No Bed of Roses
TPI is a global outsourcing advisory firm that manages almost every large outsourcing deal in Australia. It is the only firm in the Australian market that provides outsourcing strategy and also manages the transaction and the post-deal relationship. TPI has completed more than 500 outsourcing deals around the world worth more than $US300 billion. Its Australian customers include Telstra, the federal government and the government of South Australia.
Arno Franz, the managing director of TPI Australia, previously worked in the senior executive services of the New South Wales and West Australian governments. He also sold to governments in previous roles with EDS and CSC. Franz describes BPO as "like a merger and acquisition activity" because in some cases, governments take a large chunk of their organisation and hand it over under a commercial relationship to another commercial entity.
"It's a bit like selling part of the farm," Franz says.
"One of the things that has impressed me most is that organisations are willing to consider BPO and actually be a little bit adventurous. For example, some of the large banks, like ANZ, have attempted three times to outsource their HR administration. They haven't been able to get it done, primarily because the market capability here has not caught up with its needs. So you're seeing organisations like the ANZ - which has one of the best costs to income ratios of any bank in the world - still striving to extract more from its organisation.
"It's gratifying to see that organisations are prepared to step outside the norm and actually go for it. However, one of the bigger disappointments - and this applies in the BPO space as much as it does in the ITO space - is the lack of appreciation of what it takes to actually manage one of these deals once you get it signed. There has been plenty of negativity about outsourcing and that's because organisations don't fully appreciate that once you've outsourced a process to a service provider you still have management responsibility for the function," Franz continues.
"It still requires the same level of attention and focus in order to ensure that the service provider delivers what they said they would deliver, and creates value for you during the length of the relationship. People don't put enough time and effort into managing the relationship. It's no longer just a simple contract administration function. It's much, much more than that."
Analyst firms such as IDC and Forrester, and outsourcing advisers such as Accenture and TPI, say the single most important step governments can take before entering into a BPO arrangement is to "bulk up" their processes and build critical mass.
"Too many governments still maintain an agency-by-agency approach to BPO," says Franz.
"That is fraught with danger because departments change as government policy changes. You're seeing it now in NSW. But there are some basic processes that never change and governments should be trying to bulk up those processes, whatever they are. They should not have public servants maintaining them. They should put them out to the private sector - not on an agency basis but on a whole-of-government basis. Only with this approach will they drive real reform in the public sector.
"That's what the South Australian government did. Here was a state with an economy that was biased towards manufacturing and primary produce. Tariffs were coming down, so manufacturing was being squeezed. The government decided to offer a large chunk of its infrastructure - in this case IT - to get a large player to set up shop locally, create jobs and service other entities across Australia or even beyond. They created infrastructure, they created jobs and they produced real gains. With BPO, it's only when you take something large enough that you can really do something with it."
Join the CIO Australia group on LinkedIn. The group is open to CIOs, IT Directors, COOs, CTOs and senior IT managers.