Bpoenterprisepartnership Teb

8/13/2019 Bpoenterprisepartnership Teb

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ISSN 1740-1828

ISBN 1 873955 16 2

Copyright Templeton College, University of Oxford, 2003


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1. Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

2. BPO Research Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

3. Research Scope and Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

4. The Enterprise Partnership Model in Theory and in Action:

Evidence from the Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

5. The Enterprise Partnership Model An Assessment . . . . . . . . . . . . . . . . . . . . 30

6. Research Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

Authors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

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Contents


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In this briefing we report on our research into four

case studies of Business Process Outsourcing (BPO).

As is reflected by the case studies, the outsourcing

of so-called back office support processes is now

seen as a potential strategy by even the largest of

corporations, fuelling forecast growth rates of 10-15

per cent per annum in a market already estimated to

be worth $100-$200 billion. It is therefore surprising

that BPO in contrast to IT outsourcing has so far

been subjected to very little in depth analysis. Our

objective is to address this lack of understanding by

providing concerned executives with a rich picture ofcurrent experience of a particular approach to BPO.

The service provider for all four of the BPO deals we

have studied is Xchanging, a company founded in 1998

specifically to address the BPO market. Its Enterprise

Partnership approach is distinctive in a number of

respects.Firstly, in sharp contrast to the move to low

cost labour logic of offshore BPO, Xchanging sets out

to improve the cost and quality of its clients processes

through the application of seven business competencies.

Secondly, it operates a model of phased implementationto address what it sees to be changing success factors

over the life of a contract. Thirdly, the Enterprise

Partnership deals we have studied incorporate shared

governance and shared financial rewards.

In the following pages we describe and report on the

Enterprise Partnership model of BPO, as evidenced

in practice by these contracts:

An HR Services Partnership with BAE SYSTEMS

which provides services to the clients 150,000

employees and dependents, worth 250 million

over ten years

A subsequent ten year partnership with BAE

SYSTEMS to manage 800 million of procurement

in indirect spend categories

An Insurance Services Partnership jointly formed

with Lloyds of London and the International

Underwriting Association, which settles more

than 20 billion of business each year within a

network of some 180 companies

A subsequent Claims Services Partnership with

Lloyds of London, which manages more than 250,000

claims per year to a combined value of 8 billion.

1. Executive Summary


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The outsourcing of business processes (BPO)

particularly of so-called back office support processes

has become a major phenomenon and prominent

topic in many corporate boardrooms. The Gartner

Group has forecast double digit growth for BPO and

a world market worth $234 billion by 2005. The June

2002 announcement by Procter & Gamble that it was

negotiating BPO contracts worth $1 billion a year

was the largest and latest blue chip endorsement of

the concept, following major contracts placed in

2000/2001 by the likes of BP and Bank of America.

Some commentators see BPO as the next big thing.

Potential beneficiaries on the supply side include

both new and familiar names. The well established

providers of IT outsourcing are increasingly targeting

BPO: for example, Accenture chairman Joe Forehand

reported in January 2002 that 50-60 per cent of his

companys new business pipeline was in the area of

BPO; EDS claims to have more than 22,000

employees dedicated to BPO, supporting nearly 4,000

clients in 29 countries. They have been joined by

new specialist BPO companies such as EXULT, thebeneficiary of the HR services contracts placed by

BP and Bank of America. And below the mega-

contract level we find the burgeoning growth of

offshore specialists BPO revenues in India, for

example, are said to have increased by 70 per cent in

the past 12 months, to $1.5 billion.

So what are the keys to BPO success? Is the

substantial IT outsourcing experience of major

providers like Accenture or EDS an advantage, or is

BPO significantly different? How important in the

overall scheme of things are the low labour costs of

offshore providers? What is the general track record

to date? After all BPO already represents a massive

market; and BPO contracts, even large ones, are not

a new phenomenon BP Exploration outsourced

most of its accounting activity to what is now

Accenture as long ago as 1990. But for some reason

BPO has historically been a topic of little interest for

either enquiring journalists or academic researchers,

receiving very little attention in the generalmanagement press (in marked contrast to the

extensive coverage of information technology (IT)

outsourcing1). In this report we seek to provide for

corporate executives some insights into BPO, based

on a research study negotiated with Xchanging, one

of the service providers specialising in this market.

Xchanging is simultaneously one of the new kids on

the block, a venture capital backed start up which is

a pure play BPO company; and yet an old hand.

Xchangings founder, David Andrews, was the

Accenture partner in charge of setting up the

accounting services deal for BP in 1990. On his board

sits John Bramley the initiator of that accountingservices deal when BP Explorations finance head;

among his team of seasoned executives is John

Attenborough, who was a key colleague of Andrews

in implementing that deal and a number of

subsequent ones. Together they claim to have

developed, through a decade of experience, a

distinctive and superior model of BPO.

Through the research we have had access to both

client and provider personnel in Xchangings four

existing Enterprise Partnership deals. We havebrought to the research study our extensive prior

experience in the field of IT outsourcing between

us we have researched more than 100 IT outsourcing

deals of all shapes and sizes, and our findings have

appeared in prominent publications.2 Based on that

experience we particularly wanted to explore whether

the Enterprise Partnership approach to BPO is

successfully addressing what we have found to be

three recurring difficulties in other models of

outsourcing:

1. Lack of partnership between client and provider.

We are conscious that all the early large IT

outsourcing deals were loudly proclaimed as

Strategic Partnerships3 but in reality they were

structured as win/lose relationships and

performed accordingly. Typically, client muscle

ensured that contracts were initially skewed in

their favour; but massive potential switching costs

allowed the vendor to exploit changing business

and technology contexts to reap future rewards4.Even shared risk/reward deals in the IT

outsourcing field have typically struggled as the

2. BPO Research Introduction


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interests of the client (better/cheaper services)

have diverged over time from the goals of the

vendor (to concentrate on gaining additional

external revenues). So our first key questions

were:Did the deals we studied demonstrate real

evidence of successful partnership? Were client

and service provider experiencing creation and

sharing of new value, which could not have been

achieved without the deal? Were forward goals

seen to be aligned between client and provider?

2. Lack of sustainability in service performanceimprovement. A common experience in IT

outsourcing has been that the vendor has indeed

reduced costs on baseline services, but at the

expense of the service quality experienced by end

users that there is no added magic from the

vendor. Even more regularly we have heard the

client complain that there has been no

innovation, that they are experiencing a period of

mid-contract sag in which the vendor has lost

energy and enthusiasm. In the IT domain we have

found that the client needs to retain in-house arange of core capabilities so as to manage

effectively the evolution of the function in line

with the needs of the host business.5 Our

questions here were: What are the prospects for

continuing success for the different stakeholders

over the ten year life of these deals? Can service

quality and service cost improve simultaneously?

And continue to do so? What stimulus will there

be to ensure success over time?

3. Lack of fitbetween homogeneous provider

solutions and heterogeneous client contexts. In

the IT outsourcing domain, we see increasing

recognition by businesses that no single provider

or single contracting form is appropriate

across their whole range of IT activity. Selective

IT sourcing is increasingly prevalent6. Important

questions here were: What can these deals tell us

about how BPO contexts may vary across

different functional domains, business contexts,

industry sectors? In what BPO contexts does the

Enterprise Partnership model seem to representan appropriate and potentially superior

approach?

Each of the four deals we have researched has been

documented as a separate case study7, with its own

specific findings. In this report we look across the

case studies to assess whether Xchangings

Enterprise Partnership model and practice provides a

distinctive and promising approach to client value

creation through business process outsourcing.

