Financial services firm Old Mutual has been able to improve the service it gets from its IT suppliers, increase IT effectiveness and at the same time lower costs through the creation of an outsourcing strategy that is mutually beneficial to the company and its suppliers.
When Old Mutual, which provides long-term savings, US asset management, banking and c, wanted to increase its focus on customer services, it decided to cut its IT costs and complexity dramatically. Quite a tall order for Old Mutual, which has 12 million customers and manages funds worth £260.7bn.
The company began its IT outsourcing journey in 1999, when it signed a deal with CSC under which 400 staff transferred to the supplier.
In 2008, T-Systems took over as the main supplier. Old Mutual uses a multi-sourcing model, so other IT suppliers are also involved.
Reshaping the outsourcing model
Richard Boynett, CIO long-term savings at Old Mutual, came on board in 2010. He recognised that hings needed to change.
"The deal with T-Systems was not in the best of places," he says.
The IT environment in 2010 was made up of 1,800 applications, 31 datacentres and 15 regional networks that were not linked.
Boynett says it needed to get more out of T-Systems, so he set out to create a multi-sourced outsourcing environment that was "mutually beneficial".
The company could have forced a contract breach to get out of the deal, he says, but decided to take a different approach because it did not want to go through the process of renegotiating the contract with other suppliers.
Old Mutual and T-Systems each stated what they were seeking to gain from the contract. "I was looking at my company's targets, which meant running the business effectively at a lower cost," says Boynett.
He wanted better service and support, as well more synergies across the company's disparate global IT infrastructures.
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In the past, had Old Mutual wanted to change the behaviour of its suppliers, it would have used penalties and service level agreements (SLAs), of which it had 200. The company had a team dedicated to monitoring suppliers and their SLAs.
"We would cut costs by penalising suppliers that did not meet the SLAs," says Boynett. "I had five people who caught suppliers that missed SLAs and worked out how much to charge them."
But this method was counterproductive, he says, because if suppliers missed a target early they would see no reason to make any further effort in because they had already lost the money.
"Large penalties can cripple partners," says Boynett.
Although the company has retained penalties under the new model, it wants them to be exceptions.
Sharing goals and ideas
Old Mutual embarked on a strategy of sharing goals and adding more than what is outlined in a contract. "We gave suppliers the steering wheel and let them drive," he says.
Other changes saw suppliers and Old Mutual jointly develop SLAs to be mutually beneficial. "We went from having more than 200 SLAs to 14," says Boynett. "As they are jointly developed, we have not had any penalties in 18 months."
Suppliers were also given the opportunity to win more business through ideas. To achieve this, Old Mutual would invite suppliers to address a topic and come forward with ideas for mutually beneficial approaches.
There was also an understanding that both parties had to make money, so transparency of costs was essential.
Another important change was to combine the supplier's staff with the Old Mutual team, so the in-house team and the supplier's team became one and it became difficult to tell them apart.
Boynett says the approach has been successful in making IT more effective, and has enabled him to reach his corporate target of a 10% cost reduction.
