As one of the Federal Government's most experienced departments in IT outsourcing, Centrelink has a lot to teach other companies. Centrelink's CIO shares some of those learnings with ZDNet Australia.
When it was time to decide how Centrelink would approach IT outsourcing, its CIO Jane Treadwell took a pragmatic view saying -we are a very large IT shop but we are not the best at everything, so how can we expect any other company to be the best at everything."
And it was with that view in mind that the agency decided to move away from the previous whole-of-government outsourcing policy, to adopt a selective sourcing approach.
The whole-of-government initiative was rife with problems and generated much controversy in the Australian outsourcing market. It involved government departments clustering together to make a deal, worth hundreds of millions, with one main supplier to provide IT services for the group. These deals invariably went to the large international service providers, such as CSC, EDS, and IBM. Local suppliers say they were left out in the cold while large multi-nationals received most of the benefit. Then there were privacy concerns, security concerns, and risk issues about investing so much capability into very few suppliers.
An investigation completed by the Australian National Audit Office in 2000 showed the initiative to be poorly planned and not resulting in the expected cost reductions. As such, the last couple of years has seen some Federal Government departments move away from whole-of-government outsourcing, to instead adopt a selective sourcing methodology. Centrelink was one of those departments.
Referring to this decision, Treadwell says it became clear to her that in such a constantly changing environment, you really need to be able to pick the IT functions that are most important to the business and decide how they can best be delivered.
Deciding when to outsource
And the task of deciding what to keep in-house and what to source externally keeps the agency's IT department very busy. Whenever an existing contract comes up for reconsideration, and when new projects are discussed, Centrelink goes through an intense assessment period to decide if the agency has the capability and the time to make a difference operating it in-house.
-We have a very intense procurement and cycle planning approach within Centrelink," says Treadwell. -[We look for] opportunities to do things that will drive down costs of Centrelink or actually bring on capability that would otherwise take on longer to develop in-house."
To assist with the decision-making process Centrelink conducts its own research into the market and also uses industry analyst Gartner for further research purposes. A framework has been developed which Treadwell says helps the agency make accurate judgments. In fact, Centrelink has set up an internal group to manage the process, from the tendering and procurement stage, to strategic sourcing decision making, and managing the contracts.
Using the framework, the group helps to find what the agency wishes to source from the market, the process to do that, and the way the contract will be managed. Recognising that this is something the agency deals with on a daily basis and relies upon, the purpose is to maintain consistency throughout the process and to ensure its investments and relationships are managed efficiently and effectively.
Learning from experience
With more than 24,000 staff, six million customers, and an IT budget in excess of $200 million (around 12 percent of the department's operational budget), the investments the department has made in technology, and its experience dealing with suppliers and partners can provide valuable lessons for other companies. In fact, Centrelink is often used as an example for other government agencies, both locally and internationally, for its outsourcing approach and use of technology.
-Centrelink has always got a very visionary future that it aspires to working towards," says Treadwell. -We have got international endorsements that as a government agency we are very advanced in broadcasting how citizens want to deal with a government agency."
Treadwell has been with the agency for five years, coming from a government background with experience in strategic and change management rather that pure IT experience. She laughs that what she didn't know about IT then, she certainly knows now. But the Centrelink CIO says the most valuable lessons she has learnt during her time with the agency has been in the managing of relationships with partners and suppliers.
Treadwell says selective sourcing means you have many relationships, ranging from suppliers to partners, and each one is there to suit a particular demand.
The use of the word partner seems to have increased lately, with many providers now positioning themselves as partners instead of suppliers.
So what makes the difference between a partner and a supplier, and when do you know which one is the most appropriate?
Partners vs. Suppliers
-Partnerships are very difficult, and the learning from many years within Centrelink, and generally looking at the sourcing literature, is that you can't buy a partnership, you can only grow one over time," she says. -The thing about partnerships is that they do take a long time to develop and [she laughs] we aren't in the game of going out and seeking tenders for partners."
Treadwell says Centrelink has many relationships with service providers at the moment which may lead into partnerships.
David Wilden, deputy manager of Centrelink's IT business services group, whose tasks include responsibility for the sourcing strategy, uses the recent tender process for upgrading the agency's servers as a distinction between supplier and partner. Not an insignificant contract, it involves upgrading more than 1000 servers around the country over a period of four years. However, Wilden says servers is an area where Centrelink probably wouldn't look for a partnership as it is a straight commodity purchase.
-We have many many many providers who help us with the provision of services and products, all of them will not be our partners, and how much time and energy you spend investing in those relationships will depend if they are providing commodities or if they are providing high-end value added services or products which are also of mutual benefit to them in relation to us," he explains.
