HfS Network

Why even the Beeb needs sourcing standards

April 24, 2017 | Phil Fersht

 

When you're one of the last vestiges of commercial-free television trying to compete in a media world gone mad on digital and traditional advertising, you need to be pretty savvy when it comes to managing the coffers when you're still reliant on public TV license frees each year to maintain your program quality.  So who better to talk with than the Beeb's Jim Hemmington, who sits on the corporation's external expenditure on goods and services, which includes several key outsourcing relationships. We also invited Chris Halward of the Global Sourcing Association (which engages with HfS as its preferred research partner), who leads the GSA's global standards accreditation program to the conversation...

Phil Fersht, Chief Analyst and CEO, HfS Research: Good morning gentelmen. Let's get started with the introductions, shall we?          

Jim Hemmington, Director of Procurement, BBC: Yes, of course, Phil. I’m Jim Hemmington, Director of Procurement at the BBC. I am responsible for external spending on goods and services. That’s about 1.4 billion pounds a year. It's about 19% of the BBC 's licensing. I look after general procurement as well as outsourcing activity. And just for a bit of context, of the 1.4 billion pounds spent, about half of it is in regular goods and services with about 11,000 suppliers. The other half, or just under 700 million, is with 12 suppliers that are providing a range of outsource services for the BBC. That's been a big area for outsourcing over the last ten years.

Phil: Thank you, Jim, for joining us. We also have Chris Halward, who's at the newly rebranded Global Sourcing Association (formerly the National Outsourcing Association). Welcome, Chris...

Chris Halward, Global Standards Director, Global Sourcing Association: Thanks, Phil. I'm the Global Standards Director at the Global Sourcing Association. I've been with the GSA for about eight years, focusing particularly on training and development initiatives. This includes the development of various standards and the qualifications that we have

Phil: So, let's get started with the conversation, and I think maybe Chris, we can start with you. People often talk about outsourcing as something you learn on the job. So, why have standards in global sourcing today? What is the real benefit clients receive from them, in your experience?

Chris: I suppose the first thing to say is that outsourcing can be a complicated activity. There’s more than one party involved, which means there are a lot of different views going around as to how something can best be achieved. With that complexity comes challenges, because it's often done on an international stage where you’ve got jurisdictions involved and so on. What you need is something which helps people work through that complexity in a structured, organized, and efficient way.

One more thought is that regulators around the world have been particularly interested in outsourcing for all sorts of reasons, not all of them good. They're very keen to see standards being applied, being adopted as a way of developing people’s confidence in the system. I'm sure Jim has some further views on all of that. 

Jim: I think that's right, Chris. I am looking at it purely from a buying perspective, for the moment. I’ve been working on outsource deals since the mid- to late-80s. And still, at the BBC, we have an occasional problem with an outsource arrangement. What you find is that it's still the sort of problems you had years ago. Relationships break down because expectations are different, or there are surprises on either side. That might have a commercial or quality impact, with misunderstanding about things like risk transfer and transparency.

Standards align expectations, take out surprises. Having standards allows you to have more transparent and meaningful conversations, and ensures that you're both acting professionally and in a way that suits each party's interest. So, if you can get that alignment, you should neutralize, really, all disputes, and you should see much more success in those relationships going forward.

 

Jim Hemmington, BBC

Chris Halward, GSA

Phil: Okay, so Jim, when you look at your experience at the BBC, with the Global Sourcing Standard, what would you say has been achieved to date? What have been your successes? If you could start today again, would you do anything differently?

Jim: We do have a very mature outsourcing function. We started outsourcing back in '96, and some of our agreements are now third generation. We've learned lots of lessons on the way. But back in 2015, we wanted to get an external view of whether we are good at this activity and where we can learn to be better. That coincided with the emergence of what was then known as the lifecycle, which turned into the standard.