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The research study gave us access to the four major

deals which the Xchanging company had in place at

the start of 2002:

An HR Services Partnership with BAE SYSTEMS

which provides services to the clients 150,000

employees and dependents, worth 250 million

over ten years. Essentially the transactional HR

activity is transferred to Xchanging, while the

strategic HR is retained within BAE SYSTEMS.

A subsequent ten year partnership with BAESYSTEMS to manage 800 million of procurement

in indirect spend categories.

An Insurance Services Partnership jointly formed

with Lloyds of London and the International

Underwriting Association, which settles more

than 20 billion of business each year within a

network of some 180 companies. The respective

settlement offices of Lloyds and the International

Underwriting Association known as the Lloyds

Policy Signing Office (LPSO) and the LondonProcessing Centre (LPC) transfer to Xchanging.

A subsequent Claims Services Partnership with

Lloyds of London, which manages more than 250,000

claims per year to a combined value of 8 billion.

For each of these deals we interviewed a cross-

section of stakeholders to learn why outsourcing had

occurred; how and why Xchanging and the

Enterprise Partnership model had been chosen to

provide it; what had been the experience of

outsourcing to date. Of our 36 interviewees, nine

were client executives involved in the history of the

deal and/or the evaluation of the current service; a

further nine had transitioned at various levels from

the client to Xchanging as part of the deal, and could

provide insights into the change experience.

Xchanging interviewees included the founding CEO,lead executives for each of the Enterprise

Partnerships, and those who headed each of the

seven competencies in the Xchanging model.

Interviews were conducted in the first half of 2002,

and were recorded and transcribed. In addition we

had access to a range of relevant documentation,

including contractual documents, partnership

business plan material, Xchanging Methodology

Manuals. This was traditional case study research in

both methodology and intent.

The individual case reports, referred to above,

describe how and why each client reached the

decision to outsource and the process that led to

their selection of Xchanging Enterprise Partnership.

In this briefing we first describe each component of

the Enterprise Partnership model as devised by

Xchanging and as experienced by interviewees in the

deals we studied. Based on the evidence to date, we

then assess the model against our questions of

partnership, sustainability, and fit; and provide what

we see to be the appropriate lessons for corporate

executives.

3. Research Scope and Methodology


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Xchangings model of Enterprise Partnership

comprises three principal elements:

ABusiness Modelwhich defines the allocation

between client and Xchanging of roles,

responsibilities, and rewards. Essentially eachnew Enterprise Partnership results in the creation

of a new business unit which hasjoint

governance andprofit sharing but under

Xchangings operational control.

A Competencies Modelwhich identifies the seven

capabilities through which Xchanging seeks to

create new value in each Enterprise Partnership.

Each of these Competencies named asPeople,

Service, Process, Technology, Sourcing,

Environment, andImplementation is headed bya Practice Director responsible for development

and provision of the relevant capability.

A four phasedImplementation Modelfor

managing the life cycle of each Enterprise

Partnership. It starts with aPreparation phase

which lasts from receipt of letter of intent through

to contract signature; during theRealignment

phase Xchanging assumes responsibility for

service provision and completes detailed due

diligence; theStreamlining phase represents a

concentrated period of change to achieve

substantial improvements to service cost and

quality; this is followed by a Continuous

Improvementphase which seeks to achieve

further benefits in relation to existing services, as

well as through new services and users.

Before examining each of these elements in more

detail, there are three observations we can make

about the model as a whole, based on our field work.

Firstly, this is an experience-based model. Xchanging

CEO David Andrews explains the existence andpurpose of almost every piece of it by reference to

some personal learning during his time at Accenture

for example, while as partner responsible for the

BP accounting deal or as client partner for the

London Stock Exchange.

Secondly, it is an integrated model; where the

different elements interact it seems they do so to

advantage. For example, a common problem in

traditional fee-for-service outsourcing is that

relationships are soured in the critical first months ofservice because of claimed inaccuracies in the

contracted service schedules. By contrast in

Enterprise Partnership the profit sharing provisions

allow a combination of relationship building and

detailed due diligence to be achieved in the post-

contract Realignment phase of implementation.

Thirdly, the promulgation of a model which is owned

and actively championed by the CEO is providing a

base of shared culture across what is still a young

company. Both provider and client-side interviewees

commonly used the language and ideas of the model

to explain plans, activity, and progress. This post-

hoc significance of the model contrasted with its

relative lack of visibility at vendor selection time;

when asked why Xchanging had been their choice of

supplier, client executives consistently emphasised

the perceived quality of Xchangings senior people.

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4. The Enterprise Partnership Model inTheory and in Action:Evidence from the Research

4.1. Elements of the Enterprise Partnership model


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As new Enterprise Partnerships, all four of the deals

studied resulted in the creation of a new business

unit within Xchanging. They are respectively called

Xchanging Human Resource Services (XHRS),

Xchanging Procurement Services (XPS), Xchanging

Insurance Services (XIS), and Xchanging Claims

Services (XCS). The Xchanging company has full

operational control of each business unit, and

appoints its chief executive and management team.

The contractual framework for each unit is similar

and includes the following features:

Financial accounting. Profits of the business unit

are shared between Xchanging and its Client

Partner, usually on a 50/50 basis. Profits are

generated through cost efficiencies achieved on

baseline services; through introduction of new

services, which are priced at an agreed mark-up

over cost; through sale of services to third parties.

Accounting is on an open book basis.

Baseline service guarantees. While details vary,

there are commitments on cost and qualityimprovements over time. For example, in the

XHRS deal, BAE SYSTEMS are guaranteed

minimum levels of cost savings in the early years;

the contract also commits XHRS to improve

baseline service to world class upper quartile

performance by the end of year five.

Human Resources. All those who have been

responsible for service provision within the client

partner transfer to the Enterprise Partnership on

agreed terms. Xchanging becomes responsible for

their employment and benefit costs, and for any

redundancy costs incurred. Xchanging commits to

assign some of its own key talent into the

partnership

Investment. Xchanging commits to a minimum

level of investment into the partnership, for

identified purposes. For example, the XIS contract

identifies 15 million of investment in various

categories; within the XHRS contract 17 millionare committed, primarily for the implementation of

a new technology base.

Governance. The contract establishes joint

governance bodies for the partnership: a Board of

Directors; a Service Review Board; and if a

significant technology investment is committed

a Technology Review Board.

The simplicity of means embodied in these

arrangements has a remarkable elegance to anyone

who has waded through the documentation of more

typical major outsourcing deals. It reflects the ability

described earlier, to defer detailed due diligence within

a partnership deal to the post-contract realignmentphase; and to focus instead on what is required to

deliver the performance ambitions of the contract.

The governance provisions establish the mechanism

for involvement of client and provider management,

the first fundamental of successful outsourcing

according to John Bramley:

In 1998, David Andrews and I shared almost a

sense of despair that outsourcing had not gone

where it had become apparent to us in the early1990s it ought to be going. It had got stuck. The

initial business plan for Xchanging reflected our

diagnosis that in essence we needed two things. The

first was a mechanism for maintaining active

involvement of senior management, both sides

John Bramley, Non-Executive Director of Xchanging,

formerly Finance Director of BP Exploration

The Service Review Board (SRB) is an idea taken

from the BP accounting services deal. Each

Enterprise Partnership has an SRB with equal

membership from Xchanging and the client partner. It

meets regularly to monitor performance of existing

services, and to sign off on the specification and

pricing of any proposed new ones. It has contractual

powers to impose financial penalties if persistently

poor service performance is being experienced. It

also has a crucial role in the sign-off of detailed

service definition, specification, and baseline cost

which marks the end of the realignment phase. Kim

Reid who, as HR Director for BAE SYSTEMSCustomer Solutions and Support Group, is one of the

client-side members of the XHRS Service Review

4.2. The Enterprise Partnership Business Model


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Board sees the Board as one of the instruments of

partnership:

If this was a traditional customer/supplier

relationship I think you would get the customer

blaming the supplier for not delivering a service. For

me the partnership means that the accountability for

delivering service into the business is mine. I have to

make sure it is delivered as a seamless service so

that myself and my other HR Directors will not say

this went wrong because XHRS did this. If

something goes wrong it is because we did it. It isvery much a partner type relationship. Kim Reid

The joint Board of Directors established for each

Enterprise Partnership takes governance

arrangements a step beyond Andrews previous

experience. The idea was triggered by his perception

that client management attention begins to wane

once an outsourcing deal has progressed beyond its

early stages:

Could I get sponsors to continue to turn up for

meetings? Well maybe, but it was hard work. Sowhen we formed Xchanging we put enterprise

partnership into a standard commercial structure.

