The (r)evolution in the outsourcing industry is happening. Innovative win-win outsourcing relationships are replacing traditional cost-focused procurement methods. The University of Tennessee calls these innovative approaches “Vested Outsourcing,” because the company and the service provider work together to align the success of the service provider with the achievement of success for the client’s business. Each party employs its core competencies to accomplish what each could not achieve on its own.
The problem is that many companies are quick to say win-win partnership – but they are not contracting for true partnership and are falling short in unleashing the real potential of a fully Vested relationship. This is particularly true in the IT space where University of Tennessee research initially failed to find any companies that indicated they were practicing Vested Outsourcing. Long-time industry leaders such as Marty Pine, who has held senior executive positions on both the buy and sell sides of outsourcing deals, agrees: “The IT sector is behind the curve in adopting progressive outsourcing approaches. This is because IT has only really been outsourced since the 1990s while other sectors such as logistics, facilities management, and contract manufacturing have been outsourcing for much longer.”
The Journey Begins
In 2005, Diversey, a leading global provider of commercial cleaning, sanitation and hygiene solutions for businesses, found itself in a very difficult situation. Faced with heavy debt and flat sales, a new CFO launched a mandate that tasked Diversey’s IT organisation to lower the company’s IT spending from about 5 per cent cost as percentage of sales to 2.5 per cent.
In 2006, Diversey signed a five-year contract spanning Diversey’s entire IT management, including IT infrastructure management, application development and support, and small project management. The Diversey IT team realized the only way to achieve the aggressive cost savings targets on time would be with a classic “Lift and Shift” approach.
The Diversey/Wipro plan paid off. By year two of the five-year deal Wipro had delivered the targeted financial and organisational benefits that Diversey sought. The companies had developed what many outsourcing relationship strive for: trust and respect.
The Second Generation
With success under their belt, both parties agreed they were ready to embark on the next leg of their journey. “We wanted to shift the focus and make IT an enabler to the business” stated Brent Hoag, Diversey’s CIO. “By creating a Business Service Catalogue and leveraging cloud computing, business units would have access to a wide variety of services. Our vision was that business units would be able to ‘pay as you go’ for the services they wanted, when they wanted, at service levels they wanted and valued. If we could do this we felt IT would be seen as adding value to the business versus being an overhead.” he continued.
In January 2010, both companies signed an early renewal of the agreement, which extended their contract to December 2014. The scope of the contract was expanded to achieve the above objectives – including fully integrating Service Desk and Deskside support services and adding a Depot Solution.
Third Generation – Going From Good to Great
“Diversey was already thinking about our IT outsourcing efforts as a continuous improvement effort,” explained Hoag, who took the helm as CIO in 2009 and was keenly interested in how he and his team could take their Wipro outsourcing efforts to the next level. “We already had great success and were about to embark on the third generation of our relationship with Wipro. Our results from outsourcing had exceeded our expectations after each of our major step change.”
As the parties began to embark on their third generation of their evolution, they wanted to make sure they were incorporating best practices. It was during their research they heard about the University of Tennessee’s pioneering research on highly successful outsourcing deals.
“Both Diversey and Wipro were very intrigued with the University of Tennessee’s Vested Outsourcing concept and wanted to learn more. Together we decided to participate in the University of Tennessee’s Deal Review process as a way to help us learn how we might take our outsourcing relationship to the next level,” explained Hoag.
The parties decided to take part in what UT researchers have coined a “Deal Review”. A Deal Review is an in-depth diagnostic into the pricing model, governance structure and performance metrics and evaluates the overall relationship trust levels through an online survey. The Deal Review process provides the companies with recommendations that can create a true Vested partnership and can yield significant benefits for both parties.
The Deal Review revealed both companies were well on the way to creating a highly collaborative win-win Vested Outsourcing relationship. The overall diagnosis with the Diversey/Wipro deal received an overall deal effectiveness score of 3.7 out of 5 – with 3 being “Good” and 5 being “Great” with both parties operating in harmony and delivering transformational results and value beyond what either party could deliver themselves.
Kiran Vedak, Chief Technology Officer at Diversey, shared perspective. “We welcomed the neutral third-party perspective. The University of Tennessee’s Deal Review process helped us to see the shortcomings clear in front of us and get a sense of urgency to address them.”
CIO Hoag was also pleased they took part in UT’s Deal Review process. “We feel that the findings and our journey to Vested Outsourcing are a great example for the IT industry, which many others might be interested in. The process added significant value as Diversey and Wipro strive to mutually invest in innovations that will bring mutual gain for both companies.”
Together, Diversey and Wipro have come a long way since their initial outsourcing agreement was signed in 2005. In less than five short years, Diversey’s IT group has gone from old school and expensive to nimble, cost-effective and greener. In September 2010 Diversey was listed by InformationWeek as one of the top 10 US manufacturers that are leading innovative deployment of information technology. Overall, Diversey was among the top 200 companies recognized for technology innovation in the world. The pair was also awarded the ‘IT Outsourcing Project of the Year’ in November 2011 by the National Outsourcing Association (NAO). The NOA awards recognise and reward innovation and achievement by suppliers, users and integrated teams within the outsourcing industry.
But what does 2012 bring? Diversey was acquired by Sealed Air in October, 2011. But rather than halt progress, Hoag and his team – with Wipro right along by their side – continue to march forward.
“The UT process also highlighted something that is crucial to our success within the next year – the importance of having a contract as a flexible framework. Sealed Air uses Wipro as their service provider – but you never know what the future will bring. We set out to structure our agreement as flexible and it has stood the test of time allowing both parties to respond effectively to changes in the business,” Hoag stated.
Werner Graf echoes the importance of a flexible framework and trusting business relationship. “As Diversey enters into a period of known unknowns I can’t think of two better components to have – a flexible contractual framework and a trusting business relationship. At the end of the day this team will be able to accomplish whatever the business demands.”
