Outsourcing can be a contentious issue, but catering company Sodexho has found that when done right, it can make life much easier

Outsourcing -- it is either a dirty word or a godsend for businesses, especially when it comes to areas such as telecommunications and IT. In the past, business culture has always been more inclined to keep those doing the work as close to home as possible.

But now, in a day and age where business responsibilities and requirements can compound at the blink of an eye, it is no surprise that -- be it the lure of promised improved efficiency, decreased time restraints or better cost effectiveness and decreasing staff costs -- outsourcing is fast becoming something many larger-sized organisations have to consider at one point or another.

A white paper by research firm IDC published in October 2004 highlights the plight of many businesses choosing to outsource. It says companies are looking for significant cost savings, the freeing up of energy so they can focus on their key area of expertise, and increased access to skills and technological innovations they may otherwise be oblivious to. "Companies in the mid-tier (100 to 1000) employees have noted that improving operational efficiencies and lowering costs have become imperative to maintaining a competitive edge," says the paper (written after outsourcing projects were researched over a five-year term).

It says the success of outsourcing projects within larger companies -- the main users of outside companies -- shows that an average cost saving of up to 28 percent annually can be been seen when outsourcing is done in the right way. This is encouraging smaller businesses to consider this new way of dealing with company operations.

One larger company that has embraced outsourcing is Sodexho. Following the successful introduction of telecommunications outsourcing with Telstra on an Asia-wide scale, Sodexho took its outsourcing one step further -- awarding IBM a multi-million dollar five-year business consulting, e-business hosting, and support services contract for its financial and accounting systems and the migration of its SAP infrastructure to an e-business hosting environment managed and supported by the global technology company.

Since starting the project, the company says it has recognised improvements in the speed of financial and accounting role performance. Sodexho has also seen better concentration on the competencies of its core business skills, enhancing client services and allowing for better management of costs.

Sodexho is one of the world's largest service providers. Its core business is in the food and management services industry, in which they are ranked number on in the world. They have a presence in 72 countries, including Australia where they have 10,000 employees and six different corporate entities. Among their clientele are the Australian Defence Force, Ford Australia, and Telstra Stadium. They also catered for the Sydney Olympics.

Sodexho's director of finance and information systems for Asia-Pacific, Garen Azoyan, says the IBM SAP project rolled out in Asia-Pacific during 2004 will stand as a model for other major Sodexho locations such as Europe, where the company has a large presence.

"Sodexho first started looking at outsourcing our human resources, payroll finance, and purchasing following a series of mergers and acquisitions that occurred over the last few years," Azoyan says. "We had different legacy systems in each organisation. We decided to introduce one common platform, one application used everywhere in our Asia-Pacific businesses so we could shift our resources to our core business activity and shift our fixed cost to variable."

Language was also a barrier as far as finance reporting and process streamlining in offices in China, Japan, Hong Kong, Singapore, Malaysia, and South Korea went. So a system had to be chosen that could cross cultural divides and be implemented on a global scale.

Sodexho

Sodexho
In September 2003, Sodexho started its partnership with IBM. Sodexho in the past had already embraced outsourcing with its telecommunications -- it worked with Telstra to introduce a network running through the Asia-Pacific.

"It was a great achievement, especially seeing as Telstra had just moved into the Asian market. We used that network to minimise costs by paying only one company, not many in each country, and we simplified our system," Azoyan says.

Sodexho has also outsourced its human resourcing and payroll function to Automatic Data Processing (ADP). "Before this we were doing all hosting of password authentication protocol (PAP), maintenance, and support ourselves, at each location."

Sodexho was finding its back end, the finance section, to be a nightmare. "We had difficulties with untimely management reporting and communication problems with different finance teams in each organisation that came about from the use of different systems, plus it was taking time and energy away from our core business functions," Azoyan says.

Finding a system to match business prerogatives can be hard, but Azoyan says the company found a staple level of cooperation, flexibility, and service offerings in IBM's system to allow them to try out the new way of operating with early benefits. They also allowed for Sodexho to have constant input into the application and service. IBM was able to revamp the company's existing SAP system in Australia to make it ready for the Asian rollout as a hosted solution.

"The IBM business on demand application was perfectly suited to us," Azoyan says. "We started outsourcing this to IBM at the same time we starting rolling it into our Asia-Pacific offices. It is a very flexible contract we have with IBM, which gives benefits of managing our costs with desired input."

The new application meant Sodexho could centralise all of its finance -- running it all out of one office instead of many different offices. All Sodexho's finance operations are now done in Sydney. "That cut down on our infrastructure, which has been another major benefit," Azoyan says. "Now that we are using one application it does not matter where we sit -- we have the same application running from Thailand as we do from China. It means all our directors can see all the reporting on time everywhere, regardless of their location."

Staffing levels also changed. While IBM has the majority of staff running the finance application, Sodexho has put two of its key staff, as employees of the company, on the project to work with IBM solely on its implementation. "These are the only staff changes -- these people have been replaced with temporary staff within their departments to make sure your day-to-day business does not suffer," Azoyan says.

