Relationship Review - Case Study
QinetiQ is a leading international provider of technology based services and solutions to the defence, security and related markets. Predominantly operating in the UK and North America, QinetiQ has revenues of £1.5bn and an underlying Operating Profit of £161m. The group employs in excess of 10,000 staff.
Within the UK, QinetiQ had outsourced the provision of most of its IT services to one of the stated leading IT service providers in the world. The contract has been running for 7 years with a further 3 years to run, having been extended beyond its initial termination date.
The client’s perception of the service being delivered under the contract was poor. The supplier was not regarded as a partner providing input to the strategic direction for IT or advising on the best solutions to support a project centric organisation like QinetiQ. The contact between the supplier and the business has been restricted, in the main due to the policy followed by QinetiQ in recent years, to dealing with the basic transactions and service requests.
The retained IT organisation in the UK consisted of 23 staff, none of whom were responsible for administering the supply contract. The internal IT team had lost the appropriate skills to manage their way out of the situation and had extended the initial contract as:
‘They had nowhere else to go’
The provision of core IT services under the contract was worth multiple tens of £millions p.a. but the actual spend being incurred was in the order of 65% higher, once additional services not specified in the original contract, and other projects were included. On top of this, years of neglect had led to pockets of maverick IT units being established within business areas dissatisfied with the corporate IT provision; and the overall IT offering was seen as very inflexible and unresponsive.
A team of two suitably experienced CIO Plus staff were deployed to undertake a thorough review of the relationship with the supplier and produce a time-bound implementation plan that would show how QinetiQ could get to a far better place.
The review process was split into three distinct phases with a further option to include a delivery phase:
Mobilisation - Gathering client expectations and communicating the objectives of the review to participants
Diagnostic Analysis – Assessing the overall sourcing strategy and reviewing the eight key areas that typically cause issues within outsourced contracts
Solution Planning – Presenting, discussing and validating the detailed findings in workshop environments
The major conclusions of the review were summarised as:
QinetiQ lacked a rational IT sourcing strategy
The outsourcing contract did not deliver value for money to QinetiQ
There was a lack of effective pro-active management from the supplier
There was inadequate engagement between IT and the business
There was an inadequate governance process
The commercial model discouraged competition
There was a lack of standardised processes
There was poor adaptation of IT to fit business needs
There were too many non-standard systems interfaces
Additionally, the initial, high level benchmarking showed that the IT spend was significantly higher than the appropriate sector level. In short QinetiQ appeared to be paying a premium price for a sub-standard service.
When the original contract expired, QinetiQ were forced to extend as they lacked the internal skills to take them to a better place. This is a situation that often arises as companies outsource their IT skills, they become denuded of the requisite skills to improve the relationship if it does not live up to its precontractual promises! But with CIO Plus’s help and our staff, acting ‘client side’ companies will put themselves in a much better position to take the path that offers them the best value.
Full details of the Relationship Review methodology including the eight key likely ‘problem’ areas can be found here.
CIO Plus recommended a full insourcing of all IT services and presented QinetiQ with a fully Integrated Operational Plan and Budget setting out the high level steps that should be taken in order to deliver the complete benefits to QinetiQ. The plan included:
The target operating model of the insourced organisation
The costs, benefits and timescales for achieving the transition
Specific projects that needed to be undertaken to restore benchmarked performance
The Defence Industry was under significant cost pressure at the time, as the government has just announced its Defence Spending Review and delivering the insourced IT organisation would reduce QinetiQ’s IT spend by circa 50% and significantly improve the bottom line.
As with all CIO Plus recommendations, we were willing to ensure their delivery by providing ‘client side’ programme management. Which is exactly what happened in this case!
A CIO Plus Programme Manager (QPM) was deployed and the insource programme was initiated. There were three phases - termination, transition and re-structuring. All three phases had to be executed whilst the IS services and projects continued to be delivered.
In this phase, we thoroughly examined the contract to determine the optimum point at which to terminate (due to variable penalties), to ensure the exit plan was satisfactory, to mobilise the QinetiQ elements of the transition team and to ensure that we had a clear understanding of both the supplier and QinetiQ obligations following a termination. Once we were comfortable with all the ramifications of termination, notice was served.
