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With a focus on getting back to the basics, the world's leading companies now use outsourcing to empower transformation of their operations. They recognize their scarce capital, management efforts and skilled people should be focused on core activities because these are the ones that make a competitive differentiation. Outsourcing is their strategy to ensure rapid deployment capability for the sometimes dizzying pace of technology and marketplace changes.

Nortel Networks, says senior vice president and CIO, Richard Ricks, is already an agile company; yet it decided to outsource. Management determined in 1999 that, although the company had a fairly significant IT infrastructure and legacy applications, its information services resources should be centered on creating industry-leading capabilities that differentiate Nortel in the marketplace. They focus on leveraging next-generation infrastructure technology inside Nortel to take costs out and improve the value equation for the company's clients. Recognized as one of the world's top telecommunications and IT network providers, Nortel is an end-to-end communications provider, including optical, as well as voice and wireless infrastructure.

"In order for us to be able to move quickly, we needed to leverage the talents of a third-party service provider that would invest in optimizing how service is provided in our desktop, help desk, and legacy applications support areas," says Ricks. "It was more important for our own resources to focus on implementing our eBusiness and CRM capabilities with our clients, rather than supporting our own legacy environment."

Accent on Culture

Nortel signed a $3 billion, seven-year contract with CSC in November 2000. Four outsourcing service providers were invited to bid on the Request for Proposal in February 2000 and, although negotiations were neck and neck with the final two, Ricks reports Nortel did not opt for the lowest price solution provider.

The key decision point, he explains, was the cultural relationship. "Once it gets past the commercial terms - and at the end of the day - it was who could we move quickly with and feel like there would not be a real cultural clash. That was fundamental." Halfway through the negotiating phase, CSC announced the core negotiating team would also be the ones to lead the account. "We got to really know those individuals during the negotiation cycle and felt that we could work very well with them," recalls Ricks.

Legacy application support, the computer environment support (the mainframe, MPE, client server support), desktop support, help desk and network (both voice and data) support are outsourced. Nortel retained all network engineering and systems engineering responsibility, as well as its next-generation application platforms. The outsourcing arrangement with CSC is not a one-shot deal, according to Ricks. "Our strategy is, as things become 'legacy,' we will move those into CSC's scope."

Ricks emphasizes the importance of CSC's level of service. "When I presented this outsourcing initiative to the board, I said, 'I'm not doing this for cost reduction. We will see cost reduction simply because the behavior of the remaining IS employees will change because they will be more focused on managing costs after the outsourcing.' We are more focused on service levels now because we are the customer. We asked CSC to step up to some pretty significant standards."

Operational Harmony

How well they would work together was proven in the first nine months of the relationship. CSC was very flexible when Nortel determined that its service level agreements needed to be modified. Like an anchor, CSC provides the necessary stable support services so Nortel can remain competitive. Before long, they both realized their initial service level agreements (based on traditional "break-fix" metrics) did not adequately represent what really mattered to Nortel - the experience of end users. After both companies agreed on how to tighten up and changed some performance definitions, the result was over 81 percent satisfaction from surveyed users in June 2001.

The outsourcer demonstrated flexibility again when Nortel decided to optimize its assets and consolidate some of its facilities, requiring the outsourcer's staff to work off-shift or overtime hours at a moment's notice to move assets from one location to another. Even more important, Ricks believes, is the way the outsourcer reacts to unanticipated events. Responding collectively in an efficient manner is key to a good ongoing relationship. He adds that even the way the outsourcer plans proactively for capacity and changes is important - it must be done in a disciplined way.

He cites a call center "code red" incident as an example. In an effort to optimize assets in the call center, the outsourcer had taken out too many attendants, so call wait times increased. "What I liked about their service level," Ricks recalls, "is the fact that before I had to say we expected them to add more resources, they were already aware of it and were planning on those resources. That was good to see."

The outsourcer has also been proactive in providing value-added services. CSC brought forward some Windows 2000 and other desktop upgrades, having worked in the past with Microsoft and Dell to make processes more efficient. Nortel doesn't have to invest in those skills or tools because it can leverage what CSC has already accomplished. "We had hoped for that type of unexpected benefit, but we didn't count on it," Ricks says. "That's value for us."

The two companies now are reliant on one another. Because Nortel retained the engineering responsibility and CSC has the operational responsibility, they cannot be successful without working effectively together. Nortel's CIO says they were tightly coupled during the transition phase but now the communications provider lets CSC run with its responsibility. Still, he comments, both IS teams must work in a manner that end users recognize as a seamless, integrated team.

Despite the two teams' partitioned roles and responsibilities, at the end of the day, they have a mutual accountability. Nortel's original assessment of their ability to work in a team manner with CSC has proved to be the key to their successful relationship.

Lessons from the Outsourcing Journal:

• The long-term nature of outsourcing relationships underscores the need to choose a service provider that will be flexible around unanticipated events and work as a mutually accountable team with the buyer.
• Before signing the dotted line in an outsourcing contract, be sure the service level specifications and metrics are tied to the most important outcomes the buyer hopes to achieve.
• The higher focus on performance levels and best practices that comes through outsourcing also will affect and change performance levels and perspectives of the buyer's other employees.

Publish Date: November 2002

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Copyright © 2002 - Everest Partners, L.P.

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