CIO Connect: summer 2005: Feature on supplier management

The adage that you get what you pay for is too easily forgotten in the business of corporate procurement - even when the products being sourced are those that underpin the entire business and contribute directly to its competitive advantage, revenues and profits. The bigger and higher profile the organisation, the more likely it is to want to throw its weight around, demanding extraordinary deals because of the extraordinary amount of business the company represents.

Funny then, that the large national and multi-national businesses that find it so easy to strike a good deal and bring their IT spend in under budget, are often the same organisations that complain about poor service and a loss of control when outsourcing.

CIO Connects 2004 Census found the IT vendor community to be viewed in less than a positive light: 85% of CIOs conceded "some bad experiences with suppliers", while one spoke for many of his peers when remarking that none of his companys IT suppliers were memorable.

That similar complaints have existed since the dawn of the IT industry suggests a far deeper problem than many CIOs will acknowledge. As in the breakdown of a marriage, it is rare that the blame lies with one party alone. If both sides take equal responsibility for addressing problem areas, its surprising what can be achieved.

This has been the conclusion of a more enlightened sub section of the CIO community, which now claims to be experiencing considerable rewards as a result of new policies which see them embracing their key suppliers as true partners.

Take John Worth, CIO of Prudential. Like many other CIOs of large, high-profile companies, he currently has his hands full overseeing critical IT projects designed to bring direct business advantage to the organisation. These include implementing a service-oriented architecture that will enable the business to do more with its customer data, and deploying voice over IP. These initiatives are designed to rein in internal costs, while delivering a superior service to customers and sharpening the companys marketing.

Yet, despite these vast undertakings, Worth recently took the time to fly to Las Vegas to address a global sales conference for one of its suppliers, BEA, where he described the companys experiences good and bad with its 4Front middleware product.

We will happily speak to an organisation if this means we have an influence over how the product is developed in future, he says.

This wasnt always the case, though. Prudential has very deliberately changed its policy on managing suppliers. Worth has had a lot to do with this. He took over the role of CIO in January 2004, after nearly two years as the companys head of risk for UK and Europe. Worth is a chartered accountant, who came to his current IT-related role via auditing and then risk management positions. He came to Prudential from Barclays. By considering the risk of non-delivery against budgetary issues, Worth has found that the right balance is all in the management.

If you want results, you have to treat suppliers with respect, he says. If customers are king, then so are your IT suppliers, as it is they that will help you deliver to your customers.

With this in mind, Worth invites some 70-100 representatives from Prudentials main IT suppliers to an annual presentation where they are given the low-down on what Prudential is trying to achieve as a business. The audience ranges from technical staff right up to the client relationship managers.

The point is to make sure theyre all on the same page when it comes our medium-term strategy, and to put our IT needs into context. This is of huge benefit to us, and to our suppliers. We get good feedback about these events, because theyre unusual. It gives our suppliers an opportunity to meet each other too, and again thats handy for us. If Oracle and Cap Gemini talk to each other and these relationships get stronger, we all benefit.

Gary Gordon, who heads up IT supplier management at Prudential, has been with the company longer than Worth, so can see the differences before and after the new strategy of supplier inclusion. Johns reference to respect is interesting, he notes. In the late 90s, early 2000s, cash was king, big deals were being done, and the customer-supplier relationship was very much a master-slave affair. We have some very talented people within the company, so, back then, wed be very prescriptive about our requirements, and wouldnt ask for our suppliers ideas. We didnt provide references, as we didnt consider this to be in our interests. Thats all changed now. Were not as insular any more.

By letting suppliers in, Prudential is giving them an opportunity to tailor a proposal to address its broader needs. Because theyre no longer working in a vacuum, they can help take ownership of the problem and are more motivated to see that the solution adequately addresses this.

In the case of Cap Gemini, which provides outsourced data centre services to the Pru, this meant giving the company a heads up on a set of papers the IT department would be presenting to its own board. These covered details of the cost of Prudentials data centre, and the SLA performance that the IT department is delivering to the business with Cap Geminis help.

If they can see how I present this to the company, it helps them understand where Im coming from, Worth explains. We wouldnt have put ourselves in their shoes before. Our suppliers want to give us the best solutions, and we want to help them do that. What it all boils down to is greater productivity for their teams, and ours. There is no culture of blame, because we have a common goal.

Prudential extends this same approach to identifying new suppliers too, using an intermediary, Xantus, to help it secure the best value for money. Xantus put us onto BT for our VoIP network, Worth says. We put time in to making sure they understood us, the technology we had and needed. Armed with this, Xantus was able to help Prudential track down the right all-round supplier. This was good value for money, he adds.

For international recruitment agency Manpower, effective supplier relationships today are all about consolidation, centralisation and being able to provide a more agile infrastructure to the global business.

Although Manpower is based in the US, France is its biggest market, followed by the rest of EMEA. Until recently, IT was handled on a regional basis, with little central co-ordination. This is beginning to change.

Were on a global journey, says Kevin Fitzpatrick, VP and chief technology officer for Manpower internationally. Where it makes sense to have global relationships, we will. Until about eight months ago, the likes of Microsoft were engaging with us separately for the different regions or activities, whereas now Microsoft, IBM, BT and others are working with us on an international basis. Its still early days, but were making good progress.

Central to this strategy is a new worldwide WAN, being provided by BT. This is enabling Manpower to consolidate its core IT activities into three data centres, while allowing standard applications to be rolled out where this is practical and beneficial, enabling related business units across the world to share data more easily. In future, IBM servers and PCs, Microsoft Active Directory, and applications such as Peoplesoft financial software and an in-house application for managing recruits will be specified wherever possible.