What we found was that when we applied the standard and became accredited to it, we found there were gaps in what we thought were best practices. When we filled those gaps, we started to see some significant benefits coming through. I think one of the big areas where we found the most benefit was the lifecycle approach. Things like business planning going through procurement, the hand-off in procurement into transition, and transition into business as usual. We found we were a little bit clunky in some of those hand-offs. We've smoothed quite a few of those now. Our finance procurement that went live in November was the first time we kind of approached a major outsource with a plan and addressed gaps the GSA Standard pointed us towards. We started to see some financial benefits, and I'm confident that as we go to replenish our outsource portfolio, the savings are going to be significant. I reckon between four to seven percent of our spending on outsourcing. Because we're just getting better at it, and we'll engage more effectively with the market.

Phil: With a lot of the changes happening in the market, particularly innovations emerging, such as robotic process automation and the impact of digital.  How does the standard support disruptions as they evolve? How does it cater to some of these emerging technologies and disruptive business models?

Jim: Okay. Again, from my perspective, I think what the standard does is give you a stable and steady state platform from which you can then explore disruptive technologies. Particularly in areas of transformation, it enables you to take more risk because you can assess things like the impact of disruptive technologies.          

Chris: Just to amplify that, Phil, I think one of the things the GSA Standard does is to have a very clear focus on what we describe as Strategic Leadership. It's about ensuring that the underpinning strategy is as rigorous as it is robust. So, what I have seen in the past is that outsourcing arrangements succeed or fail quite often based on how clear, how effective, and how well-thought-through the underpinning strategy was.

All too often, people tell me about arrangements that don't work. They’re bemoaning the fact that they didn’t really think these things through. They didn't look at the options. They didn't look at whether a particular way of doing things is going to be right. What the Standard does is it really encourages people to focus on that aspect of their sourcing strategy. And to ensure that they continue to concentrate on that aspect throughout the lifecycle.

The other point that links into this is that the lifecycle approach enshrined in the Standard ensures a joined-up approach. That is what Jim was alluding to. You need to address the tendency of going into silos. You're trying to link everything together so it all flows through and can remain aligned to the appropriate needs of the business. As we know, and HfS Research has talked about it a lot, when things are changing, you need to be really nimble. You need to be flexible, and that's something that maybe too many organizations over the years have not been able to do. The Standard really encourages them to do exactly that: to be nimble.

Jim: Yes, I agree. Certainly in the BBC, we've been reluctant sometimes to adopt emerging and disruptive technologies because of the risks and uncertainty involved. Whereas, I think if you've got a standard and you are using that to track the journey and help you understand better how you can manage, you do start to adopt disruptive strategies more readily, and it gives you a competitive advantage.          

Chris: I think that as well, Jim. You would probably agree that when you've established the Standard within the organization, people in the organization understand how outsourcing works and how it impacts the business. Then it's much easier to explain to them. They don't need to understand every single detail of the Standard, but they get a sense of, "What are the important things that we really need to focus on?”

Phil: So, gents, we've just completed our annual seminal study on operations outsourcing with the KPMG globally, covering 450 major enterprises. What we got from the study was clear intention to keep expanding the outsource model. There was a notable pullback (see blog) in intentions to invest in offshore resources and instead invest more aggressively in automation initiatives. It sounds a little bit counter-intuitive. How do you increase your outsourcing if you're not going to increase offshoring? Is this something you believe is a long-term shift? Or do you think this is more about outsourcing leaders needing to be seen as moving beyond labor arbitrage as a prime resource of value? What's your take on what's going on here?

Jim: That’s an interesting one, Phil. I don't think it's a short-term thing. I think it's more of a progressive thing. Because you're right; I think the fact that we've offshored is being primarily driven by labor arbitrage. Because that created huge cost savings for us. But now we're starting to explore automation, and other things are coming down the line.

A couple of years ago, we were having discussions around contract terms, because there were huge capital investments to be made, and the BBC didn't have cash for capital investments. But so many services now are available, such as the cloud and other sorts of sharing mechanisms. The change continues to be progressive, and I think organizations will now look at all elements of outsourcing. It's not just labor arbitrage. It’s how technology can be used to improve their outsourcing activity. That, we haven't seen in the past.          

