Information Technology Outsourcing at BBC

Examine the factors that prompted BBC to sell its technology division, BBCTL. Comment on the evaluation criteria and the process adopted to select the buyer supplier. !actors that prompted BBC to sell its technology division, BBCTL. It could "ell be said that BBC outsourced for one reason # pressures from the $% government to reduce costs. BBC "as essentially instructed to increase their revenue by &B ' "hile also reducing their operating costs, "ithin a period of seven years. The management of BBC therefore felt that outsourcing their IT infrastructure and management "ould be a sure(fire "ay of achieving this other"ise impossible target as they realised that this move could actually save them about ')* to '+* million every year. ,Ironically, the purpose of starting BBCTL "as in fact to increase revenues for the parent company by providing technology services to the third party media enterprises. -till, "hen faced "ith the gargantum revenue target, CTO .ohn /arney "as forced to consider outsourcing their IT0. 1nother reason that .ohn /arney decided in favour of outsourcing "as that he felt that BBCTL deserved to belong to a 2technology parent3 rather than a 2content parent3. 1n increasing number of observers "ere of the vie" that BBC should not be investing in speculative technology, as BBC "as a media company. BBC "as also see4ing to reduce its operating costs in order to plough more money into programme ma4ing. Outsourcing IT meant that more money could be spent on the programmes and less on duplicating "hat someone else "as already doing more cheaply. .ohn -mith, COO at the BBC, had said in a statement5 6The value and substantial savings created from the sale of BBC Technology and this procurement of our technology services is a significant step for us in ensuring the BBC is fit for the future and continues to create innovative programmes.7& The sale of BBCTL to -iemens Business -ervices ,-B-0 also meant that ne" technologies "ould be available to the company at a lo"er price. -B- "ill spend their o"n money to research and develop innovative IT products and services "hich "ill then be made available to BBC. This "as important to the BBC as it "as essential that the company gained competitive advantage in such matters in order to maintain their position as ma8or players in both television and radio broadcasting. 9hile BBC had managed to successfully establish its o"n technology unit, there "as a danger that the management "ould be over(stretched "ith too many operations to run. Thus the separation "ould allo" managers to focus on BBC3s core mission. It "as also a fact that BBC Technology, as a standalone commercial unit, had been hampered by the limitations of its si:e. 9hat the company needed "as economies of scale "hich could only be best achieved through outsourcing. 1ccording to .ohn /arney, 6;.no one should loo4 after their o"n IT unless they happen to be an IT company. The concentration on core business is a very, very important thing. The mar4et that "e3re no" in is fiercely competitive and hugely reactive to consumer pressure and consumer change as it never has been before. The logical thing to do is to lose that distraction of managing your technology.
&

1ndy <cCue5 """.silicon.com

Information Technology Outsourcing at BBC I don3t "orry about the servers anymore. That3s the "ay all media organisations should be going, particularly the large ones, because if they stay fragmented in the "ay they loo4 at their operations, they3ll miss the mar4et changes, and, =uite simply, die,6). On another occasion he said, >;"e realised "e needed to achieve economies of scale and the ability to invest heavily in technology over five or six years. It "as a hard decision, but that is "hy "e outsourced7+. ?espite BBC3s history of innovation, there "as a gro"ing recognition "ithin the company that it "as ill e=uipped to thrive in the 2ne" media "orld3. <edia companies "ere struggling to 4eep up as consumers demanded increasingly personalised content delivered over a range of platforms li4e digital cable, internet and mobile phones. Content distribution "as getting more complex and increasingly dependent on IT. It "as therefore becoming increasingly apparent that the organisation needed economies of scale to invest in ne" technology. There "as also the issue of saving 8obs. If the BBC had decided against outsourcing, the pressure it "as under from the government may have led it to cut up to +** 8obs in a pro8ect named @ro8ect Leo. There have also been a number of other outsourcing deals in the industry, as broadcasters loo4 to shed overheads. /odafone has outsourced European content distribution to 1ccenture, +A mobile operator + uses -B- to provide its football goals coverage, and the ?iscovery Channel has a"arded transmission services to 1scent <edia. (((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((( ( Evaluation criteria and the process adopted to select the buyer supplier. The BBC started the process of selecting potential candidates through the E$ procurement process in late )**+. By !ebruary )**B the shortlist of potential buyers included companies li4e C@, !u8itsu and 1ccenture. To"ards the end of )**B -B- "as announced as the "inning bidder, having fulfilled the stringent re=uirements set out by the BBC. One of the 4ey positive aspects of the BBC3s approach to outsourcing their technology unit "as that the corporation "as very rigorous in its selection process. ,This "as in fact necessary, if the deal "as to be approved by government and the E$ commission.0 In the first selection stage BBC placed an advertisement in 2The Official .ournal of The European Communities3, setting an open bid. !rom this first stage, the BBC received interest from D* companies. 1fter a rigorous process of elimination, involving )E employees, this number "as "hittled do"n to the finalists. $sing a pre(=ualifying =uestionnaire, nine suppliers "ere short(listed "ith eight entering the bidding process. The potential bidders "ere specifically as4ed to describe "hat process they "ould follo" for providing outsourced services, and "hat did they perceive as the re=uirements for the transformation at the BBC.