Its a breakthrough because you have got rules

there. You have got rules like you have a Board of

Directors and you have non-executive directors, and

they have to turn up for meetings. And you have

certain duties as board members, you have to act in

the best interest of the business whether you are

from the outsourcer or the client. That is a big

mindset change, but business people who haveworked in public companies and served on boards

understand that, of course they do. I think it is the

last brick in the governance wall. David Andrews

While the real test of this idea may not come until

later years of the partnerships, it is easy to see its

symbolic power. For example, the recent first Annual

Report of XHRS is introduced by non-executive

chairman Tony McCarthy whose day job is Group

HR Director of BAE SYSTEMS.

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The Competencies model, which was also prominent

in the initial business plan for Xchanging, reflects the

second strand of the Andrews/Bramley diagnosis for

successful business process outsourcing:

coupled with that joint senior management

involvement, supporting that really, the availability

within the supplying company of the necessary

range of skills, some of which were deficient in

previous outsourcing models John Bramley

Figure 1 lists seven identified areas of necessaryskill, all of which are now seen by Xchanging to be

important to the management over time of the

outsourced activity. At first sight there is nothing

particularly surprising about at least most of the list

the likes of process, service, and technology skills

are pretty obvious candidates for inclusion. However:

All the skill areas listed are seen to have generic

relevance to a business; they represent what

Xchanging believes it can bring to each Enterprise

Partnership. In contrast to other approaches we

have met, the Enterprise Partnership model draws

its specific application area expertise in

insurance claims, in HR etc from those

transferred from the client to the partnership

not from Xchanging.

As our interviews revealed, each area owes its

presence on the list to some historical learning,

some formative experience which crystallised for

the founding CEO why and in what form that

area mattered. Each is now a competency rather

than a skill area in the sense that a defined anddocumented stance has been taken to the area a

chosen approach to process/service/technology

etc. and a preferred tool set.

Collectively these competencies are referred to as the

DNA of Xchanging, because of the way they are

intended to permeate the activity of every Xchanging

deal. In the next sections we look at the evidence we

have seen in support of this ambition.

4.3. The Enterprise Partnership Competencies Model

Implementation

People

Environment

TechnologyService

Sourcing

Process

Figure 1: Competencies The DNA of Xchanging


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It was apparent that, through John Attenborough,

they knew more than we did at BP about people andbehaviour, and they applied that knowledge very

successfully. They achieved remarkably quickly, I

would say within six months, a really strong sense

of purpose and pleasure among the people we had

transferred. People knew that their business now

depended on them; they were not just a back office

that nobody wants to bother about. John Bramley

John Attenborough, who had worked with David

Andrews on a succession of major projects in the1990s, was charged with creating the People

Competency. Attenborough uses the model originally

proposed by Tuckman8 to recognise that employees

transferred as part of a BPO deal will progress from

an inevitable mourning of their prior roles through

four further stages forming cautious views of their

new roles, storming or confronting to establish their

roles in the new organisation, norming into new

patterns of teamwork, and finally performing as part

of a fully effective team. For each of these stages his

People Competency Manual provides guidance tomanagement on what will be appropriate and

inappropriate behaviours; the tools that will be most

relevant to helping individuals through that stage; a

standardised format for assessing individual progress.

Transferees who have previously been working far

from the spotlight within corporate back offices

experience a new level of management attention. Alan

Bailey, himself a management transferee from BAE

SYSTEMS, recalled the impact of the XHRS launch

event which marked the start of the forming stage:

So these guys had never been talked to like that

before, and its exciting for them because they are

profit generating, not the overhead cost we had

always been referred to in the past. Alan Bailey

The momentum was then increased through a series of

three day induction sessions, which all transferees

attended within six weeks of the contract being signed:

The transferred employees had seen Xchanging's

management team, because we all went to thesethings, did Q & As, stood on the stage and

answered all their questions, Richard Houghton

[XHRS CEO] did all of them, he was committed to

doing these. The employees hadnt seen that before.

They had been in an area where they didnt see the

management very often, didnt get access to them

and then all of a sudden, this is an enthusiastic

team that they are now seeing and they were part

of it, they went back buzzing. Alan Bailey

The People Competency operates on the basis that a

great deal of potential resides in people previously

buried in back offices. One key to the future

success of the partnership business is to find ways to

release their energy, talent and commitment:

I have a fundamental belief that inside each of

these vertical back office functions if you just screw

the lid off and put some water in, people just go

oomph and grow. John Attenborough

We found that those transferred at the management

level were the first to experience this sense of new

potential. From BAE SYSTEMS, Alan Bailey and

colleague David Bauernfeind were revelling in their

roles as members of the XHRS executive team.

Darren Fisher, transferred from Lloyds into the XCS

executive team, spoke of a similar effect:

One of the reasons for the behavioural change I

think is that the whole silo thing has quite rightly

been broken down, and people have been given

different responsibilities to what they had in Lloyds.

If you had asked me six months ago if the

management team could gel and blend and operate

the way it does, I would have said there was no

way. I think we all feel much more empowered than

we felt before. Darren Fisher

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4.3.1. The People Competency


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When we did the outsourcing deal at the London

Stock Exchange we had 200 trading houses which wehad to get to act as customers. Historically they were

acting as bullies, beating up the Stock Exchange

every time something went wrong. It was always the

Stock Exchanges fault. Now to become a customer

and to behave as a customer you have got to have a

relationship that enables you to do that. You have got

to know what it is you are getting, that you want

what you are getting, that you know what the price

is, that you know when you have got it. You dont

achieve that by saying the response time is so manyseconds. We put in place a service agreement which

covered service definition, service specification,

service management. Working with LSE executives

Jane Barker and Sir Andrew Hugh-Smith we were

able to achieve a customer mindset. David Andrews

Within each Enterprise Partnership, the Service

Competency has responsibility for capturing and

maintaining service definition, and achieving a customer

mindset in the user community. These are the first

critical tasks within what the Service CompetencyManual depicts (Figure 2) as a four pronged approach

to achievement of 1st Class Service.

Bryony Moore recruited as Practice Director after

extensive experience as a marketing executive and

consultant in consumer products firms such as Black

& Decker and Johnson & Johnson personally led

the service definition work in the XHRS partnership.

