When negotiating an outsourcing contract, the tendency is to try to “box in the vendor” in an effort to cover every possible scenario that may transpire in the relationship – but that’s not the way to go, said an executive with TD Bank Financial Group at a recent outsourcing forum in Toronto.
“It’s humanly impossible to think of every scenario, every permutation of every possible situation,” said Alec Morley, vice-president of business transformation with TD’s technology solutions group. Instead, he said, take the approach of asserting requirements to the vendor.
Morley spoke alongside Hewlett Packard Co.’s client director of outsourcing services, Jim Magahey, at the Centre for Outsourcing Research & Education (CORE)’s Global Sourcing Forum on Thursday. The executives recounted the challenges and lessons learned during their outsourcing relationship.
TD embarked on a seven-year outsourcing contract with HP to transform 2,500 outmoded ABMs starting in 2006. The bank chose to outfit the terminals with a new interface that was more functional and friendly to customers with disabilities. But it also wanted to transition to Interactive Financial eXchange (IFX), a new industry network standard – yet to be tested in production – that was an extension of existing standards for communicating with other financial institutions.
The choice of HP as outsourcing vendor resulted from an analysis of the in-house versus outsourcing cost. And although HP didn’t possess the degree of knowledge of the ABM space that TD would have liked, Morley said the bank “took a chance” on HP given its keenness and international reach. Morley, however, later explained that that reasoning may not necessarily apply to considerations of future outsourcing relationships, joking that it’s possible to have a vendor who is keen because it’s aching for business. “Each deal is structured differently,” he noted.
Morley discussed the importance of maintaining an honest and transparent relationship with different stakeholders including business, operations and technology teams. “You can’t do this as an island, as a technology group,” he said, adding that although discussions may commence with requirements-gathering, the relationship needs to continue to flourish.
That’s particularly important, he said, because if a common understanding of the agreement is lacking, turnover will ensue resulting in the loss of a great deal of money.
To that end, the process entailed documenting a transition plan in detail, and both TD and HP teams spending ample time together to ensure adequate knowledge transfer. Along the same vein, organizational change management, too, required “significant attention” because it won’t be business as usual when a service is transferred to a vendor, said Morley.
The panel also discussed the importance of internal and external legal counsel. TD had the benefit of an internal Outsourcing Governance Office (OGO) that provided guidance throughout the process beginning with the initial RFP to the actual contact signing. For instance, the OGO advised TD to cut back on the plethora of service levels it required of the vendor, and instead focus on a handful of critical ones only.
The outsourcing relationship with HP was further complicated by the fact that HP managed a consortium of sub vendors. And although TD didn’t have a line of sight into sub vendor performance, HP was the “owner of the consortium” and had responsibility to ensure alignment with the agreement, said Magahey.
Managing the service rendered to the customer was also an important element of the project, Magahey had earlier noted. “We could not disrupt services to our customers but we had to completely remove and replace the infrastructure underneath our AMB services,” he said.
Outsourcing can often be seen as transferring the risk to the vendor, said Morley, and “it sounds wonderful but it’s still your customers at the other end of the ATM.” Transferring that risk is not a decision a company takes lightly, he added, but it made “sense on paper.”
