Pain, pioneering in the search for outsourcing nirvana

Difficulties, conflicts and cost overruns have all played a role in AMP’s search for outsourcing nirvana, but in recent times the company believes it has found success.

AMP group director Lou Pagano said it was the first major financial services organization to truly outsource its infrastructure services back in 1993 with CSC.

“We do consider today that outsourcing is very successful for AMP and it is also a key part of our value chain, particularly from an IT perspective in our business,” Pagano said.

“The journey has been very difficult and certainly AMP has pioneered many paths and some of those haven’t been so successful; both [parties] have suffered along the way although something must be right because we’re still here.”

Speaking at IDC Directions 2004 conference on the experience of outsourcing management, Pagano said although it is incredibly difficult to share experiences there are a number of things to consider that will help develop a productive outsourcing relationship.

“There’s nothing magic about outsourcing itself,” he said. “Outsourcing is absolutely about discipline on both sides and somewhere along the line customers forgot that accountability didn’t go out with the contract. Accountability rests within the IT group and we very clearly establish who is responsible for what.”

Pagano views AMP as an “informed” client from a “board and business perspective”.

“It takes two to tango,” he said. “We’ve learnt from cost and conflict and we can set realistic expectations as they are not a one-time event. It’s not always the vendor’s people that are wrong and the same rules [apply] within AMP to outsource providers.”

Pagano said board-backed commitment is a must because, “if the CIO or CEO doesn’t think it’s important then there’s no hope for either side to meet expectations”.

“All too often early deals only considered the customer side, but boards today are comfortable going through outsourcing deals,” Pagano said. “It’s a journey. Sustain the development, realize the value, never sit on your own laurels, and don’t assume everyone knows what success is.”

On what to consider before entering into an outsourcing contract, Pagano said: “Things to consider are the process of interpretation, flexibility and the cost of change, how capable you are, and how to stretch the horizon.

“Govern [contracts] individually but measure as one, define the expectation, and manage the ‘grey’ area as an entity,” he said.

With AMP’s other major supplier being KAZ, Pagano said structures are important to managing multiple suppliers because there can be a “complex chain of events”.

“A measurement framework is a means, not an end,” he said. “Credible reporting is a single source of truth; be prepared to move from one vendor to another.”

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