She described the extent of the task:

In BAE SYSTEMS which had just gone through this

massive merger, they have got over 70 sites. On

each of those sites, there are often multiple BAE

SYSTEMS businesses, a history of conjoined

businesses and different cultures; and everybodythought that their bit of HR was different from

everybody elses. We now have one operating HR

Service specification for the whole of BAE SYSTEMS

in the UK. Now, that has taken a huge amount of

relational work in doing workshops, because all we

have done is capture the 'as-is'. It is not about us

telling them what they are going to get; the process

of service definition is to define the 'as is', what has

historically been done until today so that we can get

a stake in the ground. Bryony Moore

4.3.2. The Service Competency

Figure 2: The Service Competency Approach

Tools, Software& Techniques

Service Definition Square Service Schema Voice of the Customer Workflow Xspace

Service / Star Ratings Training Recruitment HR Policies Organisation Structure

Compass BMRB Best Practice

Service Teams Alliances (SAIC, USWeb, etc) Knowledge Capital

ServiceDefinition

Service1st

Streamlining &Continuous Improvement

Resources

Measurement &Benchmarking

Realignment

Performance Gap

Loyalty

1st Choice

Best in Class

Baseline

Customer

CheaperBetterFaster

CustomerEndorsement

People/Training


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Using a web-based tool developed by Xchanging, the

team mapped more than 400 specific services within

eight categories:

Reward and Recognition

Learning and Development

Resource Management

Employee Documentation

HR Information Services

International Resources

Pension Management

Advisory and Support Service.

The completed service definition showed for each

service which of the ten stakeholders within BAE

SYSTEMS were the target customers: current

employees, past employees, future employees, the

company, BAE SYSTEMS' suppliers, BAE

SYSTEMS' customers, the community, external

governing bodies, joint ventures, and trustees. Once

approved, it was made available online as a commonreference point (Figure 3).

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Figure 3: The XHRS Service Definition Site


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Creation of a detailed service definition serves

multiple purposes. It is a key component of the due

diligence which, in the Xchanging model, is completed

after the contract is signed. It establishes for the

Service Review Board the base for future

measurement and progress towards the achievement

of external benchmarks of world class service quality

the second prong of the Service Competency model.

And the extensive exposure to customers which its

creation requires is critical to the building of trust:

In an organisation like BAE SYSTEMS, the way theydo business and protect the interests of their

business is they are very detailed, and it is very

much by consensus and there has to be approval

and support from all parts of the business. They

dont take anything on trust. You have to prove

yourself every step of the way. And also HR,

historically here, has not delivered in a lot of areas.

Therefore, I must manage the people and we have

had to work very hard to show them that they can

trust us, that we will deliver on our promises, that

we do understand what is required, that we willfocus on what is important to them. Bryony Moore

At this stage the Service Competency has also now

prepared the ground for the third element of the

service model, restructuring to a new organisation in

the streamlining phase of implementation. In the case

of XHRS this involved the creation of seven service

streams, each operating as a mini service business;

and the appointment of five customer relationship

managers, aligned to the major business groupings of

BAE SYSTEMS. A further training programme helps

all transferees to move from a back office to a front

office mindset, the fourth strand of the model:

The area that I can have the biggest impact during

streamlining is on training and changing the mind ofour own people to give them a practical way of

operating differently. We said it is very different

working for a service organisation where HR is the

core business, not a back office function. We have

to get everybody up to a certain standard and the

pace at which we are going to work is much faster

and tougher than you are used to, the standards

and attention to detail are absolutely primary and

therefore, the Service Xcellence training is a first

step in that direction. And most of them alreadyhave a pretty good understanding and they found

this most enjoyable, most instructive, very helpful,

and very practical. Bryony Moore

Kim Reid, HR Director for BAE SYSTEMS Customer

Solutions and Support Group, provided a favourable

report on the service progress being made by XHRS:

I guess some of my colleagues wouldnt say this but

I do think that the service from a process, control

point of view has improved extraordinarily. I thinkXchanging really does have the right processes in

place, they really know what they are doing on that.

Some of the transformation that I have seen in some

of the people that are in XHRS, especially the

customer relationship managers, one or two of

them, they never would have interacted with the

business in the way that are doing now, they have

become a lot more professional. They are a lot more

understanding of what drives a business,

understanding of cost base and how you actually

get value out of a business, so thats been quite a

nice surprise to see that happen and to see that

happen so quickly. Kim Reid


17/48

The establishment of a Process Competency signalled

another of the learnings from the BP accounting

services deal:

I said to BP I dont want your IT. We will do the

accounting. You can keep your IT and we will buy

what we need from you. What I wanted to do was

see what happened if you improved business

processes and service without touching the IT. We

found we could engineer a huge improvement and do

it on the back of the old legacy system which then

went on for another seven or eight years before itwas replaced. David Andrews

Recruited as Practice Director, Paul Ruggier saw an

opportunity to take the best of my learnings from

Procter & Gamble, Texaco, and GE, and do it the

way I felt was right.

One of his first actions was to bring together a best

practice methodology and tool set for process

improvement under the label CMADIS contracting

projects, measuring data, analysing data, developingsolutions, implementing solutions, and sustaining

benefits. While CMADIS incorporates tried and

tested tools from his Six Sigma experience, he

wanted to extend previous methodologies in three of

these stages: projects would be contracted rather

than merely defined; and he brought new emphases

and ideas to the implementation and sustaining

stages. He then identified as particularly important to

the Xchanging approach the full time assignment of

people from within the business:

In the past we have all been there you have had

your process improvement project but you have also

had your day job to worry about. We take people full

time from the business and train them, I think that

is the key. Nobody knows the business better than

those actually doing it. Paul Ruggier

The XIS partnership business, to which Ruggier

himself was seconded, provided the clearest evidenceof the Process Competency in action.

During the pre-contract preparation stage for XIS,

Ruggier carried out extensive process analysis.

Based on this work, he was able to advise that an

XIS business plan which called for 50 per cent cost

reduction over five years was realistic. Working with

Adrian Giles another external recruit experienced

in Six Sigma techniques he identified 37 projects

that could be tackled immediately. At the same time

he was selecting potential project leaders from thosewho would transfer from the client side.

When the XIS contract was signed in May 2001, six

of these transferees were assigned full time to

process improvement work. They received intensive

training in the CMADIS methodologies and became

certified Black Belts within the generic language of

Six Sigma (see Figure 4).

14 15

4.3.3. The Process Competency

Figure 4: Xchangings Six Sigma Infrastructure

Master Black Belt

Full time

Full time

Part time

Part time

Coach and mentor Black BeltsLead strategic process improvement projects

Black Belt Lead and deliver process improvement projects using process Xcellence tools

Green Belt Lead and deliver process improvement projects using process Xcellence tools

Team Members Individuals with a variety of cross functional skills with hands on knowledge

of how the process to be improved works and functions


18/48

In June 2001 the Black Belts were handed their

projects. Each was required to complete within three

months, without required technology change; and

each was to deliver 200,000 of cost savings. They

succeeded. Whereas the XIS business plan had a

year one objective of saving 16 full time jobs, the first

wave of process work identified a headcount

reduction of 84 people equivalent to a 2 million

annual saving in a 7 million cost base. The team

moved on to a second wave of projects, continuing to

reflect the Ruggier approach:

You do bite size projects that you can get results

from in three months. You analyse the process at

level four where it becomes actionable. You take

people from the businesses, train them thoroughly in

the techniques and let them do process improvement

full time full time people, full time results. Six

Sigma is also enormously useful as a discipline, and

a benchmark to measure process performance

againstalso choosing the right people for Black

Belt training people willing to challenge existing

paradigms, intelligent, analytical skills, influencingand conflict resolution skills, respect in the

organisation. Paul Ruggier

The Process Competencys approach of selecting

transferees from the grass roots of the business and

training them as Black Belts fits very well with

Attenboroughs belief cited earlier that those

buried within back offices often have great inherent

development potential. The Black Belts we

interviewed were clearly excited by their experiences:

At first I was reticent about coming forward. But it

has been the first time I have been able to go

through a whole process and implement something

that makes a significant is too small a word for it a fundamental change to the business. You do feel

good about it! John Norris

I was quite cynical about whether a very small

team of no status could go in and influence change.

