they get much improved access, to the extent that they now say they prefer thin clients, Hay says.
Meanwhile, the new arrangements have only served to improve the relationship with IBM.
"My observation is that IBM understand very well what our business is and they have a very pragmatic approach to dealing with government; they understand and are ready to work with us in meeting our needs and providing ways and options to do that," Hay says. "Now, they've got concerns, sure - it's an element of business that they no longer have. But on the other hand they've still got a larger business that they're supporting. And there are always business opportunities that emerge for them during the life of a contract anyway, which still provides them with an opportunity to continue meeting their revenue stream, if you like."
Hay says in three or four years time DVA will again make a strategic decision about the nature of the services it wants, and will ask itself more seriously whether there is any value in bringing services in-house (probably unlikely) or whether to go back to the market.
"Having now built up our experience in terms of being able to ask the market about a range of services, I think we're in a much better position to be able to go back at that time frame to look at what we get," Hay says.
"From a government organization's perspective, there's a much greater degree of collaboration now between government organizations, and one of the issues we will need to consider is the extent that we collaborate with other organizations who receive our services. Piggybacking arrangements are also becoming much more frequent. I think it gives us a new dimension to the nature of the range of services that we can get and the sources of those services."
DVA is also much more focused on taking an architectured approach to the way it wants to do business internally, Hay says, and this will shape some of its infrastructure requirements.
"Fundamentally though, like most organizations, we have a lot of IP in applications that have been built up over a long period of time, and will continue to need to support our business operations," he says. "We will have to recognize that those legacy systems are systems that we will have to continue to support, so we will have to make sure that the infrastructure is able to support them. At the same time, we have to take advantage of new opportunities that come with industry in terms of applications development, or the way that technology architecture works to ensure that the services that we get, the application services that we need to provide to our users, are also able to be effectively delivered."
Hay says although it is far too early to assess the results of the new arrangements, he is optimistic. He says the lesson for CIOs is that collaboration is important. There is leverage simply from a purchasing perspective in being able to recognize the common grounds between an outsourcer and client, and in figuring out your real costs before entering into any outsourcing arrangement.
For the rest, only time will tell.
SIDEBAR: Contract Management
Be Prepared By John Kopeck
Successful sourcing requires pre-contract planning
Successful sourcing relationships are based on careful and detailed preparation before the contract is signed. Both parties need a clear understanding of the type of relationship desired. Sourcing contracts can consist of anything from a brief document with a price list attached, to hundreds of pages of legal documentation, terms, schedules, and flow charts.
While important, written documentation should be preceded by a thorough understanding of the type of relationship the client wishes to achieve and maintain over the life of the contract. The amount of time and effort required to structure a deal depends on the type of relationship being built. Key considerations include the following:
- Pricing: is the client willing to pay a premium for specialized expertise and business knowledge, or is low cost the primary objective?
- Vendor involvement: does the client expect a high or low degree of input and advice from the outsourcer?
- Length of relationship: does the client seek a long-term relationship, or are frequent vendor changes to be expected?
- Number of qualified vendors: are the services sought by the client highly specialized or widely available?
Based on combinations of these various factors, four different types of outsourcing relationships are feasible.
VALUE-ADDED PARTNERSHIP. In one scenario, clients seek a high level of vendor involvement over the long term, and are willing to pay a premium. Few vendors are qualified to provide this type of service. This type of relationship is the true value-added strategic partnership. The client expects significant ongoing input from the vendor to identify opportunities for performance improvement. This may come in the form of access to the vendor's technology, experience, or thought leadership. The vendor puts world-class technicians and relationship managers on the client-facing team, for which the client is willing to pay premium rates and negotiate a long-term contract.
Clients in a value-added relationship tend to be large multinationals operating in complex, fast-changing markets. Vendors capable of providing this level of service tend to be large themselves, with global operations, highly competent and experienced practitioners, and deep technological resources. The value-added relationship will often undergo significant change over the life of the contract, requiring a higher degree of flexibility in its construction and undertaking.
CRITICAL SERVICES. Another type of relationship involves a high level of vendor involvement, at premium prices, over a long period of time. The difference is that markets are served by numerous vendors of approximately equal capability.
Audit and tax firms, many outside legal advisers, and global recruiters fall into this category. The client seeks specialized, on-going advice, but is willing to substitute vendors to get comparable service at a lower cost. That said, longer-term contracts are desirable, as the vendor gains knowledge of the client - thus minimizing the learning curve of each incremental engagement.
SPECIALIST PROVIDERS. Highly specialized service providers fill a specific niche that are not strategically critical to business operations. However, clients recognize that only a few vendors perform these functions well - and are thus willing to pay a premium for them. Global payroll agencies and international travel firms are examples of such providers.
TRUE COMMODITIES. Finally, in true "commodity" relationships, clients outsource non-strategic services to one of many competent providers on a short-term, price-oriented basis. Long-term contracts are not desirable as a new player might enter the marketplace at any time, offering significant rate discounts as they build their business. The client does not seek significant input on how the job will be done; they just want it done, on time and to specifications clearly delineated in the contract.
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