CIO of the Inland Revenue Authority of Singapore, Tang Wai Yee, shared her views on how the IT outsourcing process could be better managed if the needs of different groups of people were addressed. As stakeholders, customers, IT staff and vendor staff will be affected, ascribing them clear roles before, during and after outsourcing, and ensuring sufficient communication, are key to successful outsourcing, she said. Tang also described how the Ministry of Manpower's major IT outsourcing initiative had carefully planned for these considerations and successfully executed the transition. Sharing his view from a vendor perspective was Stephen Yeo, vice president of Strategic Initiatives Asia, EDS International, who highlighted the need to be innovative in deal structuring. Even acumen in technical, financial, legal and HR perspectives pertaining to big IT outsourcing projects could be thrown off by rising inflation, said Yeo. For the vendor, he emphasised the need to be effective change managers as well as having a global footprint and being able to leverage on resources.
Ng Yoke Weng, CIO of SingTel, stressed the importance of managing the desired outcome, measuring the results, and pegging payments to the outcome. He added that governance structures must be put in place whilst factoring in security risks and providing for service termination conditions that are acceptable to all parties.
The three speakers joined Lau Soon Liang, chairman, SCS Professional Certification Panel, for a panel discussion which was moderated by the CIO of Raffles Medical Group, Dr Colin Quek.
An edited transcript of the panel discussion, followed by a Q&A session with the audience, is included below.
Quek: Outsourcing has been described as a long term relationship, somewhat like a marriage. Who wears the pants in an outsourcing relationship?
Yeo: I found it interesting that Wai Yee used the word “trust” in her talk. She refers to the relationship as a marriage. For a good marriage, you must trust each other. I think once you decide to outsource, you must give the outsourcer the leeway to do the job. Who takes the lead and who makes the decisions? You can’t tie the outsourcer down: “I want this as outcome, I want you to do this, I don’t want you to do that, you must work with this staff”. So who wears the pants? The outsourcer.
Tang: Well, at the end of it, it depends on who pays…
Ng: Frankly, it is not about who calls the shots. At the end of the day, we should build in milestones in the project. We will review this periodically. Only if the outcome is not forthcoming, then do we need to intervene. I brought up the point on over governance. If we interfere too much, it may defeat the purpose of outsourcing.
Yeo: I do think that outsourcing relationships in the local context is somewhat unequal. It’s still very much “I’m the customer, I’m paying. You are the slave, I ask you to jump. You ask ‘how high?’’” The relationship is very unequal; just look at the legal terms and conditions. But I have seen a lot of very balanced relationships work with multinational clients. I think a more balanced relationship is a more palatable solution.
Lau: On the subject of relationships, I think the key people involved in outsourcing have important roles to fulfil -- their attitudes, policies, approaches have a bearing on the relationship. Ultimately, the outsourcing manager with experience can make a difference.
Quek: There seems to be difference in expectations between vendor and client about the ideal length of contract for outsourcing. Should one take a long term or short term [approach], or are we really better off taking small bites?
Tang: I believe we can look at longer term relationship but with safeguards or what I call commercial tensions built into it. For example, an eight-year contract could be broken down to a 3+3+2-year contract to incorporate a time-out check to review the performance of the vendor.
Ng: I come back to the point about outcome and the need to align the outcome to business goals. Even in a long term relationship, we still need short term results. For example, [there is] no point talking about cost savings in the long term in my industry, because the revenue per minute call is dropping fast and you need quick results. I really have to look at it from a business perspective. It is not a case of (outsourcing) IT for IT’s sake. There is a need to use IT outsourcing to achieve business imperatives.
Yeo: I would like to share with you why outsourcing deals have to be on a longer term basis. Typically, for an outsourcing deal, the vendor loses money in the first two years. If a deal gets terminated between zero and five years, the vendor loses his pants. That’s why large outsourcing deals are done for longer term periods.
Quek: I can see both points of view, why it needs to be long from vendor’s perspective and shorter from client’s perspective. But what is the ideal solution?
Lau: I agree with Stephen about the 8 -10 year period for outsourcing contracts. With that target in mind, outsourcing has not had a long history in Singapore. Few of us have gone through the painful stage, and it is good to have professionals from overseas who can share their experience.
