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Barclays, one of the world's largest banks, recently outsourced its IT application development and management. Locating a single service provider for Barclays' outsourcing needs, and then negotiating the terms of the agreement took two years, engaged a dozen different companies in a competitive process, involved 70 in-house employees at the project's peak, and resulted in a 750-page contract. The lucky winner was Accenture, a large consulting, technology services, and outsourcing company, in a deal worth $700 million over six years.
"Last year, 61 percent of our operating costs were spent on third parties," says Mark Varley, the Barclays executive in charge of the outsourcing project. "So you could say that I have been involved in negotiating and renegotiating a few deals." What did it take for Barclays to find and then engage Accenture, and what can be learned from the experience? Varley explains how he kept a clear eye on commercial imperatives and set up a deal to deliver.
Making the decision to outsource
Barclays made a strategic decision to outsource the development and management of its non-strategic software applications—CRM and office tools, as well as currency accounting and other accounting functions (the transition of some of these applications was just completed in March 2005). This move to external resources allows the bank to concentrate its in-house resources on the initiatives that stand to contribute most directly to its commercial success—core business processes, such as cost analysis, tax planning, and capital management. In addition to offering strategic alignment of goals and technology, outsourcing initiatives have the potential to cut operational costs.
Negotiating the outsourcing deal
So, how do you move through the selection process for a project of this scope, and make sure you negotiate the best deal? Varley is adamant about one thing: keeping a clear eye on commercial imperatives. "We wanted to keep our competitive edge throughout the process of agreeing on the major cost-driving elements to outsource," he says. In other words, when you are looking, possibly, at a multi-year process of locating the right partner and tying up significant resources in the meantime, you have to be sure you are not wasting any effort or cutting corners in the evaluation/negotiation stage of the process.
First of all, Barclays set various criteria by which to evaluate the contenders, including:
- How it would underwrite the benefits they claimed to be able to deliver.
- The management capabilities they possessed.
- The level of support Barclays would receive if things should go wrong during the lifetime of the agreement.
"But it is also vital to keep drilling down on these elements," Varley stresses. "If an outsourcing supplier is intransigent during the negotiation process then they are likely to be the same if a contract is signed."
He also advocates using real-world examples when discussing potential issues, not abstract descriptions of them. It sounds trite, he says, but it helps focus the conversation. Then you can be sure that both parties understand the problems and the solutions being sought. Specific examples tend to bring greater clarity to the issues and the ways by which suppliers might resolve them.
Continuing to hammer away at the primary points helps to identify and eliminate gray areas. Indeed, "negotiating out caveats", is another of Varley's key principles. "Cut to the chase," he advises: "Don't ask unnecessary questions," but don't be afraid to ask the tough questions, or thoroughly investigate references from other clients.
Clear engagement from the outsourcing company's executives is another important test of commitment, according to Varley—especially if the evaluation process is a long one. If you are communicating with a management team that changes its personnel during the course of the negotiation, it could be a devious way of diluting and revisiting previously made agreements. In fact, Varley had a copy typist at all meetings to ensure that accurate records were kept of all that was discussed.
Barclays was careful not to disqualify any potential providers before absolutely necessary. Often, the evaluation process itself will reveal things about the marketplace that may affect the scope of your requirements. This meant that as some of the elements of the bank's wish list changed—it kept a range of options at hand.
Clear communications with all project partners
When it did become time to eliminate some of the competitors, they were afforded the courtesy of serious feedback. In fact, Varley carefully debriefed each one: It helped them in future negotiations and forced him to keep tightly focused on Barclays primary requirements. He was also keen to convey what he was learning back to his own executive team—something that impressed them and kept them on board.
On the matter of communications, he ran a help desk throughout the evaluation process as well. It saved him and his team many hours in answering mundane questions and setting up meetings.
Communication was also key with stakeholders. "We used a dedicated communications manager who had excellent PowerPoint skills," Varley explains. "The bottom line was not that we didn't have issues from stakeholders, but that we managed them."
Finally, he says, keep it human. Barclays took all the potential outsourcing suppliers to the seaside on one occasion: "It is a way of breaking up the negotiation dynamics, and it breaks through the tension!"