Rolls-Royce and EDS
Outsourcing relationships, by their very nature, are long-term arrangements. Quite unlike most IT provision, where a partnership between provider and customer might endure a year or two at best, outsourcing is often measured in decades.
A good example is Rolls-Royce, which has just agreed to extend its multi-billion pound contract with services giant EDS. The global aerospace, defence, marine and energy group has awarded EDS a $2.1bn deal to provide technology services and solutions, covering e-business and supply chain management.
The new agreement, which runs until 2012, builds on a relationship originally signed with Rolls-Royce’s aerospace business in 1996 and later expanded to include the company’s industrial business and Indianapolis-based operations. Under the new contract, $1.7bn is incremental revenue to EDS.
Ron Warner, programme manager for the Rolls-Royce Aerospace Centre of Excellence, says the long-term nature of the EDS relationship suits him well. “We’re in a long-term industry ourselves, so it’s quite normal for us. When we do business with aircraft manufacturers, it’s usually over a 30-year period. Likewise, we look for long-term solutions to our own business problems.”
Warner says: “From my point of view, I want to be the jewel in the EDS crown. I make sure we get the maximum attention. It’s a good deal for them too, because we are Rolls-Royce and the world loves us. A big mistake with us is something they can’t afford to be associated with.”
John Meyer, president of EDS in Europe, clearly values the association too. He says: “This is one of the most successful outsourcing contracts in the world. Already it has delivered real measurable benefit and helped to completely modernise the Rolls-Royce IT infrastructure. In the future, it will deliver even greater value for money and will be critical in continuously reducing their infrastructure cost and in supporting their growth and expansion into new markets.”
The focus for the initial phase of the new agreement between Rolls-Royce and EDS will be on enabling business integration and work-share collaboration. This will include e-business solutions, with plans currently for three portals covering supply chain, design collaboration and corporate information. It also involves consulting-led business initiatives for the company’s global supply chain, and application service provision (ASP) offerings.
EDS already provides IT services to Rolls-Royce across the UK and North America. In addition, EDS is responsible for Rolls-Royce’s IT infrastructure, network, systems and applications, and end-user support.
The partnership is unusual for the level of sharing of risk and reward that it involves, termed “co-sourcing” by EDS. Co-sourcing is a joint risk and reward programme aimed at producing business benefit for Rolls-Royce through a series of improvement initiatives called Operating Excellence Initiatives. AT Kearney, the EDS consulting arm, has played a key role in this programme.
The first part, which is now almost complete, includes initiatives such as product development and supply chain management. For example, in aerospace, an integrated product development programme is reducing the cost and time of bringing products to market. Tangible benefits include a 17% improvement in engineering productivity over two years, a 10% improvement in manufacturing productivity and a reduction in compressor disc manufacture time from 12 weeks to four weeks. All this means increased speed to market.
Under outsourcing, EDS is responsible for technology infrastructure, networks, systems and applications, and network support. At an enterprise level, the goal is to drive down the cost of Rolls-Royce’s legacy environment, freeing resources for new systems and applications.
Towry Law and CMG
When small firms seek to outsource IT and other processes, the size of the deal may not seem huge in monetary terms, but it can appear to be a relatively bigger risk than for a large enterprise.
An example of a smaller firm that has successfully managed to outsource much of its non-core activity in the interests of focusing on growth is Towry Law, an independent financial adviser. It is 12 months into a 10-year, #17m deal with CMG.
Keith Webb, Towry Law’s chief executive, told Management Consultancy: “When I joined the company in 1998, we decided we had a good brand that was not being capitalised on. We figured that, strategically, size matters, so we decided we needed to grow fast by acquisition and organic means.”
Webb says he saw two broad options to achieve this end. “We could have recruited heavily, but that’s a risk because if you do not grow, you are still saddled with the extra cost. I decided therefore to go for outsourcing.”
Towry Law knew its infrastructure needed to be world class in order to allow organic growth and quick seamless integration of acquisitions. To meet these corporate objectives in the timeframe required, it decided to turn its internal operations functions into a virtual operations organisation using the specialist knowledge and expertise of several outsourced companies.
Towry Law felt that CMG in particular offered the technical skills and management consultancy capability necessary to play a leading role in the development of this virtual operations model and work in close co-operation with the new executive management team.
Webb says that in two years the relationship has grown from what sounds like a shaky start. “In 1998, we did not have much spare money. CMG had to trust us when we said we’d pay them out of cost cutting and growth. It worked out fine though. It was only a small risk for them really, but a big one for us.”
Webb’s philosophy is that keeping IT in house is superficially cheaper, but not a good idea in the long term. “By making IT people work all hours, including weekends, you can get their services for a cheap rate, but at the risk of killing them. If you develop a proper change management programme with an outsource partner, you can avoid all this.”
While there are significantly more benefits to be delivered, the impact of Towry Law’s current business strategy to date can be measured by the fact that in the first half of last year, its pre-tax profits were up by 119%. The growth has continued to the point where Towry Law is roughly four times larger than when Webb joined.
He says: “I view outsourcing as almost akin to a marriage. It’s certainly not all plain sailing. It took us about two years to communicate our culture to CMG. They would say ‘but our other clients do it like this’, and we’d say ‘yes, but we do it better’.”
He feels he has gained from making it an end to end relationship, so there is no ambiguity about where responsibility lies. “Outsourcing is not about giving up responsibility, because you’ve got to keep monitoring it. For us, it’s about growth, not cost cutting. People who outsource so as to get someone else to do their dirty work for them and sack people are abdicating responsibility.”
