Second-wave outsourcing – the BBC learns from past experience

At the recent ProcureCon Indirect conference, Jim Hemmington, Procurement Director at the BBC, spoke about the organisation’s experience through what is now a considerable history of outsourcing. Hemmington personally and the BBC corporately now go back 10 years or more in terms of outsourcing some pretty strategic and important activities, ranging from much of the transactional finance and HR, to specialist area such as licence fee collection and transmission services.

So what’s interesting is how that considerable experience is now informing their latest strategies for what are second or even third time round outsourcing contracts and competitions.  Hemmington passed on some valuable lessons learnt – here are just a few that seemed to have particular relevance to a wider audience.

1. Be very clear about the sort of relationship you need with your service provider. Not all outsourcing contracts require “collaborative” supplier relationships – sometimes you just want a simple service, delivered well. But where the service is complex, critical, or changing, you need to work hard to ensure you get real collaboration and the right relationship. That includes having focused contract and supplier management, with the right people, working in a consistent manner. “The right people” also means understanding that some people are good at building relationships, some at managing tightly to a contract. Use their skills in the appropriate manner.

2. Negotiate agile contracts, and look carefully at risk transfer. Hemmington explained that initially, in the first wave of outsourcing, the BBC very much looked to transfer risk to the supplier. But when risks became more manageable through the contract period, that approach meant the supplier obtained all the benefits of that reduced risk profile. So now the BBC looks more critically at which risks to retain itself, and looks for contracts that have more flexibility to respond and vary as key influencing factors change through the contract period.

3. Cost transparency is key if there are likely to be changes through the contract period. Having that understanding of the supplier’s cost structures helps the BBC to ensure fair outcomes (for both parties) when there are (for example) changes in demand or technology though the contract period. This again requires good contract management – even if you have strong initial competition, this is not enough to ensure value for money throughout the contract period.

There is food for thought in those ideas and approaches, as there was throughout the session. Hemmington emphasised that there is no single right approach to outsourcing, but these and other key principles, gained over some years of often tough experience, now seems to have put the BBC in a situation where they’re managing their portfolio of outsourcing contracts pretty successfully.

Voices (4)

  1. Steve Hartson:

    This is just common sense, does not take 10 years of experience to work this out!

    1. Peter Smith:

      Steve
      You may be under-estimating your own knowledge! For instance, on the risk transfer issue, I can guarantee that many – probably most – organizations don’t really think through the commercial implications of the quantity and nature of risk they’re looking to transfer in their contracts. “Let the supplier take the risk on that” is something you hear a lot without another little voice saying “yes, but what are they going to charge us for that”. I go way back to the mid 90s where I had interesting discussions in government outsourcing where some colleagues wanted suppliers to accept what was in effect the “political risk” i.e. that legislation would change – and we as the buyers were also actually the ones who would have changed it! Err, surely some mistake here?

      1. PlanBee:

        I dont think you can outsource any real major risks. Sure you can cover (say)currency moving +-5% (though will pay a premium for it) but if currency moves 40% the supplier goes out of business and/or defaults on the contract. Fundamental risks remain with the buyer

    2. PlanBee:

      Steve it took me 10 years (+) to work out that common sense actually isnt that common.

      My view on posts like this is you can come here to be educated, or help to educate. Both are vlaid reasons for coming to SpendMatters, and hopefully you’ll do a bit of both

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