Ng: We should be prepared for a long term deal. But we should have very clear termination clauses for under performance. We should enter into a deal with an open mind and, therefore, structure the termination clauses well. Keep in mind it is for the longer term but, if it ends prematurely, having well structured termination clauses will help.
Quek: What is the general view that most outsourcing contracts end up in five-year or longer time spans?
Ng: I have seen a lot of deals that have not worked out well. I personally think that some of such deals are done simplistically, from a cost containment perspective, for example. Meanwhile, if there is a change in CEO in the organisation, then the new head may want to seek further savings from outsourcing which may not be realistic.
(Questions from the audience)
Audience: What is your experience with the resourcing of IT staff from the user side?
Tang: We have this practice called co-sourcing. In our case, half the staff come from IRAS and half from the vendor. Like it or not, there is bound to be staff turnover. We have to take into account that, to be effective, the IT staff involved are not just running the system but have to understand the business well.
Ng: In Australia, I had a couple of experiences. In one case, I relied on my Singapore team for resources so, in that sense, I was not left high and dry. If you have outsourced everything and you are left with an inhouse three person team, then you do not have a choice. You may need to bring in another vendor.
Lau: It partly depends on the business objective for outsourcing, and building into the negotiations upfront with the vendor the contingency plan for IT staff resourcing and also what you want to achieve in business outcome.
Quek: For those contracts in the outsourcing market for 8 - 10 years, do they get further extended?
Yeo: We have a number of clients who have not only extended but also expanded the scope of services. We have a process to help the client in transitioning either way. Transition upfront -- taking over from the client -- is a very rigorous process involving HR and technical support. But where we take pride is in the exit. We have whole methodology in transitioning in or out of an outsourcing contract. A smooth transition is crucial and we never leave a client high and dry.
Lau: It is very important to have an exit plan. From experience, there was a case -- when looking at documentation-- [where] the client ended up with a library of PDF documents. In such instances, an outsourcing manager with experience is important at the tail-end of a contract.
Audience: What are the four to five risk factors to consider in outsourcing?
Ng: I’m chairing a risk management committee in SingTel. Outsourcing is a big leap of faith. It is a big decision to extend to an external party the running of business information systems, so it is necessary to look for a strong partner with financial resources. The vendor must also share the same contingency or preparedness that you already have. There are also implementation risks, HR, technical aspects, and the need for (information) security which must be addressed.
Tang: In IRAS, we have established a risk management framework. A part of the process is to project ahead the implications of our decisions so we are aware of the risks, project timeline, scope, resources and so on. Secondly, the outsourcing sometimes is for jobs that have been done substantially in-house. When the job is outsourced, the role of the IT department then becomes unclear. Actually, the IT department needs to continue to manage the vendor, contract, and the project. Besides COMIT, IT project management certification, such as the CITPM offered by SCS, is relevant and will equip the IT staff to better protect the interests of the organisation.
Lau: From my experience, the other risk considerations are about getting the focus right in terms of reasons for the outsourcing, and asking if it is aligned with user expectations. Secondly, it’s about people, the resources. I will not treat the outsourced staff as third class.
Yeo: Still on the subject of financial risks, associated with it are words like benchmarking. If the cost is found to be lower, we are supposed to pay back the difference to the client. But what if the costs are higher? Looking at other risk factors, termination is a big risk, liquidated damages are risks,[and] consequential damages another area of risk. So all these translate into risks. Sometimes in the interest of reputational risks, we will walk away from a project if the reputational risks are considered too high for us to bear.
Audience: Does the issue of managing outcome arise more from mis-management of expectations?
Yeo: I think that is an excellent question. Most of the 20 years I have been in outsourcing I have seen cases of mismanagement of expectations -- “you thought I was going to do this, whereas I thought I am supposed to do that”. Management of expectations can be done by setting up a governance structure which will clarify everybody’s expectations of each other. Secondly, communication is important. Tell people what you agree upfront, tell them you are doing it. Communicate liberally at the risk of over communicating.
No comments:
Post a Comment