Guy Warren, CEO of LogicaCMG ( UK )   6th March 2006 The global outsourcing market is a dynamic and highly competitive field. Fuelled by the desire to manage costs, divest non-core businesses and fine tune business processes more and more organisations are turning to outsourcing as a worthy alternative to building capability in house. In this FSN interview, Guy Warren, CEO of LogicaCMG in the UK , shares his experiences and observations of how this rapidly developing industry is changing and how to drive success. The global outsourcing market is a dynamic and highly competitive field. Fuelled by the desire to manage costs, divest non-core businesses and fine tune business processes more and more organisations are turning to outsourcing as a worthy alternative to building capability in house. Guy Warren, CEO of LogicaCMG in the UK , a key player in the global outsourcing marketplace is all too familiar with the challenges that outsourcing presents for clients and providers alike. In this interview he shares his experiences and observations of how this rapidly developing industry is changing and how to drive success. The outsourcing sector is not covered in glory. As an industry, it has often received highly critical press coverage and inevitably, outsourcing successes are overshadowed by the few instances where outsourcing goes horribly wrong. According to Warren , part of the problem is that in a very dynamic marketplace the boundary between what it is appropriate to outsource or keep in house is being constantly tested. “Over-time the outsourcing industry is doing more and more and client companies are doing less. Historically, companies provided their own electricity through generators but very few would dream of doing so these days. So IT departments are shrinking as companies discover that external providers can do certain jobs even better. For example, we have seen helpdesks, infrastructure, application development and even configuration of operating systems move into the outsourcing domain. The line between what is kept in-house or outsourced is shifting constantly and this can lead to failure when such a move is premature for either the provider or the client.” Some analysts predict that in the not too distant future, in-house IT departments will be limited to just a handful of individuals charged with, say, strategy, applications architecture and procurement with everything else being outsourced. “It might sound far fetched, but if another company can do it cheaper and better why wouldn't you let it go?” asks Warren . Shifting boundaries is clearly one reason why outsourcing projects can go awry but is perhaps understandable as the risks are inevitably higher when people are pioneering any new service or product. However, there are deeper reasons why outsourcing can go wrong, many of which are entirely preventable. Warren and his management team have expended considerable effort, backed by independent academic research, to highlight some of the issues that need to be managed if outsourcing is to be successful. “Expectations are often unrealistic,” says Warren . His comments are even-handed and point to common failings on the part of the provider as well as the customer. “People can get overexcited during the highly competitive sales process. They can get over optimistic about what can be delivered without necessarily having sufficient knowledge about the problem.” Warren , admits having to pull even his own managers back from the brink when the powerful urge to win business temporarily impairs judgement. “The trouble is that these contracts are often managed in a hurry with only a few weeks allowed for due diligence during which the client's team has to spend time with several potential providers.” This can lead to the wrong deal being struck. “Once the deal has reached the ‘preferred bidder' stage, I would like to see a break so that the requirements can be re-based.” Warren agrees that the challenges facing the outsourcing industry have overtones of the same sort of issues that afflicted the early days of bespoke software development when people rushed into hopelessly ambitious projects that would not meet the need even if the project could be delivered. However, there is a glimmer of light and Warren judges that the public sector seems to be moving in the right direction by contracting initially for the minimum requirement. “The way to have a large successful project is to have a small successful project,” says Warren pointedly. Rather than having a ‘big bang' approach, there appears to be considerable merit in building up capability and knowledge a chunk at a time. TPI, an industry watcher and advisor on outsourcing contracts has reported a trend to smaller contracts in its latest quarterly survey and LogicaCMG is seeing the same thing. “Government does not seem to be happy with mega-deals and I certainly don't desire them,” adds Warren. Recent research carried out by LogicaCMG in co-operation with Warwick Business School suggests that outsourcing arrangements rely too heavily on heavily engineered contracts and service level agreements rather than establishing good relationship management and IT governance. As a result, any disputes become rapidly adversarial and can descend into an argument over contract terms. Investing in people skills, establishing project charters and organisational structures sounds fine in theory, but how is it working out in practice? “Our experience varies from client to client,” says Warren . “Often, the work is contracted by the CIO but delivery is to the business managers. Procurement should facilitate the process but in some organisations it wields a disproportionate amount of power.” So Warren 's managers can find themselves drawn into heavy contract negotiations at the expense of understanding the business. Generally, the lack of client experience in outsourcing appears to be a real problem. Yet Warren is undeterred and perhaps predictably, sees an inexorable drive towards more outsourcing. Nevertheless he cautions that not everything is suitable for outsourcing. “Anything that is strategic or is at the root of business differentiation should be kept in-house. Actually, I'm not greatly in favour of call centre outsourcing either. I would want to keep customer relationships under my control. But if you can identify areas that you can safely give to someone else to do better and more cheaply then why wouldn't you do it?” Looking to the future Guy Warren sees a rapidly changing market with more outsourcing providers entering the fray only to be consumed by larger global providers hungry for resource and geographic coverage. Warren also expects a continuous rebalancing of off-shoring and near shoring as individual companies weigh up the risks and costs of different operating strategies. He is enthusiastic about the prospects for India and how a burgeoning low cost environment with an abundance of highly skilled young people could benefit both outsourcing providers and their customers. Many will continue to base more of their capability offshore. It is the fluidity of the marketplace that keeps Warren challenged. “It used to be interesting simply because of the growth. But the market is also constantly changing and providing one is comfortable with change and keen to be a change agent, then it's an exciting place to be.”
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