Sharing of risk and reward seems to have paid dividends. Webb comments: “As Towry Law delivers successful projects and captures the financial benefits, its performance improves and its ability to reinvest in further development increases. This enables CMG and our other outsourced partners to share in its success by receiving additional revenue and profit from these further developments without the need for these organisations to resell their services.” He adds: “This means that success is shared, and all parties have an interest in making the company work.”
INTEGRATING LEGACY SYSTEMS
Sony and WRQ
Sony Pictures Entertainment is responsible for operation of motion picture production and distribution, television programming and syndication, home video acquisition and distribution, operation of studio facilities, development of new entertainment technologies and distribution of filmed entertainment in 67 countries.
With operations this broad, when SPE wanted to set up a new distribution system along with a new financials package, the system it chose was going to have to be functional enough and robust enough to ensure that the whole operation didn’t come tumbling down. Like many large corporations, SPE relies on long-used legacy systems to provide the power it needs to manipulate data.
Miguel Geli, head of IS at SPE says: “I suppose it may seem unusual to some people that Sony should still be relying on legacy systems. I’ve listened to everyone saying for years that mainframes are dead, but the simple fact is that these systems are reliable, robust and have the benefit of years of application development trapped inside their code.”
Traditionally SPE has used HP 3000 servers and IBM mainframes and it is the HP 3000 that now supports the worldwide distribution system.
“Distribution is one of our core activities,” says Geli. “If the countries we serve can’t receive the entertainment they need at exactly the right time, then we may as well not produce the entertainment in the first place.”
More recently SPE decided to install AS/400s, to support the new financials package.
“We wanted to implement a JD Edwards financials system,” says Geli. “But the way we wanted to do this required us to install AS/400s instead of our traditional HP 3000. That meant another system to operate and another system to access. With such a diverse range of technologies to contend with the easier we could make it to manage those systems the better. That is why we chose Wick Hill and WRQ.”
Wick Hill is the leading distributor of WRQ in the UK and offers services and support for the WRQ legacy integration product. WRQ is a host-connectivity vendor, originally from Seattle and with 19 years’ experience of host-connectivity from terminal emulation to application mining.
Mairead Lambe, channel manager for WRQ, says: “It isn’t surprising to us that SPE should want to keep its existing legacy systems when it comes to implementing new applications. The host connectivity market continues to grow year after year. The type of access that people want may develop from terminal emulation to web-to-host connectivity but the principle remains the same – companies have host systems which have served them well and continue to do so. All they need is to provide access to the host data.”
Originally SPE purchased the WRQ host connectivity product Reflection for HP from Wick Hill to provide access to the HP 3000 for the distribution system. At this time the product didn’t exist for the AS/400 and SPE was forced to use another product when it came to accessing the data needed for the JD Edwards application.
“We knew that once Reflection for AS/400 was available, what we needed was a consolidated package,” says Geli. WRQ and Wick Hill obliged with the SonySuite – which enables access to all the Sony host systems from one integrated access point.
“Here at the London office I have responsibility for applications worldwide,” says Geli. “In the US they are so impressed with what we’ve done here that they are thinking of adopting the same products.”
So are host-connectivity products at SPE an interim solution? “Absolutely not,” insists Geli. “We are always in development but new systems take years to arrive and you never know what may happen before you get there. SonySuite meets all our needs.
Woolwich and iE
April 6 1999 was a big day in the financial services industry. It was the first day of trading in ISAs, widely seen as the replacement for PEPs’ replacement.
For companies selling financial services the change was hugely significant.Positions won in the personal investment market with the old products could easily be lost in the transition to the new ones. There were also worries about how well computer systems designed to support the sale of PEPs would cope with ISAs.
Where systems could not be adapted they would have to be replaced. If new systems were not ready in time, the cost would be counted in market share.
Woolwich Unit Trust Managers (WUTM), a subsidiary of Woolwich plc, was the first company to start selling PEPs on the high street and was determined to beat its rivals to market with the ISA.
In the event, the company’s new system, dubbed w.isa, went live on the first day of trading. Many of its competitors’ systems, however, did not. Woolwich also launched with a system capable of dealing with the cash element of the ISA via ATM machines as well as the unit-trust element.
And less than a month after w.isa came on stream it was handling 650 business transactions per day, representing approximately 4,500 system transactions and tens of thousands of web hits.
To make sure everything worked on time, Jon Wilkins, management services manager at WUTM, chose legacy integration vendor iE and its Netfinance systems integration and web delivery software.
A team of iE consultants worked with the WUTM IT development team to solve three fundamental problems: how to integrate the complex back-end systems used to hold customer details, provide up-to-the-minute market information, process the transaction and administer accounts; how to make all this information available to branch-office staff without overwhelming them; and how to ensure that any deployment would scale to handle high dealing volumes and million pounds of investment.
For the client software the company settled on a browser-based application.
Wilkins says: “Because browsers were already installed in the branches, we could roll out the application without installing new software. This was a major advantage.”
Behind the scenes, things were a good deal more complicated. Complex legacy systems would need to co-operate to make w.isa work.
To administer the cash element that distinguishes ISAs from other types of investment meant integrating with the mainframe-based system responsible for cash savings accounts. WUTM wanted to be able to give customers an easy way to check the balance of their new investment accounts.
Netfinance managed this and was also used to develop the client-end of the application, which hides the complexity of the back-end systems from the user and distils the information needed for the sale into a few simple screens.
“iE helped us hit the deadline despite the late announcement of the regulations,” says Wilkins.
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