Manufacturing Company – Managed Outsourcing Strategies

Project Background

A leading provider of automotive retail systems and services decided to outsource its IT infrastructure and database management services to an IT services vendor with whom it had a previous business relationship working together on a leading-edge e-commerce retail application for one of the big-3 auto manufacturers. Looking to consummate a transaction by the end its fiscal year, the client did not want to spend any unnecessary time going through a competitive bidding process.

The client was familiar with the vendor’s capabilities and was comfortable with pursing a new business relationship with the vendor. However, the client still needed assistance in structuring an outsourcing deal that would provide it with the necessary scope and provisions common to those in a competitive bid situation. The client sought the recommendation of its law firm for a qualified consultant who could provide the necessary experience in helping it through the details of the transaction.

The law firm happened to be the same firm with which TBI worked two prior deals within the previous six months. It recommended TBI not only because of its prior successful working relationship with TBI, but also because of TBI’s ability to relatively quickly and systematically focus on and work through key issues to produce the necessary supporting documentation (statement of work, service levels, baseline forecasts, pricing and pricing analysis) for an outsourcing contract in a timely fashion. Moreover, the vendor, law firm and TBI had worked together on consummating an outsourcing deal with another firm three months prior to this situation.

Problem Summary

The decision to outsource by fiscal year-end was made late, thereby allowing only 2 months within which to complete all details and provisions for an outsourcing contract. The client’s main objective was to achieve better service at the same cost. The situation was further complicated by the client’s reluctance to announce its intentions to the affected employees, not wanting to prematurely reveal its plans until it was convinced of the financial viability of the deal.

The client was concerned about the impact on employee morale especially in light of several recent attempts to selectively outsource, which had taken employees on unnecessary emotional dislocation just to have the deal fall apart just prior to signing. The client would allow access to only a select group of IT managers and financial staff to perform the initial due diligence, scooping, and financial analysis until sufficient information was obtained to formulate a solution that could be evaluated by the client.

TBI’s Approach

To achieve the objective of better service at same cost, TBI assisted the client and vendor build the base case and business case using a bottom up approach that considered the client’s most recent IT budget and all direct and indirect IT costs that represent that scope of services that were to be outsourced. TBI had more frequent access to certain key managers than the client and as such was instrumental in helping the vendor with its due diligence and defining scope of work efforts. The current client had many of the same requirements and issues as two previous clients of TBI and the law firm. TBI and the law firm were able to leverage much of their work from their previous joint engagements to expedite the deal and required documentation.

Successful Business Solutions

The previous working relationship of the vendor, law firm and TBI was a critical success factor in being able to close the deal in the short required timeframe. Once the preliminary base case and business case analysis validated the feasibility of the deal, the vendor and TBI could conduct their respective final due diligence activities with the affected employees. TBI played an active role in finalizing remaining scope of work and service level issues during final contract negotiations. The client was able to achieve a deal that improved service at a nominal reduced cost (of 4%).

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