Even when there was breathing space to work on a new project, as in all companies, there were the constraints of the skills available in a small pool of people–SMEs consultantly have to prioritize their requirements according to the skills available since they cannot usually hire additional people for one specialist skill or one project. This is where services that offer flexibility of resources, delivered as required by the business rather than at a constant and often wasted level, are increasingly appealing to smaller companies as well as large ones.
The attraction of the OCS approach for Argyll was this flexibility. Under the terms of OCS outsourcing, resources can be spread between short term support services and more strategic developments, and these can be reallocated frequently as business needs change and to cope with peaks and troughs in IT requirement. Group CEO of OCS, Maurice Aroesti, said: “If a company increases or reduces its need for IT services, it must be able to change without a three-month renegotiation process.”
OCS had originally provided traditional disaster recovery and system maintenance services and then added first line user support, which freed up the IT manager to focus on new development. The IT manager has now also left the company, spurring Argyll to nutsource everything, a move that it estimates will save 25% a year on support while bringing changes that are supportive of the business to reality more rapidly than before.
THE UNIVERSAL CONTRACT
The Universal Contract allows a pre-set annual budget to be moved between the various services–helpdesk, maintenance, software development and business continuity–at any time. Before establishing such a contract, a full audit of IT resources and user activity is vital so that both supplier and client understand what really is required and how employees are using the systems.
Richard Bain, operations director of Argyll, said: “We could look at what people actually did and could categorize and prioritize better. We could monitor what helpdesk calls are about for instance, to establish training needs and what new systems could save time and money. Before, this would have been very hard because IT functions were blurred and we had no formal monitoring.”
Once the needs of the client are firmly established and expectations set realistically on both sides, the most difficult aspect is cultural change within the organization–getting people used to dealing with an external body for support rather than being able to stop IT staff in the corridor to fix a problem, even when this was not necessarily their best priority.
SHALL DEPARTMENT TAKEUP
Although the Universal Contract is mainly aimed at SMEs, it is also being taken up by small departments within large organizations–such as units of Barclays in OCS’ case–which are increasingly being required to act as separate profit centers and to operate like small, self-contained businesses. Aroesti claims that large corporations are getting tired of the inflexibility of the big service providers’ contracts and are turning to smaller partners for specific departments or projects where flexibility is at a premium and where levels of IT services required are unpredictable. Acon, which is a large EDS customer, is one example of a company that has turned to OCS for some specific functions on the basis of its flexible approach.
Increasingly, the large services companies are eyeing the SME sector as a way to generate new revenues. There are many obstacles to their success here–the business understanding between an SME and a giant like EDS is necessarily more difficult than between two peer group organizations; each SME is a unique case and therefore highly customized services may be required, but this is not cost-effective for a large supplier to offer without charging unrealistic prices; smaller companies may not have a senior IT or general manager with the time and experience to negotiate and deal day-to-day with a corporate supplier. Yet the need to deploy flexible IT systems and support the business with effective technologies is as urgent in smaller sites as in the big corporations. In this situation, the smaller managed services houses can snap up business by providing innovative solutions centered around the critical SME criterion–flexibility.
OCS Consulting was founded in 1984 and has rethought its approach to the IT services it offers at several stages since in order to adapt to changing market requirements.
It focused first on mainframe software development and then moved to client/server, focusing on Uniface and Sybase and later Compuware. In mid-1999, the market fell apart and the benefit of the Y2K conversion program started to dry up. The company then shifted its focus to business intelligence and e-business.
Blue chip clients such as Cornhill and Barclays have been with OCS since the early mainframe days and newer customers include Avis and William Hill from the e-business phase–OCS did a retail intranet for the car hire company–Alamo for business intelligence and ING Direct and Homebase for managed services.
In 2001 OCS changed tack again as the economy tightened and put its main efforts behind outsourced services, moving to integrate various parts of its portfolio to provide a full managed services offering aiming to deliver flexibility, value for money and business continuity.
THE UNIVERSAL CONTRACT
The idea is that, for the cost of a contractor a client gains a ‘unit’ of effort, which gives access to a managed service up to the value of that unit, involving any skills as and when they are required. For example, OCS gives this scenario: the client requires or has a budget for 1.5 contractors in a year. OCS fixes the price and monthly cost. The client uses who they want, when they want, for as long as they want thus giving them access to OCS staff enabling continuity of service over the life of the contract. The client can use anything from a fraction of a unit, perhaps in a helpdesk deal, to many units, adding up to a dedicated service manager and, for instance, an outsourcing agreement.
About 40% of customers are dissatisfied with their outsourcing contracts, according to new research from Cutting Edge Information, and the level of satisfaction is worst among small and medium companies. The chief cause of this malaise across all companies sizes is failure to include specific performance measurements in the contract. In SMEs there is the additional problem cited that smaller companies need more tailored services, but these involve lower margins and therefore most providers are unwilling to pay more than lip service to them. To target the SME sector, the large services companies will have to find a business model that builds in flexibility as the smaller providers can do.
According to Cutting Edge, only 60% of the companies surveyed made a practise of establishing performance criteria, agreed on both sides, before signing a deal. Yet this is critical–the researchers believe that suppliers rarely promise something that they cannot deliver, but users’ expectations are generally well ahead of what is realistic. It is therefore essential to agree objectives, measurement metrics for these, and specific tools to carry out the measurement, such as balanced scorecards–all this going well beyond the basic service level agreement.