The supplier was also obliged to provide a Programme Manager (SPM) and this individual and the QPM together brought the contractual exit plan up to date and set up the Transition phase of the insource. This entailed identifying a pair of owners, one supplier and one QinetiQ, for each of 14 workstreams. These joint stream leads developed the detailed tasks and deliverables for each stream, worked them into 14 plans and were accountable for delivery. The joint workstream leads, the SPM and the QPM met formally every 2 weeks for progress meetings at which each stream reported on progress, plans, new & changed risks and issues, and these meetings were where all the cross-stream interactions and dependencies were highlighted. Thus each stream lead knew what was happening in each other stream and cross-stream dependencies were identified. Every fortnight (out of phase with the fortnightly meetings), each stream would provide the QPM with a high level status report and the QPM (with administrative project management support) would update the overall transition plan and publish a high level report to the steering board (QinetiQ senior execs).
The following workstreams were initiated:-
• Programme Management
• Service Continuity
• Assets – H/W and S/W
• In-Flight projects
• QA/Stat compliance
• Systems & Processes
• 3rd Party contracts
• Project Management/Planning/Reporting
• Risk Management
As is typical of this sort of programme, the biggest challenges were in the People/HR/TUPE stream where we worked to harmonise staff T’s and C’s as far as possible within the constraints of TUPE which meant providing broadly comparable terms. But in some aspects such as health cover, this was very complex as was the transition to a QinetiQ defined contribution pension scheme. Elsewhere, with 6 month’s notice, we were able to re-plan tranches of projects to ensure that they were either completed before the cutover date, were commenced after it or else reached a point at which they could be frozen between phases – this simplified the financial adjustments needed at cutover. In the Risk Management area, we pioneered some new tools which ensured that the risk register was a living thing and that it was regularly reviewed, modified and acted upon.
In the 3 months post cutover, we effected a re-designed IS function that was joined to and aligned with the divisions of the business. We had physically co-located the former supplier staff with the QinetiQ staff and we competed the management positions that were vacant at cutover due to senior supplier staff on the account opting to stay with them – these positions were filled from within and outside QinetiQ.
The IS Services delivered throughout this period did not significantly ‘flicker’ and, based on measures taken at different points, the Services post the cutover were improvements on those during the outsource period. A lot of this was not down to supplier staff but rather the shortcomings of the QinetiQ staff who had become a barrier between the ‘real’ IS function and the business that it tried to serve. By insourcing and re-structuring with focus on the business relationship roles, the overall perception of IS was vastly improved and the function was now seen as agile and flexible. As far as the financials were concerned, significant annual costs were saved straight away. These savings were further enhanced as other projects that CIO Plus had recommended during the Relationship Review were delivered (Server Virtualisation and various Network related recommendations). Having established a credible IS function, we then persuaded other QinetiQ business units that had grown their own IS capabilities to give these up and allow us to integrate them into the mainstream IS function thus exploiting further synergies.
An Added Bonus:
In February 2011, some 4 months after the IS insource date, CIO Plus was invited to carry out a second Relationship Review, this time on the Facilities Management function which had 10 months earlier been outsourced in a seven year deal. This is the topic of a separate case study but the mechanisms used and the outcomes achieved were largely the same as with the IS work.
What the IT Director Said:
"I'm delighted with the outcome that CIO Plus has helped us achieve - there's been a step change improvement in IS performance and a step change reduction in costs and the business perception of IS has improved beyond recognition."
Jon Ozanne, IT Director QinetiQ plc
What the Chief Executive Said:
QinetiQ revenues reduced from £1,703m in 2011 to £1,470m in 2012 but profitability rose by £90m to £145m in the same period. The reduction in the cost of IT made a significant contribution to this performance and QinetiQ was nominated for the PLC Turnaround of the Year Award.
"If IT were an operating division, it would have been the most profitable one"
Leo Quinn, Chief Executive of QinetiQ commenting on IT’s performance