Outsourcer Keane Inc. emerged from the dot-com boom and bust and the Y2K aftermath with an emphasis on application outsourcing. Keane this year acquired Nims Associates Inc., a Midwestern systems integrator. Last year, the company purchased majority ownership of Worldzen, renaming the Chicago- based BPO specialist Keane Worldzen. In 2002, Keane purchased SignalTree Solutions Holding Inc., which now constitutes the companys Keane India unit. Keane recorded $805 million in revenue in 2003. Son of founder and Chairman John Keane, Brian Keane joined the company in 1987 and became CEO in 1999. Keane discussed outsourcing trends and relationships in a recent interview with eWEEK Executive Editor Stan Gibson at Keanes Boston headquarters.
The practice of multisourcing, or using many outsourcers at once, is a major topic in outsourcing these days. What do you think about it?
It comes down to the number of outsourcers. I believe pretty strongly in best of breed. Just because youre good at data center outsourcing doesnt mean that youre world-class in application management or business process outsourcing. We think that there is a natural specialization that takes place. In that case, the client organization becomes like a prime contractor.
What if someone asks you to split things up with another provider to get you to compete and cooperate? General Motors Corp. has been experimenting with this model.
Then it gets more complex because you need to define scope and whos responsible for what. You need common management systems and common metrics. If a company is large enough and you can carve out areas of responsibility, it works fine. Keane is very comfortable working in that environment, where theres clarity and accountability.
Theres an emerging phenomenon of the “fourth party” aggregator: for example, a company that sits between a customer and multiple outsourcers. Is that a relationship you are interested in?
When we set up an outsourcing engagement, we set up a PMO [program management office] that controls all aspects—communications, risk management and financials. And we like to have our PMO interface with a PMO on the client side, which has the authority to be making decisions. Im not sure its clear to me what role the so-called aggregator would play. … Its important that you have tight integration between the provider of services and the client. Every layer that you put in between is creating opportunities for miscommunication and misunderstanding. A fourth party might provide a super-PMO, but I think that creates a level of hierarchy. I think the client needs to have vendor management as a core competency.
What about contracts that provide for sharing of risk and reward?
Its a big topic. You can take it to one extreme and say that well be paid based on your stock price. There was talk of that in the late 1990s. But it goes back to metrics. We like to think we can demonstrate were exceeding expectations. If we are not meeting them, there are penalties. In outsourcing contracts, we commit to a fixed price and fixed monthly billing over a multiyear time frame. We define exactly the service levels that youre going to be getting for that price. If it takes us 150 people as opposed to 100 people to do that, its on us. In most of our outsourcing engagements, we are, right out of the box, agreeing to take a substantial amount of risk.
What about a contract that specifies an annual productivity gain? Do you sign those?
Yes, and it exhibits itself in key ways. Most of the time, its the clients expectation that well be increasing productivity year in and year out. What theyre really concerned about is not that Keane is increasing their productivity every year but that were doing everything we have to do to be able to pass on cost reductions as we increase our productivity. Its not unusual that we are modeling into our pricing annual productivity improvements.
One analyst at the Gartner [Inc.] Outsourcing Summit last month said, in a few years, nearly everything will be outsourced to application service providers. Do you see things going that way?
I dont see everything going ASP. I believe that, increasingly over time, competitive strategy of corporations is highly linked with IT and IT strategy. If what youre saying is that everything in strategy is ASP, then it means that everything you do is just like every other competitor you have. So theres not competitive differentiation.