But here we could influence our Managing Director

to make a change from the strategy he set out. I

have never been in that position before. And it is

interesting now because people treat me differently,

they talk to me differently. Barbara Chandler

But they also recognised the role of the methodology

in what they had been able to achieve:

I think the CMADIS cycle has been what has made

the difference.

Without the rigour of the CMADIS process I very

much doubt we would have achieved this in the time

we have achieved it.

CMADIS is very, very powerful. The rigour in the

approach is very, very powerful.


19/48

The Technology Competency was another of those

influenced by experience at the London Stock

Exchange where David Andrews got his first

exposure to component driven architecture a

technique which Accenture had been developing in

some of its largest and most complex systems build

assignments in the USA.

The LSE represented a very complex systems

environment where you could not replace

everything, you had to refurbish legacy, build on

legacy, put a superstructure on top. And you couldnot wait two years for 200 customers to agree on

the functionality they wanted. So we said we would

build a structure with standard components and roll

out functionality very quickly, as requirements

became agreed, on a multiple release basis. We took

18 months to put the component architecture in

place, then every six months after that there was a

new release of functionality. Later, when I did the

Exchange consolidation in Germany, we did it in

nine months and three months. David Andrews

So while the world of systems building in the late

1990s was becoming dominated by massive and

monolithic ERP implementation projects, Andrews

planned a very different approach. He had

experienced the power of component driven

architecture, and of its need for very clever people,

scientific level people. And he had noted that not

only customers were delighted by the experience of

new releases of functionality every few months; the

best IT people were also excited by the immediacy

of introducing a bit of change every three months.

As Practice Director for the Technology Competency

he chose Steve Bowen, who joined after a ten year

career in Accenture and who shared the

commitment to the component driven architectures

approach. He welcomed the challenge of shaping

Xchangings technology capability:

You very rarely get the opportunity to have a free

rein, to drive technology the way you believe it

should be driven unconstrained by the specifics of a

client assignment. The essence of the brief was

quite simple: Xchanging had to be able to scale as abusiness without the bottomless pit of money

required to reinvent the wheel every time. What we

had to do was come up with a technology platform

that would be a beating heart at the centre of every

partnership business. Invest once and implement

many times. Steve Bowen

16 17

4.3.4. The Technology Competency


20/48

At the heart of Bowens solution is a four box

architecture which captures the generic requirementsof any service business (Figure 5).

The Reference box captures the static

information of the business for the XHRS

business this would include health and safety

policies, employment law, and so on; for XPS, the

contracts set up with suppliers; for XCS the policy

documents and claim registration requirements.

The relevant tools are those of knowledge and

content management.

The second box is labelled Performance because

it captures both the detailed service definition

and the performance data relevant to each

service component.

The Relationship box is the source of information

about both customers and suppliers of the service

business the tracking of contacts made, follow-

up committed and so on.

The fourth box is the gateway to the transaction

systems underpinning the business activity overtime the claims processing systems, the trading

platform for procurement for example.

Wrapped around these boxes is the software required

to deliver the services through an internet portal

the log-on authentication and personalisation,

navigation and search, and other value added

services. The architecture is designed to provide a

scalable model to support Xchangings growth over

time, and to provide the flexibility of decision making

about legacy system replacement which had proved

so important in Andrews experience.

The first test of the technology approach came in the

XHRS business, where provision of an e-HR system

to end users had been specified as a key requirement

by BAE SYSTEMS. The test was passed when XHRS

launched the first version of peopleportal at the

beginning of October 2001, five months after contract

signature. Three further releases each provided new

functionality over the next five months. The impactwas considerable:

Figure 5: Xchangings Technology Architecture Framework


21/48

I think they were absolutely astonished that we

delivered on that, I don't think they expected it for

one minute. Richard Houghton, CEO, XHRS

I think thepeopleportalhas been the first sign from

within the business that something has changed,

something has actually happened. I think the first

time it was used, it was used for the senior

leadership population, we were doing an exercise on

pay review so each senior leader within the business

(650 of them) had access to that peopleportal. We

had a lot of very good feedback, it was very good,

the technology was great, it was web based. Butweve also had people who just cant get the hang of

using the technology. Kim Reid, HR Director, BAE

SYSTEMS Customer Solutions and Support Group

In the XIS partnership business, the technology

competency was presented with a different set of

problems. The immediately challenging issue was

what to do about inherited outsourcing contracts. XIS

CEO John Benjamin reflected ruefully that:

If I had our time again we would have looked muchharder at the IT contracts we had inherited. If IT is

40 per cent of your costs, and you aim to

dramatically reduce overall business costs, it gets in

the way if you are hemmed in by seven year IT

contracts, not negotiated with very much flexibility.

You know there are going to be problems if you dont

have methods for reconciling change within them.

Clearly these issues had to be sorted before XIS

could move on to a higher level IT agenda. In April

2001 Xchanging had headhunted, and seconded to

the XIS IT post, David White a highly experienced

IT executive with a background in large-scale

manufacturing, retail, and insurance organisations,

and in managing the IT aspects of mergers. White

had written into the contract with Lloyds and IUA

that if need be the outsourcing contracts could be

broken, albeit by paying penalties, even though the

contracts still had between five and six years to run.

This gave XIS some negotiating strength. The way

forward, then, was to attack the substantial IT costbase of 12 million a year. This was possible,

because, in David Whites experience, IT outsourcing

suppliers had not always managed their cost base

well, often having inherited their own IT from an

inefficient company the assets of which they had

taken over in a previous deal.

White skilfully leveraged the obligations of the

supplier under the contract to benchmark and deliver

best practice cost-effective service. On the

development contract, in a very short time, he

achieved an agreed 28 per cent cost reduction on 5.4

million by attacking variable costs such as customer

liaison charges, and inflationary clauses. In the 5.7

million a year Lloyds facilities management contract,he leveraged the suppliers contractual obligation to

utilise cost effective mainframe and data warehousing

environments so as to save 1.5 million in the first

year. Further savings were targeted for later years.

At the time of the research significant technology

investments based on the same platform were

under development for each of the partnership

businesses, under the direction of the technology

solution architect embedded in each business.

Bowen was pursuing a pragmatic mix of externalprocurement and in-house development by small fast

cycle teams. He reflected on what he felt was the

distinctiveness of the Xchanging approach:

In the classic model consultants will come in and

they will start mucking about with your

transactional systems. Oh, you have got to merge

all of these 16 systems into one great big massive

system, million man days and well charge you a

thousand pounds a day. We leave those systems

alone weve implemented this in BAE SYSTEMS

while their 28 transactional systems are still out

there. Well take time to figure out what to do with

those systems, while we are already delivering

value. I think we do have a unique approach to

information architecture, but uniqueness does not

last very long. We now tend to rely more on our

implementation credentials. As one potential client

expressed it, you know what you want to do, the

speed at which you do it is incredible, you have

incredibly bright people working for you, and youare delivering. Steve Bowen

18 19


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David Andrews understands that the real estate

environment can be a surfboard for the business.When he became Accentures Managing Partner for

the Western European Region he called me in and

said he wanted new offices; but to stay within

budget they would need to be substantially smaller

and we would make them work on a space-time or

virtual basis. I trawled the Paris market and came

back with two locations. I said to him one of them is

extrovert and the other is introvert, and all you

have to do is choose. In my view you should take

the extrovert building because it fits with your wholeethos. He did, and we created 55 Avenue Georges

Cinque. It became famous and every CEO went

through the place. We started to get serious

business. Andrew Chadwick

A less obvious choice than People, Service, Process,

or Technology, the Environment Competency is

charged with providing a threefold contribution to the

success of the Enterprise Partnerships:

To reinforce in the minds of both transferees andservice customers that something has changed,

that the old back office has become the front

office of a service business the business

surfboard effect

To help build the look and feel, the brand of the

Xchanging company

To improve the cost efficiency of real estate usage.

