A Case Study of an Outsourcing Decision Project in a Large Public

Organization

Sven CarlssonInformatics, Lund University

Björn JohanssonCAICT, Copenhagen Business School

The Case• MeLo’s (Messaging and Logistics) Outsourcing

project• 35 000 employees• The outsourcing project started in 2002 (after

a major restructuring) • Completed in 14 months• Resulted in a 6 years contract• And that MeLo decided to use an external

partner for hosting of ICT

Organization of the EffectIT project

Outsourcing Project

Support Business

Calculation

Application Architectur

Model for IT control

Process-Based

IT

Sterring CommitteeOutsourcing Project

Sterring CommitteeEffectIT Project

Project leader EffectIT Project

Assistant Project leader

EffectIT Project

A timeline for the outsourcing decision project

April, 2002 October, 2002 December, 2002 February, 2003 March, 2003 June, 2003

Implementation

Request for information and invitation of tender

This step consisted of three main activities:

1) producing the request for information, distribution and evaluation of the information,

2) producing a business case that described an outsourcing case,

3) development of a tender invitation

Tender invitation

This step consisted of three main activities:

1) construction of a package with additional information for the invitation of tenders,

2) answering of questions from possible providers,

3) planning and preparation for the evaluation of tenders.

Evaluation of tenders

There were four main activities in the step:

1) evaluation of tenders,

2) develop a “short-list”,

3) the start of preparing the contract, and

4) preparation of due diligence.

Due diligence and Agreement proposals

The next step in the project consisted of two activities:

1) to conduct a due diligence with the two potential providers from the short-list,

2) to create the proposal of agreement.

Negotiation

The next step in the outsourcing project was the negotiation with providers. The step consisted of three activities:

1) negotiation preparation,

2) final negotiation, and

3) the delivery to the provider that were finally chosen.

Table 1 Decisions made in MeLo's outsourcing projectRequest for Information and Invitation of Tender

Label What was the decision about?

A1 Deciding on the start of the sourcing decision project

A2 Decision on the project plan and steps in the project

A3 Strategic decision that MeLo should focus on its core business

A4 Decision that the outsourcing project should be part of EffectIT and E25

A5 Increase the outsourcing project with the request for information (RFI) activity

A6 Decision on which “potential” providers that should have the RFI

A7 Decision on which providers that invitation of tender should be distributed to

A8 Deciding that a business case was necessary to have as a foundation for the decision that was needed to make in MeLo’s executive committee

A9 Suggest outsourcing as the way to organize MeLo’s ICT in the future

A10 Deciding that the project could continue with the decision-making process, and thereby start the purchasing phase

A11 Decision on running workshops aiming at change the negative feelings about outsourcing among employees

A12 New date for completion of the project

A13 Permission of recruiting a person responsible for the procuring unit

A 14 Deciding on keeping the “old” structure of the invitation of tender

Tender Invitation

Label What was the decision about?

B1 Deciding that the scope of the project should increase

B2 Deciding on implementing networks of contacts between the project and the business units

B3 Deciding on which units that are involved in the sourcing project

B4 Deciding on resources (number of personnel and teams) for the evaluation work

B5 Deciding on termination of usage of x-consultants in the project

B6 Deciding on a new consultant (y-consultant) as assistant project leader

B7 Deciding on recruiting a colleague (Internal “consultant”) as assistant project leader

B8 Deciding on using a reference group and the composition of this group for quality assurance of tender invitation

B9 Deciding on which providers that tender invitation should be submitted to

B10 Deciding the day for final submission of tenders

B11 Decision on a change of localization for the project

Evaluation of Tenders

Label What was the decision about?

C1 Decision on which providers that should have the possibility to present themselves

C2 Deciding on dismissal of two of the providers (going from six to four)

C3 A decision that more information was needed to be able to come up with a list of two providers

C4 Deciding on a short-list with two providers

C5 Decision on that the work should continue with the two providers at the short-list

C6 Deciding that MeLo should present its proposal for contract

C7 Deciding that the presented proposal should guide the negotiation

C8 Deciding that the proposal for contract should be a whole new document

C9 Deciding that the project should have an own steering committee

C10 Deciding on the constellation of the new steering committee

C11 A decision that the steering committee for the outsourcing project should meet once a week

C12 Deciding on appointment of a new assistant project leader

C13 Decision on the time necessary to make the evaluation of tenders

Due Diligence and Agreement Proposals

Label What was the decision about?

D1 Deciding on full openness during due diligence

D2 Deciding on some restrictions on the “full openness” for instance, list of employees supposed to change employment

D3 Deciding on an investigation and suggestion of a model for fee payment that were considered as “normal” on the market

D4 Deciding on that the quality of the proposal was good enough

D5 Deciding on usage of the internal proposal instead of using the proposals delivered from the providers

D6 Decision on who the responsible for the procuring organization should be

D7 Deciding that recruitment of personnel for the procuring organization should come in action

D8 Deciding that distribution of proposal agreement should be done

Negotiation

Label What was the decision about?

E1 Decision on giving potential providers the ability to become familiar with the proposal

E2 Decision that the provider should state a price for demanded services

E3 Deciding that the outsourcing project should have the rights to start the final negotiation

E4 Decision on the composition of the final negotiation group

E5 Final decision on which provider to sign a contract with

E6 Deciding that MeLo should use an external provider for provision of its ICT infrastructure and hosting of ICT and that the CEO could sign the contract

Discussion• Decided on outsourcing before the

outsourcing decision project started• The aim of the project was not clear enough

and this raised a lot of problems– Low commitment for the project leading to a lack

of support in the project– Lack of resorces in combination with different

perceptions of outsourcing benefits and drawbacks made the ordering unit did not materialize

– Unclear and misleading information influenced the final steps in the project negatively

Conclusions

• Based on the case study, two conclusions can be made– Extremly important in an outsourcing decision

project that the reason for starting the process is clear and that the aim of the project also is clear

– Having well developed ICT governance and management is also important for the success of the process