Outsourcing for Commercial Advantage. Jeremy Acklam MBCS, CITP, MIMechE, CEng IT Director Virgin Trains 10 th November 2004

Transcription

1 Outsourcing for Commercial Advantage Jeremy Acklam MBCS, CITP, MIMechE, CEng IT Director Virgin Trains 10 th November 2004

2 Outsourcing for Commercial Advantage Virgin Trains - Context Outsourcing as the sourcing strategy for the long term agenda Lessons Examples Closing remarks Questions

3 Transforming Virgin Trains Virgin won two franchises in 1997 with highly innovative bids including upgrade deals with Railtrack Having got the infrastructure upgrades funded, Virgin would then fund New Trains through additional passengers The old InterCity on-train environment was very low-tech with 25years+ vehicle age that presented a poor product image A new Vision was needed to bring Rail Travel into the 21st Century Virgin s outstanding train designs Voyager and Pendolino, have become icons for the industry restoring national confidence in tilting trains typified by the record-breaking run from London to Manchester in September Virgin Trains innovative systems developments, all outsourced have delivered 4 firsts in rail and a number of awards.

4 New Trains 78 Voyagers already in service 53 Pendolinos currently being delivered At seat audio system On-Board Shop Electronic seat reservations Plug points for Laptops and Mobiles.

5 The Virgin Trains of the future Cutting edge of global travel Innovate, innovate, innovate Key Virgin brand Deliver an entire lifestyle experience to our customers.

6 New Beginning West Coast 15.3m passenger journeys p.a. Cross Country 17.4m passenger journeys p.a. Since September Cross Country growth of 40% Upgrades to deliver a 125 mph railway from September % growth in passengers planned over franchise period.

7 Delivering the most valuable travel time Chief competitors Offering products unique to Virgin Trains The moving office, lounge, bar,cinema etc Be innovative and deliver solutions that exceed current expectations.

8 Sourcing Strategy for I.T. services Assessment of what to outsource Assess the in-house strengths and ability to add value What is the business case? What is the value proposition? How best to create strategic competitive advantage?

9 Creating Strategic Competitive Advantage in the Long Term Develop awareness of the need to change Search actively for threats and opportunities Identify and build a distinctive core competence Develop a technology strategy which supports the business Seek out, assess and select appropriate technological solutions and the means for obtaining them Acquire and absorb such technologies Implement and use them effectively Learn and develop the capacity to manage technological change more effectively in the future.

10 Encapsulating Strategic Advantage into IT Outsourcing Define clearly the objectives of the outsource and test against the required business strategy Example - for Virgin Trains, one of the business transformation strategies is to have 50% of customers purchasing tickets at locations away from stations Therefore a technology strategy for implementation of widespread self-service machines and internet retailing was required The initial business timescale was 1 year Therefore the sourcing strategy was to outsource and leverage other companies experience, flexibility and innovation.

11 Awareness for change The need to change Creative Strategic Reactive Passive Ability to change Building on work from the World Bank

12 Passive Scenario business attributes Passive Not aware of the need for technology improvement Not sure what to improve or how to go about the process Vulnerable to competitive forces Low cost entrants Changed market conditions Likely to waste resources on technologies that do not benefit them Weak on technology acquisition

13 Passive Scenario approaches Passive Help is needed therefore consultants likely to have to be brought in Outsource contracts by this type of company are less likely to be able to deliver either long term benefit or innovation Wake-up call needed to identify relevant technologies Emphasis needs to be sustained with continued external help

14 Reactive Scenario business attributes Awareness for change Reactive Recognise the need for change Unsure about how best to achieve it Limited resources Lack key skills in technology Therefore tend to react to technology threats Most of the technology in their industries comes from their suppliers Symptoms treated rather than root causes Ability to change

15 Reactive Scenario approaches Awareness for change Reactive For outsourcing to work longterm and for innovation to be part of that, this type of company needs to develop an internal strategic framework from which it can manage the outsource contract with confidence. Otherwise the outsource contractor will dictate the pace of change Inefficient processes will get in the way Ability to change

16 Strategic Scenario business attributes A well-developed understanding of the need for change Capable of implementing new projects Strong internal technical and managerial capabilities Have or have access to a strategic search, acquisition and implementation framework based on strong in-house understanding But they can become trapped within the boundaries of an existing industry, particularly mature ones. They tend to lack the capability to redefine markets through new technology Awareness for change Strategic Ability to change

17 Strategic Scenario approaches Outsource contracts in this sort of scenario need to focus on supporting internal capabilities and challenging existing business models Innovation could be focussed on access to new networks of technology providers to think outside the box Linking up with universities offering access to new ideas could be part of the deal. Awareness for change Strategic Ability to change

18 Creative Scenario business attributes These scenarios exhibit fullydeveloped technology capabilities and define the frontiers Comfortable with pro-active technology exploitation, they are happy to re-write the rules for technology, markets and organisations Strong internal resources are able to absorb external information from a wide spectrum of suppliers Specific examples here are Nokia (from wood pulp and paper into a mobile telecoms leader) and IBM (from traditional computing to e- commerce leader). Awareness for change Creative Ability to change

19 Creative Scenario approaches Outsource contracts here need to complement internal capabilities whilst sustaining capabilities as a rule breaker New technology investment and innovation could well be through leading universities Outsource innovation can also be about converting threats into new market opportunities People from these companies are often in demand for assistance with Government Policy Awareness for change Creative Ability to change

20 Scenario Relationship with Outsourcing Successes Awareness for change Creative Reactive Strategic Scenarios with highest success for outsourcing & innovation Passive Ability to change

21 Lessons that can be drawn 1. Most companies will have departments at different points on the ability-awareness axis. Suppliers are also at different locations. You need to know where to mitigate outsourcing risks and match them up! Creative Strategic Reactive Passive 2. Changing position on the axis almost always requires internal effort (and a lot of it) and can take considerable time - or a significant reorganisation Creative Strategic Reactive Passive 3. In all cases, the capability to manage and develop the outsource is still required in-house. This approach is not a panacea though!

22 Retaining innovation in outsource agreements The sourcing strategy is critical to the successful inclusion and retention of innovation Define the objectives of the outsource Commercial baseline & estimated benefits Should unearth as many hidden costs as possible The estimated benefits should not discount the innovation required It s important to identify any contractual restrictions that may get in the way later on.

23 Retaining innovation in outsource agreements Create the value proposition This is where the innovation element should be described it will become the main differentiator between the subsequent bidders in the procurement process and will then be used during the negotiation phase Check out any 3 rd party contracts that might influence innovation Plan IPR ownership and the timing of any novation and transfer to the outsourcer Make sure an exit strategy is present you want to keep the rights to the innovation! The degree to which innovation will be delivered is determined by the sourcing strategy.

24 Some examples from Virgin Trains Thetrainline Fast Ticket ticket on departure Wifi Smartcard ticketing Rail Industry projects

25 Breaking rules and redefining markets (be careful!)

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27 Increasingly, the role of an IT Director and their Team is : Designing the appropriate supply architecture for IT services according to the structure and capability of the business Procuring and refreshing these with assistance from Procurement & Finance teams Managing the contracts Delivering innovation & having fun!

28 Closing Remarks Understanding what type of company or department you are is fundamental to selecting the type of outsource content that will best fit for success If departments need to be someplace they re not on the approach / change axis, most of the work will have to be done internally first Innovation is primarily determined by the sourcing strategy, not something that s started after the outsource has been agreed.

29 Outsourcing for Commercial Advantage