The potential tension between these elements

particularly the first and the third is addressed by the

techniques developed by Environment Practice Director

Andrew Chadwick. Chadwick claims to have pioneered

the use of CAD in architecture, inventing the idea of

organisational modelling to capture an understanding of

how people actually use office space. He combined this

with the concept of the non-territorial office to design

what he calls the space time office the space you need

for the time you need it. Chris Main, who worked with

Andrews and Chadwick on the Georges Cinque projectand now represents the environment competency on the

XCS team, explains this is not just about hot desking:

When we moved into Georges Cinque you actually

had to think what do I need for today? Do I need aclosed space to meet people in? Do I just need a

space where I can work quietly? Do I need an

informal area to talk to people? Then you would

interact with a reservation system and a group of

people who helped on that. Chris Main

Space time office design delivers Chadwicks

philosophy of less/better rather than

more/mediocre real estate. It meets the challenge of

cost efficiency by moving the business closer to thetarget of virtual estate:

I define virtual estate as the space you need if you

could wave a wand and change everything

tomorrow and move into the space that fits you.

Actual real estate is always bigger than virtual

estate. The difference between the two is what I call

trapped value. Andrew Chadwick

By mid 2002, the environment competency had

completed three projects for the Xchangingpartnership businesses:

New offices in Londons Billiter Street for the

management teams of XIS, and of Xchanging as

a whole

A purpose built shared service centre for XHRS in

Preston, north west England, which also

accommodated XPS staff

Offices for XCS in Gallery 6 of the spectacular

building created for Lloyds some years ago by

Richard Rodgers.

All these facilities share a common look and feel

the same range of furniture, and a distinctive and

ubiquitous blue carpeting with the Xchanging logo;

but there are significant differences reflecting their

separate purposes. For example, the Preston building

meets the low cost objective while simultaneously

transporting XHRS transferees from the portacabinsof BAE SYSTEMS at Wharton to their own front

office facilities.

4.3.5. The Environment Competency


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The XCS offices in Gallery 6, on the other hand,

symbolise the partnership business presence in the

heart of the insurance market. But in marked

contrast to the conventional layouts you find

throughout the rest of the Lloyds building, it

features a variety of spaces, shapes, and moods

small cost efficient workstations within an open area,

enclosed quiet rooms, a combination space modelled

on the University Common Room where dons read

their newspapers, get their letters from pigeon holes,

and talk about nuclear physics a space that is

informal and formal at the same time. The objective

is to allow a choice of environments for meetings

with customers the brokers and underwriters who

may be dealing with anything from straightforward

and modest claims to the massive consequences of

the attack on the World Trade Towers. Figure 6

shows the layout of Gallery 6, one example of the

Environment Competency in action.

20 21

Figure 6: The new XCS offices in Gallery 6


24/48

Sourcing was identified as a target competency when

Richard Houghton now CEO of XHRS described

what high level attention to procurement had

achieved in his previous company, Caradon. David

Rich-Jones was the architect of that Caradon

success, after earlier experience which included

creation of a global purchasing function at

SmithKlineBeecham to manage the companys 7

billion annual spend across 140 countries; he was

recruited as the first Practice Director of Sourcing.

However, when Xchanging won the XPS deal to

manage procurement of indirect categories for BAESYSTEMS Rich-Jones was the obvious person to lead

that new Enterprise Partnership. His former Caradon

colleague John Doherty joined Xchanging as Practice

Director for Sourcing.

The Sourcing Competency brings three sources of

leverage (Figure 7) to the task of reducing

procurement spend:

The category expertise of the best procurement

professionals

A set of tools and techniques to support those

professionals, including software tools for

modelling procurement strategies, and a

technology based trading platform

The ability to aggregate demand into volumes

more attractive to suppliers.

While these may be familiar ideas, at least in outline,

Doherty points out that they are not commonly found

within Xchangings target customer domain:

In a nutshell we are bringing the ideas of strategic

commodity management, which hitherto have been

typically applied to direct materials or core

procurement, into what is normally a fragmentedand disparate and neglected area of indirect

procurement. We are building specific expertise in a

relatively narrow range of commodities, rather than

offering ourselves as procurement consultants who

can consult on anything. John Doherty

Not surprisingly the Sourcing Competency has to

date been most strongly linked with the XPS

partnership business, which has taken over the

management of seven categories of indirect

procurement for BAE SYSTEMS remuneration and

benefits, vehicle fleets, learning and development,

non-technical contract labour, stationery and

recruitment. A base-lining process for each category

creates a definition of standard units that make up

that category and their existing costs. Modelling

processes identify appropriate strategies for the

future management of that category.

4.3.6. The Sourcing Competency

Figure 7: The High Level Model ofthe Sourcing Competency

Category Expertise

Sourcing Tools Spend Aggregation


25/48

Xchanging has three broad strategies for category

management:

An arms length strategy in which the end user

trades directly with Xchangings chosen supplier,

who passes an agreed margin to Xchanging.

Stationery procurement, for example, is managed

in this way.

A middle level strategy in which Xchanging

actively manages the accounts payable and

receivable processes. The vehicle fleet categoryfollows this strategy.

A thick involvement model in which Xchanging

acts as a market-maker between multiple

customers and suppliers. This is the strategy for

the non-technical contract labour category.

A specific example, of vehicle fleet management,

shows some of the theory in action. This is a

category where BAE SYSTEMS had already achieved

a market rate by doing the simple and obvious

things aggregating their demand, requesting

tenders from multiple leasing companies, selecting a

winner who has quoted a monthly lease rate based

on all his own costs. Xchanging achieves an

improvement on this by first unitising all the

elements of car lease (Figure 8); then disaggregating

the supply chain to achieve unbundled prices:

You go to the lease provider and say we dont want

you give us a standard quote, we want you to quote

for your cost of financing and providing the lease.

Similarly, you go separately to the car

manufacturer, to the maintenance and repair market

and so on. Its a procurement technique you would

use on core materials, but we are applying it to a

non-core area where typically clients do not have

the time or energy. John Doherty

As XPS moved towards the end of a hectic period ofbase-lining, the Sourcing Competency was starting

to promote its contribution to the other partnership

businesses.

22 23

Figure 8: The Cost Elements of Car Leasing

Costs of Car Leasing

TaxVAT, Road

Insurance

Fuel Costs AccidentManagement

Breakdown/RoadsideRecovery

Residual Value/Depreciation

CarPurchase

Profit

MaintenanceCosts


26/48

A key differentiator of the implementation team is

that overall it is agnostic as to whether a particularapproach is used or not, or as to the order in which

one approach is used relative to another. Whatever

is fit for purpose is key. Fitness for purpose

overrides dogma, and outcome is more important

than process. Xchanging Implementation Manual,

Principles section

Implementation is a different sort of competency, its

basic role being to orchestrate the impact of the

other competencies to best effect across the fourphases of the implementation model. While there is

an expectation (Figure 9) that service and people will

be the early competency levers, followed by the

application of process and technology during the

streamlining phase, implementation is expected to

support each Enterprise Partnership CEO in

identifying the actual deployment which will yield

what is for them the most effective business plan.

Thus while XHRS has followed the typical plan

fairly closely, process work dominated the

realignment phase of XIS, and environment made anearly contribution to XCS.

