Investing in BPO

With transformational outsourcing deals, the one thing that organisations have to learn is how to manage change. This is the key learning of Steve Owen, partnership and operations director at National Savings and Investments (NS&I), seven years into a 15-year BPO contract with Siemens Business Services (SBS) to undertake all of its transaction processing activities.

"Managing a deal like this is a really tough option – and much more difficult than managing an in-house provider. You've got to be much clearer about exactly what it is you want and the hardest thing is that you don't have direct control. So it's more complex, but the benefits are higher," says Owen.

The government agency first embarked on its BPO journey in the mid-1990s at a stage when it was losing market share and its customer base was shrinking. One of the key problems the organisation faced was that, while it received a set amount from the government each year to cover running costs, the sum was not enough to invest in the business. But this made it difficult to compete with other financial services companies.

"We were struggling a bit to say the least. We could afford to pay wages, but we couldn't afford to invest and this thought process was the primary thing that drove us to outsource," Owen explains. "But we're also not particularly good at operations. Structurally, it's very difficult because of the way we're financed, which meant that we couldn't draw on the wider market."

The 10-year contract with SBS came into force on 1 April 1999 and has already had its five year extension option exercised. The decision was taken to structure it as a private finance initiative deal because of the large capital investment required to upgrade NS&I's underlying IT infrastructure, much of which was siloed and mainframe-based.

The revamp included moving to a single banking system to handle all back office processes; introducing a data warehouse to better understand customers and their requirements; and implementing scanning and imaging applications. The aim here was to improve the effectiveness of workflow-based processes between the organisation's sites in Glasgow, Blackpool, Durham and India.

But the biggest challenge that NS&I had to cope with was not so much technical in nature as people-oriented. As part of the deal, it agreed to transfer 4,200 staff to its provider, which at the time was the largest TUPE (Transfer of Undertakings [Protection of Employment] Regulations 1981 and 2006) transfer ever undertaken in the UK public sector.

These personnel process 60 million transactions each year and handle support activities for the public authority's 26 million customers. The move left a core team of about 200 to focus on strategic activities such as designing products, setting prices, contract and brand management and marketing.

"People are the big issue here and it's never painless. It doesn't matter how much spin you put on this, the real issue is the people side of the transition and it's difficult. But once we decided to outsource, we were as open as we could possibly be in selling the business case to them," Owen says.

Although many employees were unhappy about being outsourced to the private sector, "quite a lot realised that it was a bit of a failing business and while it wasn't going to collapse, it was on a downward slope. So when we presented them with a business case as to why we were outsourcing, most staff understood that it had to be done".

While Owen acknowledges that it is always impossible to win everyone over, he believes that "if the majority are behind it, it'll work". Another factor that helped to make the handover smooth, however, was that personnel were not required to change sites.

"We outsourced the whole operations so it was easier for everyone to stay where they were. It would have been too painful and expensive to lift it all up and move, but it led to a very smooth transition as people came in the next day and were doing the same job with no physical change," Owen explains. Since the transfer, 1,700 of predominantly the same staff still work on the NS&I account, while the balance have either been re-deployed to other contracts within SBS, taken voluntary redundancy or left due to various reasons such as retirement.

The NS&I strategy team, meanwhile, has also dropped in number to 130, although very few of the original staff members are left.

"There was a complete shift of focus away from operational to strategic issues and we moved from being a traditional civil service agency to essentially being a financial services business. Most of the staff working for us now have a financial services background so there's been big cultural change at the core of the business," says Owen.

This shift has been of huge benefit, he adds, because it means that the organisation is now more focused. A key advantage of reducing staff numbers, meanwhile, has been the resultant drop in operational expenditure. While in 1999, the deal cost NS&I £100 million per annum to run, by 2009, Owen expects this figure to have fallen to £43 million on a like-for-like basis.

Some of these savings have to date been reinvested in the business to create new services and channels to market and to open a 300-seat contact centre. But the rest has been used to boost interest rates for products and has also gone "back into the public purse because the business now costs less to run".

At a customer level, the move to BPO has likewise generated various benefits. While responding to a customer request or query used to take an average of 11.5 days in 1998, it now takes three, which is "a big improvement in timeliness and means that customer complaints are now at very low levels and satisfaction has grown".

Moreover, the organisation has moved from being very product- and site-centric to being more customer-focused, not least due to the introduction of its single banking platform.

"In the past, if a customer rang Blackpool about their premium bonds, but had a query about another product, we'd have had to redirect them elsewhere. But now we're a virtual business so customers go through to the call centre and have their query dealt with using a single IT platform, which holds all of the relevant information about them," Owen explains.

But this does not mean to say that everything is plain sailing with large complex transformational BPO projects of this type. Contract management is a big challenge as is handling change.

"What you outsource on day one is entirely different after the contract has been running for 15 years, but change has to be managed in partnership and that's a big challenge," Owen says.

The key, however, he believes, is "engagement" and building up and developing trust. Part of this process involves spending as much time as possible discussing with the provider how to introduce any necessary changes in a way that will be beneficial to both parties.

"It's not about being generous or soft, but about recognising your partner's point of view and taking that into account. But working in this way can take a lot of time, certainly more than just specifying something and throwing it over the wall," he explains.

It also requires proper governance structures to be put in place throughout the business so that the two organisations can interface at operational and board level. NS&I, for example, has a team of 11 staff that work on site at its four offices, with one manager, which until recently was Owen, taking overall responsibility for the contract.

"Open book accounting is not enough. You really have to understand your partner's business. That means getting a full break-down of how it ticks and understanding future projections and where its costs lie. You can only do that if you have good governance control in place, but that level of involvement is the key to success in a complex deal like this one," Owen concludes.