The IT executive committee comprises JRMC CIO Jim Witenske and a Siemens site executive, along with JRMC's CEO, COO, CFO and four vice presidents. The committee meets monthly to discuss the status of all existing IT initiatives and to discuss new projects that could lead to more efficient or effective patient care. "I've been in some us-versus-them outsourcing deals and this isn't one of them," says Witenske. "We share a common interest in meeting the strategic needs of this institution." Ron Forsys, the Siemens site representative, adds: "A lot of it is about relationships. Jim and I have a good relationship and we can call on each other for any problem, whether it's related to the Siemens partnership or not."
The joint management team has pinpointed specific areas, such as billing, contract management and human resources management, where new systems and automation could most immediately help turn around the financial losses. Those savings have been pumped back into new patient care initiatives and other new systems to support those initiatives.
So far the strategic partnership is paying off. Siemens has eliminated $US3 million in annual IT operating expenses, deployed 30 new applications and stabilized the IT workforce, which, other than Witenske, is 100 percent employed by Siemens. JRMC's overall IT budget has remained flat, and the new systems helped the hospital get back into the black last year. "Our CEO absolutely credits the strategic partnership with being part of the turnaround," says Witenske. "Sometimes you just need to bring in an outside partner to help you change things and have a positive impact."
Flexibility to Avoid Failure
An odd thing happens in successful strategic partnerships: CIOs look beyond their own needs and spend a lot of time thinking about their vendor. "People who are happiest with their strategic partnerships talk a lot about what their vendor needs," says Ross. This willingness to extend a hand leads to flexibility on the part of the vendor. "[CIOs] will tell you: 'When I told [my vendor] I had to cut my budget, they understood and helped me out'," Ross says.
Back at OPG, Ontario's provincial government decided in 2003 to reregulate the electricity market. So the company's original case for setting up a strategic partnership was gone. But Reiner has a whole host of new reasons to continue the relationship with CGEY. IT performance levels and systems availability have gone up, and "we're further ahead financially than we originally anticipated in the business plan", he says. For its part, CGEY has been able to sell its services to other clients in the energy industry and spread its costs over multiple clients.
"For both of us, it's still the right decision," says Reiner. "But we have to manage it and stay on top of it." That includes controlling processes, reviewing service levels and conducting monthly joint meetings with CGEY to review the relationship. Reiner also brought in an outside outsourcing consultancy to review the relationship with CGEY. The consultancy advised OPG and CGEY to further clarify their roles, responsibilities and service levels. It also advised both parties to step up efforts to move to a fixed-price model.
Although paying for outsourced services on a time and materials basis (which OPG had been doing for four years) is how most strategic partnerships start out, fixed-price is the goal. "[Currently] we drive down the cost of the service to OPG by driving down time and materials costs," Reiner explains. "This requires us to be involved in the outsourcer's business at a level of detail that we should not be involved in. And we effectively have two management teams. A fixed-price model will let [CGEY] focus on managing their internal costs for providing services and let OPG focus on managing demand and levels of service."
At Campbell Soup, Wright tries to take any guesswork out of her strategic partnership. She keeps IBM in the management loop so the outsourcer can always anticipate what is ahead. "Some CIOs are so secret with their vendors. But if the vendor doesn't understand what you need - if they don't understand your strategic plans, your operating plans, what IT's role is in the business - it's hard for them to be a good partner," says Wright. "And it's not something we share just as a good-faith effort. If a vendor understands what we're trying to accomplish, we expect them to be able to plan in a way that saves us money."
Yet even with all the openness and joint effort, strategic partnerships don't always work out right. "There are times when things go wrong, just as if we were running it [in-house]," Wright says. "You have infrastructure problems. A project manager doesn't work out. Someone screws up." Just recently, Wright was unhappy with the performance of IBM's lead partner on a big systems project. And one of IBM's subcontractors was causing Campbell a major headache in the form of four severe network outages in one day. But Wright measures the success of her strategic partnership not in the problems that crop up but in how IBM works to solve them. In both cases, she says, the vendor devoted a lot of time to solving the problems.
The best way to judge the health of a strategic partnership is to look at how both sides react to the unexpected, says Smith of LP Enterprises, who helped negotiate several such deals at P&G. "If there's a major drop in the service levels, does the client instantly invoke a multimillion-dollar penalty clause, or is there some understanding and flexibility working toward a mutual resolution of the issues? If the client makes an acquisition and there are new IT needs beyond the scope of the original contract, does the client say to the vendor: 'This should all be included - just eat the costs'? Do they create an RFP and say to the vendor: 'Hey, you're just one of five bidders on this contract and you're just another vendor to me'? Or do they say: 'This is new business beyond the scope of our agreement and because you're my preferred supplier, you get first crack at it'?"
"Like any relationship, you have to put in a lot of time and effort," says Wright. "And we're making changes and working on it all the time. But it's been the right thing for us."
Join the CIO Australia group on LinkedIn. The group is open to CIOs, IT Directors, COOs, CTOs and senior IT managers.