One Man Band
Compared to Peter Goodwin's setup at Collex, Manulife's in-house IT department is huge. Officially Collex's CFO, Goodwin effectively acts as the CIO as well. In larger and more complex relationships, the outsourcer typically creates a dedicated account team, while the customer provides a contract management team. For now at least, Goodwin pretty much is the contract management team.
Collex's small head office reflects a culture that grants tremendous autonomy to its divisions across Australia and New Zealand. Goodwin says this model doesn't support a centralized IT infrastructure, so the company has always relied on contractors or consultants. "In the past we used to host the infrastructure ourselves, but now we've got to the point where we don't even want to host infrastructure," he says.
The initial contract with Atos Origin, signed in June 2000, covered purchase, hosting, support, and maintenance of the hardware needed to run Collex's newly acquired SAP applications for the back office. Goodwin says none of the divisional offices was interested in playing host to technology for the whole company, so it suited them to hand the job to an outside party.
Since then, an industry-specific customer service software package called Refuse Management System (RMS) has been added to the deal, along with software from Citrix which enables delivery of Windows NT-based applications to each desktop. So far, regional server facilities from four smaller states have been consolidated at Atos Origin's facility, while Collex maintains its own server farms in Australia's two most populous states, New South Wales and Victoria. But as the technology becomes obsolete these operations will transfer to Atos Origin as well. "Eventually we'll have all of our IT remotely hosted, managed, and supported by Atos Origin," Goodwin says. "All we'll do — and even then we'll probably use their support — is focus on the content."
In effect, the company is moving from an environment of 30 to 40 server installations to three or four — one for the Microsoft desktop environment, one for RMS, one for SAP applications, plus the corporate Web site. The SAP applications go "live" shortly. The first contract covers just one year; Goodwin expects to extend the terms to three more years, all going well.
But he doesn't expect outsourcing to have a significant effect on staff numbers at Collex. While the company has grown at least 25 percent a year over the past five years, the rate of technology adoption has been even faster: The number of PCs increased by 40 percent in 2000. Goodwin expects efficiencies derived from outsourcing will help keep Collex on that trajectory. Combined with regional autonomy, the previous best-of-breed approach — using different software packages from niche experts — contributed to duplication of effort.
"If we want to control anything more carefully, it's our content, because that's where we see competitive advantage," Goodwin says. "Content" includes information accumulated by finding out a customer's needs, servicing them and issuing follow-up reports. "This is where we want to spend our time and effort — not on maintaining boxes," he says.
Information is Power
Goodwin's focus on the corporate knowledge bank is smart. Inability to access and interpret key data is not only frustrating for executives but life-threatening to any business. Because operational data reflects real costs and actual service levels, it can serve a vendor to keep the figures close to its chest. Depending on the details of the outsourcing agreement, customers might be lumped with raw data and left to come up with their own analysis — a tough feat if operational systems and internal expertise have been transferred to the outsourcer. The issue of data control becomes especially sensitive when a customer is considering changes to its infrastructure that go against the interests of the outsourcer.
Indeed, a company loses control when it loses its understanding of the cost-drivers and limitations of the outsourced process. Everest Group offered counsel to one company whose outsourcer presented it with a one-page invoice — with no more than a single line item for charges — for a $40 million a year contract. When the customer requested detailed information, it was told such information was confidential. After months of pleading they were told the detailed data was not available because the outsourcer did not have the necessary accounting systems.
Eventually the outsourcer delivered a report comprising thousands of lines of detail but no interpretation — and charged the customer $60,000 for the privilege. It turned out that the reports had been available all along — and were being used by the outsourcer to manage the account.
For his part, Goodwin says he is still working out the most effective "carrots and sticks" for keeping his outsourcing relationship in line. He will apply the usual performance measures, such as response time and system uptime, but is more interested in the final service experienced by Collex's customers, not what the Atos Origin-hosted servers deliver to Collex. "Our intention is to structure the final SLA based on the end-to-end service," he says. "If the server farm is running at 98.5 percent uptime, that's fine, but if our clients average only 95 percent uptime, the carrots and sticks will be based on ensuring the 95 percent for our users, in fact rises to 98.5 percent as well." In addition, Atos Origin is keen to buy Collex's equipment, a move Goodwin says he supports in principle. But again, he will not rush. "We don't really want to do that for at least a year," he says.
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