Chris: Let me just come back with a couple of comments as well, guys. Because what I really believe is that globalization provides opportunity. If I'm a business leader of a large, global organization. I have a pool of skills, a pool of labor to draw from across the world. I think in the past, labor arbitrage has clearly been an important driver and has encouraged people to address the challenges of managing offshore arrangements. I also believe there are many reasons why you source from overseas, not just labour arbitrage. Having said that, we have things going on around automation which have given people pause for thought that there may well be other ways of doing things that will deliver the same or more value.

I think we do need to see the apparent paradox as a short-term reaction to the perceived opportunity and risk; that's become particularly clear over the last couple of years. But I think we also have that long-term, globalization scenario. There will always be a strong case for organizations to collaborate across the whole globe. Wherever opportunities arise, using capabilities from across the globe will add value to their business.

Phil: Okay - so you can both have a stab at our final question! If we convene in three years’ time, do you think we’ll still be talking about outsourcing in the same way? How dramatically will all the changes we're seeing in the political dynamics and the emergence of new solutions affect the conversation?

Jim: I think we'll be having very different conversations. I think it goes back to this progressive point, Phil. Just a couple of years ago, we saw outsourcing was all about agreements, with the likes of Capital One and IBM and and all the big guys. Outsourcing now comes from all over the place. It's coming from different organizations, coming up with different ideas. It's coming from, as you say, the use of technology and automation.

The link world that we deal with now, where geographical location is not a boundary anymore, means there will be lots of things that we’ll be buying in the future, and my end user, it might be the audience. Or it might be someone in the BBC who has no idea where that service comes from and won't really care if it's adding value. I think the term outsourcing will become more and more of an issues sort of term. It's more of sourcing really and about how organizations are buying the right activity to support their business. I think more organizations are trying to get into sourcing space. The more they can be agile the more innovative they can be.

They're the sort of conversations that we're going to have in the future. So, I think the big monolithic contracts and the kind of well-known names at the moment, kind of lead to that. There will be many, many more organizations providing these services. There will be a huge variety of service propositions that organizations can choose to go with, depending on what they want to achieve. So I think it will be a very different industry in the future.

Chris: I'd go along with that, Jim. I think there are going to lots more, probably smaller organizations that will be new sources in the ecosystem. There will be different services required, from client organisations that result from changes in their markets. The BBC is a great example of this given the massive changes that the BBC has had to address in recent times.

I think we're going through that period where people are suggesting that maybe everybody will sit around and do nothing because robots will do everything. But the reality, I suspect, is that we just come up with more ideas, that we can't think of at this moment, that take up people's energies. What we will end up with are sourcing managers who are much more central to an organisation’s success. We’ll need to find different solutions and often, we will need to be finding suppliers of those solutions that are more agile, more flexible. It means that we’ve probably got to have shorter contracts, more flexible contracts.

I think it means that we've got to have better relationships between buyer and supplier. Because there’s got to be much more reliance on driving towards outcomes both organizations clearly understand and want to deliver together. That's the critical thing, and I'm not sure that's been the case in the past. I think the notion of having an outsourcing standard becomes even more important, because change is much more apparent and complex.

Jim: Yes, I agree. Tracking back to what makes the GSA Standard unique, I think for me, what was refreshing about it is that there are lots of patches and procedures that the BBC adopts to buy goods and services, and lots of organizations that we deal with have their own set parts, too. What the GSA standard does is provide them a very flexible framework on which you can hang your current processes and procedures and align them to very different processes and procedures your suppliers might be adopting.

That's where you've got this sort of ease on the alignment, without having to go through the rigmarole of fundamentally changing the way you do things. What the standard does is provide a central core of activity that just aligns different things to achieve the same outcomes.

Chris: It's fantastic to hear that. Because we've worked so hard over the last few years trying to ensure we have a robust and rigorous standard that covers all the critical areas that are good-quality buyers or providers. Because it's appropriate for both sides.

Phil: I think it’s great that you could share that with us. I thank you both for your time, Chris and Jim, and I look forward to sharing this interview with our leaders. Have a great weekend.

Posted in: Business Process Outsourcing (BPO)IT Outsourcing / IT ServicesGovernance Practices and Tools

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