People working in the company's finance section before have now been shifted into more analytical roles, whereas before these departments worked solely in processing. On top of this, all of Sodexho's costs, including staffing in this area, shifted to variable.

With a standard platform in place from a global provider, Sodexho can now open new offices in other locations and overcome language and systems barriers. "We had to choose an application that could manage all language and multi-currencies," Azoyan says. SAP was the best currency application they could find.

Realising benefits

Realising benefits
It has not taken long for Sodexho to realise benefits from its outsourcing choice. Since starting the contract in September 2003 (it is up for consideration year-end August 31, 2005), the company has already seen standardisation in its infrastructure and a reduction in resource costs. "I feel the benefits will be realised right through the project," Azoyan says.

He says it has not all been a walk in the park as far as implementing the IBM outsourcing project has gone, or in convincing the company outsourcing was even an option in the first place. "One of the biggest challenges we faced was getting the support needed to go ahead with this outsourcing," Azoyan says. "It is a big cultural change for any organisation to outsource."

Azoyan says it was important that Sodexho had respect for their outsourcer's procedures and guidelines. He says that just finding companies worth considering was a task.

"We had to carefully study all the outsourcing operations of other businesses, review their problems, see how they faced them and basically learn from their own experience," Azoyan says.

He says IBM services have been regularly monitored by the company who also takes a close look at the KPIs and service level agreement quite closely.

"We normally have meetings twice a week to make sure support and maintenance and the help desk is providing the right services."

To ensure the level of service was spot-on, and that the company did not suffer from any faults of the outsourcer, a service level agreement was drawn into the contract. IBM will be penalised financially if there is down-time or other issues with the vendor and the company must make sure they have a full disaster recovery plan in place at all times. Regular updates and maintenance within the system must also be provided.

Azoyan cannot reveal details in regards to the service agreement due to confidentiality reasons; however, he says Sodexho has experienced no down-time since the project's go live date.

"We also wrote in a lot of security measures into the contract," Azoyan says. "It is one of the key areas of our contract, and with the size of IBM as a corporation and its reputation we are quite confident that our security demands will be met."

With any new project come trials and tribulations, and plenty of new challenges for companies to face. Bedding them down over a short period of time can be an achievement in itself. "You face plenty of challenges on a day-to-day basis -- you learn from these and make sure that in the future you do not go through that," Azoyan says.

Once Sodexho's current contract with IBM runs out, the company will have to make a decision -- to keep outsourcing, to keep partnering with IBM or change the contract. "The way we see it, since we have started, is outsourcing is follows our approach to business. We get our clients to outsource part of their service to us, so why should we not do the same?" Azoyan says. "IBM spends a lot of money on its hosting environment and disaster recovery plans."

"I believe companies should focus on their core business and let companies that are capable of doing parts of the business better than you look after those."

"The most important thing is to make the right decision by selecting the right company to do your work for you. We want to focus on our clients so we want everything else to be in place to free us up to do that as best we can."

Realising benefits

The future of IT outsourcing IT outsourcing will change dramatically in the next 10 years, Gartner analyst Rolf Jester predicts. He says that in this time new alternatives will be offered to buyers and suppliers will be met with additional outsourcing challenges." Jester's predictions come from a four-scenario framework designed by Gartner to predict the future of IT outsourcing. The researcher says the impact of offshore outsourcing is currently minor, and predicts that an estimated seven percent of AU$958bn of global outsourcing contracts being spent offshore by 2007. Jester says offshore outsourcing is only one of a myriad of changes the IT sector will undergo through to 2013. "We have identified more than 100 changing facets of outsourcing that will determine its direction over the next decade," Jester says. "But two overriding factors will influence IT in an enterprise." These two factors are the adoption of real-time enterprise strategies (a commitment by an organisation to use information to adapt quickly to the constantly changing business environment) and the types of service that enterprises will outsource from now until 2013 (be it whole business processes or just the underlying IT functions). Jester says two factors will determine one of four future scenarios for an IT department. These are: IT inertia -- a scenario in which the existing IT investments serve to slow down the ability of the business to change quickly enough; Process islands -- a sub-optimal state in which departments inside an enterprise look after their own business process needs, diminishing the relevance of the CIO and IT staff; IT-centric real-time enterprises -- in which businesses have become agile through a strong focus on IT; Virtual enterprise -- organisations are real-time by nature, stick to their core business and buy external services for all of their non-core activities. "While nothing can be certain looking a decade ahead, one of these scenarios is likely to be dominant for all organisations in 2013," Jester says. "Outsourcing is undergoing significant change right now. Offshoring and near-shore sourcing is just one of many changes that private enterprise and government agencies must come to terms with. It would be smart for IT executives to begin thinking about which scenario they would like to create for their organisation, and compare it to the one that is evolving right now." And while businesses will choose one of these models, the world itself is predicted to move to virtual or IT-centric model.

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