Xchanging sees its Implementation Competency as

bringing together the best traditions of consultancy

and operations:

The Implementation Competency is guided by a

healthy paradox. It blends the rigorous project

management disciplines exemplified by world-class

consultants with the practicality and pragmatism

that is only gained through the experience of

running operationsThe Implementation

Competency requires intellectual flexibility to vary

or reverse a traditional approach according tocircumstance As a result there are no rules, only

guidelines. Implementation Competency Manual

4.3.7. The Implementation Competency

Figure 9: Typical Schedule for Competency Deployment

Set-Up

Preparation Realignment Streamlining Continuous Improvement

Service

Critical Activity Preparation Operational

People

Process

Technology

Environment

Sourcing

2-3 mths 3-6 mths 6-9 mths

Implementation


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Xchanging looks for four personal characteristics in

members of the implementation team to achieve their role:

The imagination to visualise what becomes

possible once one or more of the assumptions that

guided previous practice is challenged. This

imagination is likely to be stimulated by

experience of operations and operational

performance in other industries and other

Xchanging partnerships.

An awareness of the potential of new technology,particularly the power of putting information in the

forefront of customer and partner consciousness

through internet portal technology.

Commitment to rigorous methods and disciplined

ways of working, since implementation has a

central role in driving and directing all of the

activities of Xchanging in forming and operating

Enterprise Partnerships.

A control consciousness to deliverimplementations responsibility for maintaining

and augmenting control over day-to-day

operations during periods of radical change; team

members must be experts in assessing the risks

posed by change initiatives, embedding

appropriate controls to the satisfaction of

Xchanging and client management.

The Implementation Competency Practice Director,

Mike Margetts, is another who spent his early

professional career in Accenture but a subsequent

job as European Head of Project Services at Credit

Suisse First Boston underlined some contrasts which

have shaped his values:

The approach at Accenture was all about structure

and being very deterministic about the way things

are done. CSFB was an environment where it did not

really matter what you were going to do in six

months. If you didnt do it in three months then youdidnt do it. That was fantastic! Mike Margetts

The underpinning philosophy which Margetts looks

for in the Implementation Competency reflects this

emphasis on speed and results:

Implementation is a beacon of pragmatism. I

understand best practice, and I do my best not to

follow it I do my best to cut corners from it. It is a

difficult thing to systematise that approach, because

it is an anti-approach. Mike Margetts

We experienced in the research a number of

examples of pragmatic problem solving action,

particularly in projects to roll-out new technology and

new user services in the XHRS partnership to which

Margetts was seconded. But the proper measure of

the implementation competencys success in action

must be a function of enterprise partnership progress

towards achievement of goals and milestones.

24 25


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Three ideas come together in the rationale for the

Implementation Model:

The need to manage transferees through the cycle

of forming, storming, norming, and performing, so

that they may realise their potential in the

enterprise partnership.

The need to migrate the user community of what

is now an external service to a new customer

mindset. This in turn is dependent on creation

and management of a detailed service definition.

The need, within a profit-sharing Enterprise

Partnership, to align and manage expectations of

both sides through the life of the deal; to keep the

partners in step.

The first two points above are familiar from the

discussion of the Competencies. The third may

benefit from some elaboration.

In traditional fee-for-service outsourcing, the clientprepares detailed schedules of services, costs, and

resources; and the supplier verifies those statements

in a detailed due diligence process before contracting

and taking responsibility for the service. For a major

outsourcing deal this is a time consuming process

which can delay for up to a year the service

transition. Furthermore the endpoint of the process is

typically a legal document running to hundreds of

pages, a document which is extremely difficult to

understand, monitor and enforce. All this is a

consequence of misaligned incentives: both parties

are well aware that from the moment of contract this

will be a zero-sum win/lose situation, and each is

seeking to maximise its starting position in what is

often a strongly adversarial process.

By contrast, the aligned incentives of Enterprise

Partnership are seen as enablers of a very different

process. The four phased Implementation Model not

only recognises the need to manage transition in

transferees and service users, it also defines the

objectives and expectations of the partner

organisations over time:

As soon as a letter of intent is signed, the

partnership enters aPreparation phase in which,

in parallel with contract negotiations, a first level

mapping of the as-is service and process isachieved. This provides the information base for

creation of a business plan which includes the

target vision for the partnership; a five year

financial plan; an assessment of the role of each

competency in achieving the plan over time. All

this is shared with the client, creating mutual

expectations of the partnership. The Preparation

phase concludes when the contract is signed.

With the signing of the contract, the Partnership

moves into theRealignmentphase. During thisphase, the critical implementation level tasks are

the induction of transferees into Xchanging, and

detailed due diligence through the creation of a full

service definition. At the same time the partnership

is progressing projects, in areas such as process

and technology, for the major change areas

identified in the business plan. The external

emphasis during realignment is on confidence

building and attitude changing among the customer

end users. Service performance levels must be

sustained, and may be incrementally improved

where there are obvious opportunities to do so.

Realignment is complete when the client signs off

the detailed service definition, and any re-basing

which it implies. The shared business plan of the

Enterprise Partnership is updated accordingly.

4.4. The Enterprise Partnership Implementation Model


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The planned major improvements in service cost

and quality are now implemented during the

Streamlining phase, at a time when both

transferees/service providers and customers have

been prepared for them. The way that benefits are

passed on to the client business as and when they

are achieved, within an open book accounting

regime, reinforces the partnership ethos.

Streamlining is considered complete when all the

major building blocks of the new business are

seen to be securely in place the culture, the

organisation, the physical and technologicalinfrastructure and so on.

The enterprise partnership now moves into

Continuous improvement, which lasts for the rest

of the contract. The success of the business

becomes dependent on exploitation of the

platform created by Streamlining, through

innovations in the services offered and in the cost

structure which supports them; and through the

acquisition of new external customers.

Figure 10 provides a conceptual summary of this

logic of the implementation model.

26 27

Figure 10: The Logic of the Implementation Model

Preparation

Transferees

Mourning

Forming

Storming

Norming

Performing

CustomersLevel One

Service Capture

Same ServiceContract

Negotiation

Incremental Gainsfrom

'Low Hanging Fruit'

Major Benefitsfrom Restructuring

Technology, Process

Incremental Gainsfrom Innovation,Scale Benefits

Service DefinitionCustomer Buy-In

Service SpecificationCustomer Trust &

Behaviour

Changes/ExtensionsCustomer

Relationships

Partners

Re-alignment StreamliningContinuous

Improvement


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The actual progress through the implementation

model of the Enterprise Partnerships is shown in

Table 1. The first two partnerships XIS and XHRS

took much longer at the Preparation stage than

Xchangings target of three months. This is attributed

to protracted negotiations with clients who were

wrestling with what they saw to be an unfamiliar and

as yet unproven model. The follow-on deals with each

client partner proceeded more smoothly through

Preparation. From Realignment onwards, progress in

three of the four partnerships has been seen to be

good, with most critically the expectations set bythe business plan for each partnership being met. The

success of the partnerships in meeting the milestones

of their business plans with evidence that is shared

transparently between provider and client builds the

confidence and momentum for further progress.

From the Xchanging perspective, recently recruited

CFO Andrew Bester reported that he found all the

enterprise partnership businesses were trading

profitably. XIS made a significant profit in its first full

year. XCS had won two external clients, a critical

step in its aggressive growth plan. XHRS made a

small profit, in line with plan, after the guaranteed

first year cost savings were passed to BAE

SYSTEMS. XHRS CEO Richard Houghton is

confident of a decent profit in the second year.