This isnt just about being able to command better deals, although we would expect an advantage here; its about improving our total cost of ownership and the overall service, Fitzpatrick explains.

The new global WAN also facilitates a global support operation, with a follow-the-sun mechanism that gives Manpower 24x7 technical support without exorbitant costs. We want value add, and no duplication, he says. The company also wants to make it easier to deploy best practices on an international scale.

Very aggressive cost savings are already flowing through, he notes. The biggest single saving is provided by the BT network which will be around 40% cheaper when fully deployed to all our 67 countries. This is expected to be by the end of 2006. The BT WAN is provided as a fully managed service, removing a large technical burden from Fitzpatricks team, while providing oodles of bandwidth.

But what does a global IT strategy mean for supplier relationships? More clout, almost certainly, but how do global relationships work in practice?

Although Fitzpatrick is all too aware that no ICT supplier can pull off a truly global service under its own steam, he and his team chose BT because of the strength of its own coverage coupled with the strength of its international partnerships. We have around 4,000 offices around the world and we have to provide connectivity to them all. BT could address Japan and Australia as well as France and the US, he says, noting that Manpowers rigorous assessment also included MCI, AT&T and Sprint. Adaptability was also critical. In addition to having flexible technology, Fitzpatrick has found BT immensely adaptable as a supplier.

They are a company that will work with you to overcome problems. Although we have a contract and had an original network design and plan, if a new challenge crops us, theyre not scared by change, and will work with us to see how we can accommodate it.

For our part, we recognise that they are not a charity, and have their own targets, and we try to accommodate these too. If the project isnt being rolled out as expected, and this creates a financial challenge for BT, well be open to looking at what they need to redress this. As the customer, well always retain the right to say No, but the point is that we are open to working this way.

For this relationship to work well, we need to understand what our suppliers need to succeed, what their drivers are, and how they work in reality, not what can be said with a few Powerpoint slides. That means being open and honest about what works and what doesnt work if the team is wrong, for example. We can all complain about suppliers, but they may be frustrated with us because were not giving them the information they need to do their job. The worst thing you can do is empower people and then not give them the information. That leads to chaos.

Success relies on meaningful, two-way communication BT and IBM need to be aware of everyones progress, and of how the global applications roll-out is going. When were talking about a key supplier, who is absolutely vital for delivery, and needs to be around for the long term, we need them to be intimately involved with us. We expect our suppliers to lead us, too. We give them a challenge, and we expect them to suggest how we can address it. That means they need to be in Manpower; they need to know everyone and become involved in the planning.

Thomas Cook is another business with a global agenda. In Thomas Cooks case, this includes outsourcing a growing part of its IT activities to offshore companies, creating a complex paradigm of supplier relationships.

Thomas Cook is now German owned, and Germany is its largest market, followed by the UK and the rest of Western Europe. The group includes an extensive network of tour operators, including specialist outfits such as Club 18-30; over 600 direct sales branches (in the UK); three call centres; Thomas Cook TV; plus a growing online presence. It also owns a fleet of 28 planes in the UK. This requires a lot of IT and co-ordination, notes the companys UK IT director, Carl Dawson.

This challenge is heightened by the fact that Thomas Cook, like many of its contemporaries in the travel business, is having to adapt quickly to compete with the newer, more nimble, online-only travel businesses such as expedia, LastMinute and travelocity. These are organisations that are not held back by the legacy systems, business models and cost structures of the more established bricks and mortar travel companies.

For Thomas Cook, as with its peers, rationalisation in order to compete and sustain market share means reducing internal costs and boosting telephone and online sales.

In the UK, cutting costs has involved outsourcing three large non-core activities to Accenture IT, finance and HR. 450 staff transferred to Accenture when the contract was signed three years ago, including 130 IT people.

Thomas Cook also outsources desktop services to PinkRoccade (now part of Getronics), and some of its application management and maintenance to specialist service provider Syntel.

When it outsourced all of this, Thomas Cook retained a core IT staff of 30 people in the UK. Their responsibilities are split between service management and managing Thomas Cooks suppliers, and specifying and developing new systems to address the companys future business challenges.

Fifty per cent of the application services provided by Syntel are already managed in India, and the Accenture contract, which has just been re-signed, now specifies that much of the work will be carried out in Bangalore. Using offshore services created significant savings to begin with and more are coming, Dawson notes.

But what has Thomas Cook sacrificed in outsourcing, particularly to offshore facilities? Its true that this demands more complex management, he says. But we have been careful to retain control of our strategy and of procurement. We deliberately didnt transfer any assets any applications or hardware so that we can continue to determine our own future.

When it comes to the offshore element, we have followed the Syntel example, which is to keep some people on site, so that they are close to us and take responsibility for farming out the work and bringing it back to us.

Meanwhile, the service-level agreements include creative, shared risk and reward clauses, which are designed to encourage the outsourced service providers to improve processes. This way, complacency should never creep in.

While the outsourced service providers introduce new efficiencies to the way Thomas Cooks legacy systems are being run, they also leave Dawsons internal team with the freedom and capacity to innovate. The urgency to respond to the likes of Expedia is actually very exciting, he says. There is now a move to redevelop our core systems, which will be the big focus for the next two to three years. This is a big opportunity to review what we do, and introduce new systems. This wouldnt be possible without our current outsourcing relationships.