Technology Point of View

The partnership bridge: Building successful IT outsourcing relationships

A positive relationship between an organisation and their IT outsourcing service provider is fundamental to a productive outsource. The experience of many businesses and service providers is that the effective management of this relationship in the long term is the single largest barrier to success: 69% of outsourcing relationships fail, in whole or in part1. Despite the complexity of the problem, there are practical solutions which will improve the value organisations get from their outsourced relationships. The fundamental driver for these solutions is a focus on bringing the partnership between customer and provider to life.

Bridging the gap It is clear that outsourcing is a maturing success story. The 2007 PricewaterhouseCoopers Global Outsourcing Survey(1) showed that the majority of respondents will outsource again, whether theyre happy with their current outsource or not. The survey results also reinforced the message that quality is one of the most significant causes of failure. PwC can help organisations build sustainable partnerships with suppliers, and use that partnership as the foundation upon which multisourcing and increasingly complex outsourcing challenges can be more effectively addressed. Challenges A successful outsourced partnership must succeed in three areas: Building and maintaining a trusting and positive relationship Effective ongoing management of the relationship Ensuring the relationship between IT function and the business, i.e. the end customer, is just as important as the relationship between the service provider and the business. To effectively address these and related challenges, organisations should work within a set of fundamental partnership principles.

The 31% of businesses who are succeeding in outsourced relationships are most likely to have honest and transparent business dealings with service providers. They decide matters of mutual interest jointly, have effective joint governance structures, and share risk and rewards. In essence, a productive partnership.
PwC Global Outsourcing Survey, 2007

Productive partnership is regarded as the right kind of supplier-buyer relationship and has been seen to work well... it is a dynamic state that needs continued nurturing.
PwC Focus Group, July 2007

The 2007 PwC Global Outsourcing Survey covered 226 customers and 66 service providers. 51% of the respondents had revenues over $1Bn.
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Principles and guidelines

A successful partnership between an organisation and its service providers can be significantly enhanced by following a set of key principles. These principles include: Ownership. Ensure the relationship is clearly owned, with specific roles established from the top level down to operational levels. A single overall executive level owner is needed in both parties. Communication. Underpin the relationship with regular and effective communication at all levels between both parties. This will include the marketing of results and successes to all relevant customer and service provider stakeholders. Behaviour. All relationship owners must champion the need to be honest and transparent, as well as being positive and confident in all their relevant engagements. This will aid the building of trust and confidence. Approach. Adopt a heads up approach by managing the stakeholders and relationship throughout the outsourcing lifecycle (Figure 1), not solely the contract and service levels. Collaboration. Seek out genuine opportunities for collaboration, e.g. working on a joint innovation agenda.

Management. Dont micro-manage the service provider. Establish, regularly review and challenge key success factors and outcomes, but manage against these rather than against the detail around how the services and contract are delivered. Know the contract detail and implications intimately, but fall back on the contract only by exception. Capability. Regularly refresh your understanding of the service providers capability. Encourage them to be direct around differentiating between core and emerging capabilities. Risk. Manage key risks around the relationship from three perspectives: your own; shared; and an understanding of the service providers. Check and Balance. Organisations are increasingly using independent third parties, such as PwC, to regularly assess their outsourced relationships and help provide focus for ongoing improvement. Expert third parties bring balance, have no emotional attachment around the relationship and can provide practical market insight to quickly highlight areas for improvement. Use these capabilities to enhance the quality of your partnership.

Our approach We address many of the challenges faced by an organisation and its service providers, and make sustainable improvement to existing outsourced relationships. We use our outsourcing method to help the business and service provider balance: Contract risk Costs Incentives Sustainable long-term benefits The ongoing outsourced partnership is often managed via a retained function. The PwC approach to the retained IT management function encompasses five areas of focus: Leadership Governance Business alignment Architectural design Supplier management Enveloping these focus areas are a set of principles and guidelines which stress the importance of relationships, communication, behaviours and shared objectives in achieving mutual goals.

Figure 1, The Outsourcing Lifecycle

Relationship assessment

Those aspects of outsourced relationship health which are neither commercial nor service are a challenge to quantify and assess. The PwC relationship assessment process has been developed to provide joint measurement and target setting for organisations and their service provider relationship, and has been ratified as best practice by the Chartered Institute of Procurement and Supply.

The approach provides a framework for both parties to assess all facets of their relationship across: alignment, improvement, reliability, exchange and durability. Where necessary, we help both parties to agree a prioritised and focussed relationship improvement programme. The partners can then reassess the relationship on a periodic basis to checkpoint progress against the agreed programme and enhance success.

In challenging outsourced relationships, organisations are increasingly turning to independent third parties to aid improvement.
PwC Global Outsourcing Survey 2007

IT outsourcing realignment programme for a major UK public service provider We used the PwC Relationship Assessment approach to provide a platform to realign and improve the governance of a multi million pound outsourced relationship. The project enabled the organisation to make key personnel and relationship changes, leading to greater efficiency, enhanced communications and a value-adding partnership. Our experience PwC helps organisations shape their thinking during the ongoing outsourcing journey. Our focus is on ensuring that a business gets the sought after benefits from outsourced relationships at all stages of the outsourcing lifecycle, from strategy development and evaluation right through to contract termination and renegotiation. To date we have worked on over 800 deals globally.

PwC brings three important approaches to outsourcing: 1. Fixing distressed deals 2. De-risking large, complex contracts 3. Providing a partnership bridge between organisations and their service provider.
The Partnership Bridge
Sustainable long-term deal value Control of costs Diligent purchasing Better commercials Incentivised suppliers Balanced contracts

Figure 2; Three corners of PwCs outsourcing support

Advisors across the deal

Control of risks Performing contracts

De-risking complex deals

Fixing distressed deals

Smooth, cost managed exit

Why engage with PwC? We are a truly independent advisor. We have extensive global capability, complemented by country-specific knowledge. We cover end to end business challenges and complexity across the full outsourcing lifecycle. We adopt a flexible approach and work alongside clients to deliver solutions informed by standard methods and tools. We have deep experience and board level insight on both the client and supply side.

We have operated on all sides of outsourced relationships and facilitated in between. We have global knowledge and experience of service providers and industries. PwCs fundamental principle when working with clients is to make change stick. The partnership bridge is a key enabler in bringing about lasting change and benefits in an outsourcing environment.

Who do I contact to find out more?

David Muir +44 7793 747 748 david.muir@uk.pwc.com Neil Eastwood +44 7899 062 513 neil.j.eastwood@uk.pwc.com Jason Sorby +44 7932 665 486 jason.s.sorby@uk.pwc.com Graham Pascoe + 44 (0)20 780 40992 graham.pascoe@uk.pwc.com

For a large print version of this document, please contact Laura Dodds, +44 (0)20 721 23261 laura.f.dodds@uk.pwc.com
2007 PricewaterhouseCoopers LLP. All rights reserved. PricewaterhouseCoopers refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity. 0701098ss