) +

Feshaping the media 9orld # .onathan CopfnerG """.theage.com.au BBCHs IT outsourcing may be start of trend ( ?aniel ThomasG """.computing.co.u4

Information Technology Outsourcing at BBC $sing this information, three preferred bidders "ere announced. 9ith one bidder pulling out, 1ccenture and -B- "ere left in the fray. !inally, -B- "ere chosen as the preferred bidder due to their 4no"ledge of the BBC3s culture. @ositive aspects of the selection process The process of selecting a supplier "as underta4en =uite meticulously "ith specific emphasis being placed on aligning the t"o companies3 cultures to ensure the best transition possible. Throughout the bidding process, BBC spent a great deal of time and effort ensuring that they got the right supplier to meet their needs. The re=uirement for the sale to be advertised "as a very good thing. ,It "as an 2open bid3 as opposed to a bid 2by invitation only30. This meant that the bidding "as truly global in nature, "hich helped to increase the competition. This helped to increase the value of the company by initiating a sort of 2bidding "ar3. 1lso by 2pulling in3 the potential bidders, the overall time and cost of the selection process "as substantially reduced. The multiple stages that the bidders had to go through, to reach the final stage, meant that the BBC could gather as much information as possible on the companies and so finally ma4e a more informed decision. The amount of resources used to pic4 the right candidate also brought in some advantages. !or one, this allo"ed BBC to have in(depth discussions as "ell as more intense negotiations. <ore importantly though, this allo"ed the BBC to create a much better sta4eholder perception. It "as important that the BBC "as not seen as ta4ing this decision lightly. -pending resources on this stage helped in lo"ering the amount of criticism and the perception that BBC "as out to >ma4e a =uic4 buc47. BBC "ere also astute to clearly and elaborately define their expectations from the potential buyers. Iot only did this give BBC the legitimate criteria to asses each of the short(listed companies, but it also discouraged those candidates "ho "ere unhappy "ith BBC3s demands. Iot disclosing an initial price "as a strategic move by as it helped the BBC to identify the mar4et3s perceived value of the company. Iegative aspects of the selection process 1s far as the employee relationship "ith BBCTL "as concerned, BBC clearly did not manage the sale process very "ell. By 4eeping the BBCTL employees, the ones "ho "ere to be most directly affected by the sale, in the dar4 mostly throughout the selection and bidding process, BBC "as not perceived to be a responsible operator. They should have informed the staff early on in the process and 4ept them up to date. These measures "ould have safe guarded the reputation of the BBC. This ultimately led to industrial action being planned by the union BECT$ ,this "as eventually called off only due to a legal technicality0.

Information Technology Outsourcing at BBC The problem "as further exacerbated "hen the BBC gave the final t"o bidders the details of @ro8ect Leo. Lu4e Cra"ley, a BECT$ official, commented that5 >"e al"ays 4ne" that there "as a ris4 of staff being fired once the sale "ent through but, it3s astonishing that the current management are not 8ust ma4ing the bullets but, loading them into the ne" employer3s gun7 ,Oates, )**B0. The BBC also did not include profit sharing in the company if -B-3 returns exceeded a specific levelB. If the return does exceed a specific level, the BBC may have been able to increase its revenues. The BBC has also been criticised for not exercising its rights of open(boo4 access to chec4 ho" profitable the contract is for -B-. 1nother negative aspect of the process to select a "inner "as that the BBC made no use of outside consultants. Outside consultants are useful for assessment "or4, e.g. predicted savings, because they have the benefit of being ob8ectiveJ. This is obviously an issue because disgruntled staff are unli4ely to believe that such overestimation "as a genuine mista4e. ,BECT$ had issued a "arning that the contract "ould not provide the expected benefits0. The Couse of Commons 2Committee of @ublic 1ccounts3 has highlighted the fact that the BBC did not include some form of contingency plans in the event of terminating the contract early.

