UK Recruitment Company
Processing costs down 35%, support costs down by 45%, service level up by 26%
Scope, scale and deliverables
Elix-IRR is also able to provide unique ‘buy-side’ insight with our CIO having more than 10 years board-level experience and having been responsible for, and personally involved in, many outsourcing initiatives as a buyer of services.
An example of this experience relevant to your tender request is the initiative by a £20bn recruitment company to consolidate 8 IT datacentres, development capacity, network provision, front & back-office applications, support services and some back-office accounting and administrative functions.
This deal involved the selection of sourcing advisors, analysis of potential vendors and their subsequent selection, strategic planning and management, including liaising and coordinating with other group
transformation programmes, and the subsequent executing and transition to live operations.
Specifically included in the deal were:
- Transformation: transformation of front and back office operations across 24 different legacy applications spread across 8 business units to 1 integrated application, from front office through to back office.
- Near-shoring: A combination of transaction processing functions and some back-office accounting functions to a captive shared-service centre in Bulgaria.
- Consolidation of some front office functions into 2 large shared service centres in the UK.
- Consolidation of several Tier 1 networks across from 3 vendors into a single Tier 1 network supported by a single vendor.
- Consolidation of 8 captive data centres into a single outsourced data centre.
Governance & relationship with client
On the client side, the governance and relationship management model for this transformation programme was integrated at the highest level Group Steering Committee. This was chaired by the Global CEO and included country CEOs and CIOs, the remit of which was to oversee all group programmes and to manage priorities at the highest level.
Executive governance included senior representatives of the sourcing advisory firm, then, as the programme progressed, senior representatives from the largest vendors.
The local governance structures fed into the group governance. At this level a set of tactical boards that represented the interests of the business units managed the operational critical path and day-to-day operational conflicts.
Commercial / contract arrangements
The vendor contractual arrangements were concluded over an 18 month timeline and included multi-tiered service level agreements, asset purchase, resource transition and all relevant service level descriptions.
The commercial outcomes and value delivered by this programme included:
- Transformation: transformation of front and back office operations reduced transaction processing costs by 35%, reduced support costs by 45%, and increased service levels by 26%. This was considered a success.
- Near-shoring: Creation of a captive shared-service centre in Bulgaria. Reduced transaction processing costs by 300% and improved service to business by 800%. Reduced operational costs by 60%. This was
considered a great success. - Consolidation of front office functions into 2 shared service centres in the UK. Reduced front office head count by 30%, total head count by 22% and operational costs by 32%. This was considered a success.
- Consolidation of several Tier 1 networks across from 3 vendors into a single Tier 1 network supported by a single vendor. Reduced network support costs by 65%, reduced service support levels by 34%. This was considered a success by the financial side of the firm and a failure by the operational side of the firm.
- Consolidation of 8 captive data centres into a single outsourced data centre. Operational costs increased by 28%, service support levels for some areas fell by over 200%, and response times reduced across the
board. This was considered a failure.
Outcomes and Learning
The key outcomes and lessons learned in this process were:
- Transformation: Removing duplicate processes, revisiting ‘perfect processes’ and getting all-round participation on creating ‘the best processes we can’ before executing was key to the success of the transformation element. Cultural barriers across 8 business units (all with very different backgrounds, clients and expectations) were high. Finding the common threads and working them into an overall consensus was the foundation of this success.
- Near-shoring: Cheap premises (square footage at 20% of local costs), resource costs of 33% local prices and enthusiastic, well educated, good English-speaking locals were one half of the equation. The other half was fully involved local staff who were involved in the initial planning and were either promoted or employed elsewhere in the business. A 5-year business plan with assumptions that showed declining returns over five years and a good ‘back-out or move on’ plan allowed the execution of the only cost cutting plan that was not based on headcount reductions.
- Consolidation of front office functions: Analysing business processes across 650 branch offices in 8 business units was a challenge, but ultimately created some value. The actual business case was marginal, but the change was required for strategic reasons. It would have been easy to lose all the potential gains in a poor transition to a new operational environment. Some of the potential gains were lost when the transition period extended across a month-end accounting period and a period of ‘manual processing’ was required so as to reduce business risk. The gains achieved were about half of what could have been.
- Consolidation of Tier 1 networks: Although, on the surface, it is possible to make a case for the success of this initiative from an immediate, financial perspective, in fact, operationally, things did not work out at all well. The original idea was to save money and improve service to the business by consolidating the legacy network provision arrangements into a single provider supported network. The intention locally was to negotiate with the largest vendor (supplier of half of the total network) to get a lower price for the whole network but without compromising service levels, and improving them wherever possible. As negotiations were nearing completion, an initiative elsewhere in the business forced an unknown vendor into the process. The new vendor won the contract by bidding at half the price of the nearest competitor and was awarded the contract on that basis. The transition process overran by 300% and network downtime cost the firm more than the value of any potential savings over a five year period. In addition, less experienced vendor staff were unable to provide adequate service levels. Finally, the cost of building completely fresh relationships with a new vendor were not factored in and contributed to further intangible losses.
- Consolidation of captive data centres: Many factors contributed to the failure of this activity to make quite significant operational cost reductions. An advisor who was an expert at trends, statistics and the capabilities of the big outsourcing providers such as Accenture, IBM, HP etc immediately narrowed the field before the business case had been constructed. The use, by the internal programme staff responsible, of templates provided by the potential vendors was not conducive to programme clarity and created the impression of favouritism which fuelled internal resistance. It was not clear until the transition phase that a significant portion of applications that the winning vendor was now contractually obliged to host and service were not compatible with the new hosting environment and could not be cut across – therefore operational costs could not be cut as anticipated and, in fact, increased. The group level of the firm inserted themselves between the local businesses and the vendors resulting in service support processes.
