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With a focus on business transformation outsourcing, Accenture is pioneering a type of outsourcing deal in which it will share gains from customers business advantage, along with risks. Martin Cole, whose office is in Hartford, Conn., is managing partner for outsourcing at Accenture, with executive offices in Dallas, which last year had $11.8 billion in revenue. Last week, Cole explained Accentures approach to the changing landscape of outsourcing with eWEEK Executive Editor Stan Gibson.
How do you define business transformation outsourcing?
Outsourcing covers a broad range. There is infrastructure outsourcing, maybe the most prevalent over the last 10 years, where companies have outsourced things like data centers and disaster recovery. There is application outsourcing, and there is business process outsourcing. Then there is a unique offering that brings many of those elements together: business transformation outsourcing. Through business transformation outsourcing, we cover strategy as well as operations.
Is business transformation outsourcing like re-engineering, which was a popular term several years ago?
Business transformation outsourcing includes a re-engineering component. We do not believe in taking the current environment as is, lifting it up and dropping it on Accenture. Thats not going to get the optimal results. We want to go beyond that and improve overall performance.
With regard to re-engineering, companies were pushing the notion of coming in, re-engineering your processes and promising significantly improved results. But in our BTO [business transformation outsourcing] offerings, we go beyond redesigning and re-engineering to carry forward the new processes operationally. Its the difference between offering advice and actually executing on the advice that you offered.
What outcomes are you shooting for in a typical BTO engagement?
Generally, BTO has an impact on both the bottom line and the top line. The goal is to help improve a customers position in the marketplace and overall profitability. That may be driven by cost reduction, improved customer service, bottom-line profitability or productivity measures.
A lot of people who talk about business outcome tend to focus on savings. But thats not a business change or transformation. There is greater value in improving the way a business operates and helping it grow.
Historically, companies have been offering outsourcing to help companies re-engineer their balance sheet. That doesnt answer the question of what generates value. We focus on business transformation—on outcomes that create sustainable value.
Is there a customer that comes to mind?
We worked with J Sainsbury [plc.], the U.K. grocery retailer, to reduce the cost of their IT operations and then redeploy those savings to new IT programs. They launched a new customer service interface on their Web site and a home shopping capability called Sainsburys-to-You. Theyve also been redeveloping their supply chain systems as well as warehousing, inventory, staffing and other things. We saved them $50 million in IT that we were able to redeploy. We know that their stock price has improved during the course of our relationship.
Next page: How the sharing of risk and reward works.
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Can you explain how the sharing of risk and reward works?
Were prepared to share in the pain and share in the gain. We want to establish a relationship where we are aligned on objectives. But this is really hard to do. The typical customers mind-set is only to hold the service provider accountable for all problems. That sort of behavior does not incent Accenture or any service provider to go beyond the basic elements.
Are there any instances you could point to where this approach has been successful?
The work weve been doing with J Sainsbury is an example; also, the work were doing with the London Stock Exchange. A form of our compensation is tied to their business results, so we are very incented to make them successful over and above our base compensation. A global pharmaceutical company is another example. A key outcome was to improve their clinical data management activities so that they can get product to market faster. We were able to work with them to streamline this critical activity. A portion of our compensation is tied to our ability to get these tasks completed quickly.
Isnt there a lot of gray area in measuring some of these benefits? Are you getting a percentage of profits?
Its not based on a percentage, but its based on fair value for our contribution over and above meeting base levels. Your point is very valid. It is extremely difficult to isolate any one factor in profitability. We often talk about tying our compensation to an improvement in share price. But its difficult to understand the contribution of any one factor in raising a companys share price. However, it is possible to understand the value of a particular contribution and assess the compensation for that value.