B J

Couse of Commons, Committee of @ublic 1ccounts, )**K Cad the BBC considered this as part of their process it is li4ely that they "ould not have miscalculated the savings "hich the contract "ould provide. The Iational 1udit Office ,I1O0 discovered that the BBC had overestimated savings by including a one(off cost in its calculations. ,Espiner, T., )**E0

Information Technology Outsourcing at BBC

?o you agree "ith BBC3s strategy of outsourcing its IT re=uirements to the same company for a period of ten yearsL 9hyL Outsourcing involves the transfer of management and or the day to day execution of an entire business function to an external service provider. In terms of the contractual agreement bet"een the BBC and -B-, the BBC transferred &,B** staff and access to ')* million "orth of contracts "ith the agreement that -B- "ould provide technology support and services. The real benefit of outsourcing comes from specialist nature of the outsourcing company. This company "ill often do a lot of research and development to either save costs or to innovate. 1lthough innovation "as being continuously carried out by the BBC, -iemens "ill potentially have many more customers of BBC3s type in the future. This pooling of multiple companies resources "ould allo" innovation to be accelerated. Innovations in other areas by -iemens may also benefit the BBC. !or example -iemens may indirectly develop a ne" technology in another area of the business that "as useful for the BBC. <anaging ris4 is critical to the success of any organisation and outsourcing provides a very effective "ay to transfer these ris4s. ,Fis4s could include labour stri4es, litigation, supply issues etc.0. BBC3s technology re=uirements are increasingly complex. This coupled "ith the fact that BBC needs to go completely digital by )*&), means that there "as a good reason to have a ris4 mitigation process in place. -ince the contract "ith -iemens is largely fixed, most of the ris4s and potential problems "ould no" be absorbed by -iemens. It3s important to note that this "as an outsourcing deal not an offshoring one # -B- had ruled out 8ob cuts and the use of lo"(cost overseas IT resources. The reason "hy BBC "ent in for a long term contract "as obviously to tie in -B- to a specific price contract and ma4e its o"n future costs predictable. ,The main problem for outsourcing contracts is the potential for the supplier to charge anything it pleases once the contract is due for rene"al.0 The do"nside of outsourcing of(course is that there is the danger of handing over some of the intellectual property ,I@0 that has given the company a competitive edge in the past. In the case of BBC3s contract "ith -B-, the length of the contract has the potential to create issues for BBC at some stage. Ten years is a relatively large period for a contract that has essentially never been tested. If it "ere to fail, the BBC "ould be loc4ed into the contract for a huge length of time. ,The first issue already occurred "hen it "as discovered that mista4es "ere made "hen estimating cost reduction "ith the BBC Aovernors being briefed on yearly savings of '+J.)

Information Technology Outsourcing at BBC million. In the first year of the contract there "ere savings of ')) million, '&+.B million lo"er than the guaranteed levelE.0 1 long contract prevents BBC from correcting any initial mista4es. The BBC, for example, is aiming for cost savings of ')*m a year through its ')bn technology outsourcing deal "ith -B-. The ')*m a year savings only represent a &* per cent return for the BBC compared to typical outsourcing deals that "ould aim for something closer to )* per cent. ?espite the ')n frame"or4 agreement, BBC is still spending substantial amounts of money on other IT suppliers for services. In the financial deal year )**J )**E '&M*m "as spent by the BBC through the -B- contract, but a further ')E*m "as spent on technology services from other suppliers. 1round 'J*m of this "as spent by BBC units procuring their o"n technology services that could have been bought through the -B- contract.K !or -B-, a &* year outsourcing deal "ith BBC ma4es a lot of strategic sense. It gives -B- an opportunity to expand into a completely ne" vertical "hile providing the luxury of having a ma8or client on the boo4s for an extended period of time. -ince the outsourcing contract re=uires that -B- "ill provide the BBC "ith technology and services support for the next ten years, the BBC had to ensure that they "ere pic4ing a company that they "ere completely satisfied "ith. If BBC pic4ed a supplier that provided poor service then this "ould be permanent for the next ten years. ,It "ould probably have been "ise for the BBC to include a clause exempting them from the contract for reasons such as poor service0. BBC did not include any mechanism to safeguard value for money over the life of a deal. !or example, it could have introduced a contractual provision to share profits if the rate of return exceeds a specified level. In conclusion therefore, it seems that "hile the outsourcing itself "as a step in the right direction for BBC, the length of the contract, "ithout any recourse to intervention or reevaluation, did severely curtail BBC3s ability to derive the full financial advantage from the contract.

E K

Couse of Commons, Committee of @ublic 1ccounts, )**K BBCHs '&.Jbn outsourcing costs under fire, 1ndy <cCueG """.silicon.com

Information Technology Outsourcing at BBC Feferences &. BBC Outsourcing5 The contract bet"een the BBC and -iemens Business -ervices for the provision of technology servicesG Iational 1udit Office ). BBC "ants ')**m savings from ')bn outsourcing dealG 1ndy <ccueG """.silicon.com +. $nrest at BBC sho"s need for better outsourcing managementG """.:dnet.com B. -avings from BBC outsourcing lo"er than expectedG """.cbronline.com J. -elling off the BBC By %ir4 IorthropG """.transdiffusion.org E. BBC privatisation gets go(aheadG """.bectu.org.u4 K. Offshore outsourcing of business servicesG E<CC company net"or4G European !oundation for the Improvement of Living and 9or4ing Conditions