Much the bumpiest ride had been experienced by

XPS: the business plan was predicated on BAESYSTEMS transferring procurement spend

equivalent to 80 million/annum in seven identified

categories; it became apparent that the actual spend

transferred in these categories was closer to 35

million. This challenge to partnership was resolved

when BAE SYSTEMS transferred another eight

categories, bringing the total rate of spend

transferred to 100 million/annum. Since XPS had

been successful in winning control of a further 100

million spend by customers external to the

partnership, 2002 was completed on a high note.

Table 1: Progress of Enterprise Partnerships through Implementation Phases

XchangingInsurance

Services XIS

Preparation Dates May 2000 - April 2001

May 2001 -August 2001

October 2001 -August 2002

-30% productivityimprovement

-25% reduction incontract IT costs

'e-repository'service launched

-Four releases of'peopleportal' achieved

-Performance

improvementsin several

critical services

-Enhanced ClaimsReview Service

launched

-Two new externalclients signed-'Claimsportal'implemented

-'Sourcing Workroom'and 'Sourcing Portal'

implemented

-Improved relationshipswith suppliers



targeted throughvolume growth

-12% average costreduction achievedacross categories

managed

May 2001 -October 2001

November 2001 -February 2002

November 2001 -December 2002

March 2002 -December 2002

Transition byCategory

November 2001onwards: base-

lining by category

June 2000 - Apri l 2001 August 2001 -October 2001

July 2001 -October 2001

Realignment Dates

StreamliningDates

Cost EfficiencyExamples

Service ImprovementExamples

XchangingHR

Services XHRS

XchangingClaims

Services XCS

XchangingProcurementServices XPS


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As our research field work came to an end,

comments from senior client-side executives reflected

the challenges involved in change and their

recognition that these BPO initiatives were not

simplistic forays into cost reduction:

There are layers to the prize, I think. I saw our own

settlement bureau, LPSO, by itself as a dying

organisation. So I thought survival was one issue,

and my first prize was to avoid that doomsday

scenario. The longer term and much bigger prize is

the impact that XIS can have on the way the Londonmarket does business. I have been aboard seven

years, and when I arrived at Lloyds people were

talking about the need for change. But everybody

was kind of sitting and staring at the situation and

saying well of course there are obvious benefits to be

had here, but they will never be achieved. Creating

XIS is the first step towards those being achieved. I

think the creation of a single quality organisation

in the middle of the London market business process

will pay enormous dividends in taking the whole

London market reform programme forward. NickPrettejohn, CEO of Lloyds

It has been a challenging year for all concerned.

There have been a number of significant achievementssuch as the creation of a stand-alone company, the

launch of the custom-built Service Centre in Preston,

the launch of peopleportal, and significant progress in

graduate recruitment and international assignments.

We also now have, for the first time, a defined HR

service specification and associated service metrics,

which are reviewed monthly. Yet, as one might expect

in such a complex undertaking, much remains to be

done We have learned a lot along the way, and I

would like to see XHRS provide an example to BAESYSTEMS of an entrepreneurial and service first

mindsetA great start and I am confident we will see

significant further improvements as we continue on

our journey to HR Excellence. Tony McCarthy, BAE

SYSTEMS Group HR Director

The real attraction for us with Xchanging was to

use the base that we BAE had established, the

volume that we bought, to go and get third party

revenue. If we could get a leverage ratio of three or

four to one, that would give us a much betterbusiness opportunity than just driving around

internal activity It has taken a lot longer than we

anticipated to do all the base lining and all the

legal and contractual work, but once we get active

on a category there is good evidence that the

benefits are there. Jim Robinson, BAE SYSTEMS

Procurement Director

28 29


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The research has provided an opportunity to assess

the benefits of what Xchanging claims to be a

distinctive approach to business process outsourcing.

We have been particularly interested in evaluating the

potential for the Enterprise Partnership model to

address what we have found to be three critical issues

during many years of research into IT outsourcing:

1. The issue of partnership between client and

provider. In classic fee for service deals there isclearly a divergence of goals between client and

provider, a correct perception that a penny into

your pocket is a penny out of mine; this has

obvious implications for attitudes and behaviours

which are particularly problematic in deals of

extended duration. However, previous attempts to

implement goal aligned deals also have a

chequered history in our experience.

2. The issue of sustainability, the achievement of

continuing performance improvement in deals

which last five to ten years. We have consistently

encountered client disappointment with what they

perceive to be lack of innovation by the provider.

3. The issue of fit between providers and their

abilities with different client contexts. As the

outsourcing market in all its forms continues to

develop and grow, we find clients increasinglylooking to select horses for courses.

Whereas our case studies of the individual Enterprise

Partnerships each include a number of specific

findings, our analysis here focuses on these three

central issues.

5. The Enterprise Partnership Model An Assessment


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Recent management literature has regularly

highlighted the growing importance and attraction of

partnership between firms of strategic

partnerships, joint ventures, strategic alliances and

so on. The Resource Based View of strategy focuses

management on investment in core capabilities, and

partnership with external providers to achieve non-

core activities; the success of Japanese firms such as

Toyota has encouraged adoption of partnership style

relationships along the supply chain; increasing

globalisation has led to a proliferation of alliances

around marketing and technology activities. But theliterature has also increasingly chronicled the

challenge of achieving partnership rather than the

many potential reasons for wanting it.

Xchanging has opted for a partnership proposition,

signalled most obviously by the financial reward

sharing arrangements of its Enterprise Partnership

contracts. More fundamentally, it seems clear that

the deals we have studied are creating and sharing

value that could not be achieved by either of the

parties individually.

From the client perspective, the barriers were those of

organisational complexity and lack of corporate priority:

Everybody was saying there are obvious benefits to

be had here, but they will never be achieved. Nick

Prettejohn, CEO of Lloyds

The companys priorities are investment in

Engineering and in Research and Development, not

in good old HR. Chris Dickson, BAE SYSTEMS

HR Director

From Xchangings perspective, the company had

assembled a range of impressive management skills

but its intention was not to generate one-off

consultancy fees. Partners were needed to provide

the large scale activity which could be leveraged by

those skills, to create a stream of annuity style

revenues and profits:

We effectively have been given a 50 per cent

financial share plus management control of someone

elses inefficient infrastructure. Andrew Bester,

CFO Xchanging

While some might suggest that each party is guilty of

settling for a glass that is half empty, we see both

client and provider consciously acquiring a large

glass that is half full rather than no glass at all. The

institutional arrangements of Enterprise Partnerships

are convincing in their alignment of goals in pursuit

of win/win activity. Perhaps more importantly the

values and behaviours espoused by key executives

within Xchanging are generating a high level ofmomentum. Many of these individuals have come

from a background in consultancy, where the

business model honours the mega project with its

high up-front costs and lengthy timescales. But we

consistently encountered in Implementation, in

Technology, in Process the alternative values of

business benefits, fast and frequently. Within a

different business context and incentive structure,

they were exploiting their skills to, we perceive,

much greater effect for the client.

The powerful impact of the incentive structure gets

an Enterprise Partnership business off to a good

start, but what other aspects of the business model

may contribute? Prior literature consistently

highlights five factors as key enablers of successful

strategic partnerships: 9

The trustthat typically comes from a combination

of personal relationships and professional

credibility.

A recognition of interdependence in which all

parties play a necessary role in achieving success.

High levels of information sharing between the

parties, including sharing of critical and

proprietary information.

High levels of information participation through

joint planning and goal setting.

A joint problem solving approach to conflict

resolution.

30 31

5.1. An Assessment of Partnership


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It is instructive to assess the Enterprise Partnership

model, beyond the contracting structure, against

these factors.

The distinctive four phase implementation model of

Xchangings Enterprise Partnerships seems to make

a particular contribution to the establishment of trust.

Most notably, the creation of a detailed service

definition during the Realignment phase involves

extensive exposure to end user customers, and the

completed definition avai

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