And the idea of mutual benefit seems to be the key differentiator. Treadwell uses the Computing Corporation of America (CCA) as an example. Initially Centrelink engaged with CCA for a straight purchase of a database. That database plays an important role at Centrelink as it is used to hold a substantial amount of customer information. Treadwell says that over time the CCA has moved into a relationship with the agency where it recognises that it needs to help Centrelink keep its costs down.
-They are helping us fine tune our performance by fine turning the performance of that database. And if you took a short-term period or notion, it certainly doesn't help them in their revenue because we have actually changed the way in which they form part of their revenue base from us," she explains. -Over time they are helping us which helps them. It is one of those old win/win approaches."
IBM is another example of a large supplier turned partner. IBM has a long-standing relationship with Centrelink in providing mainframes and operating systems software, but last year Centrelink entered into negotiations with IBM to change the nature of the relationship, looking at how IBM can help in the agency's strategic goals . . . turning it from a supplier into a partner.
It was reported in the Australian Financial Review that the new contract involved Centrelink standardising on IBM software, worth $220 million over four years. But more than a straight commodity purchase, Treadwell says the agency now has the opportunity to -exploit the value that IBM brings other organisations and their know-how in terms of technology development".
Treadwell is referring in part to the arrangement that gives Centrelink access to IBM's Linux testing laboratory, which is an example of the agency getting more mileage out of its dollar and using IBM for future development.
Finding a partner
But picking a partner isn't as obvious or as easy as it may sound. Wilden says Centrelink has had occasions where the words have said -partner" but the actions said -consultant". Wilden and Treadwell have learnt that just because a company says they want to be a partner, that doesn't necessarily mean that they are actually ready or willing to do that. So the team at Centrelink is now careful to be on the lookout for that state of readiness when planning to move into a partnership.
-We need to be assured that companies that we may wish to talk to about pushing a relationship down a partnership path are actually interested to do that as well," says Wilden. -Part of that is being also aware of not only our readiness to adopt the approach, but also the readiness of those who are coming into business with us.
-Not just having clear objectives, but it is understanding. It is behaviours and the way you conduct the relationship as it matures. Its about being alert for key signs of the state of readiness of your partner."
While the trick is in judging the readiness of the company, which is a skill that comes from experience, Wilden says you also need to know what to do when it becomes obvious that a partnership isn't going to take hold. If it isn't going to happen at that time, then you need to make a decision to either build on the relationship so it may still turn into a partnership down the track, or look to see if you will be better off ending the relationship and not take it any further.
Three's a crowd
Managing a partnership with one company is hard enough, but it becomes more complicated as more and more companies are thrown into the mix, which is something Centrelink recently found.
Centrelink picks projects on the basis that if it helps its employees then that benefit will flow down to assist its customers. With this philosophy in mind, Centrelink is currently developing a call centre automation strategy. Already working with Telstra (one of their partners) and other providers on the project, the agency still needed to find a provider of speech recognition technology. The role went up for tender and Treadwell says the trick was finding a supplier that not only could provide the best product, but who could also fit in with the current team.
She explains that once you move from a one-to-one relationship to a many-to-many scenario, it becomes more difficult because you need to be assured that all the companies will work together to provide your organisation with the best value.
-They are dealing with us directly and they are also dealing with each other, so how do you get a network of companies that are geared to support Centrelink or the Commonwealth Government?" asks Treadwell. -And that just needs teething out over time because . . . you are actually looking at value in a set of relationships, not just looking at how much revenue one company can get from another organisation."
Treadwell says the challenge for her team is to make sure all the parties are kept in the circle of information, and the challenge for the providers is to ensure they deliver in a way that drives increased performance out of Centrelink.
-That's the rough guide. You have still got fairly hectic and demanding hard core capabilities around tendering, procurement, the whole probity processes, the evaluation of all that, and looking at content management over time in a constantly changing environment," says Treadwell. -That's pretty demanding and when you start introducing many companies into that mix, some of whom are essentially good suppliers as compared to the notions of a partner, you actually add to the complexity of that management task."
Future trends
Selective sourcing certainly isn't the easy option but it is gaining favour within government agencies. A lot of the departments that adopted the previous policy are currently going through the reviews process and making decisions about the future of their outsourcing arrangements. A committee made up of Commonwealth CIOs was developed to promote discussion and share experiences in a more formal environment.
Treadwell certainly doesn't think she knows everything there is to outsourcing, but she has plenty of experience dealing with suppliers which becomes valuable to the other less-experienced agencies. Working together with other departments Treadwell says there is now a generational shift in government outsourcing as the departments share their learnings and capabilities. As the government becomes more savvy about outsourcing, and becomes more demanding, she believes it is putting pressure on the private sector in Australia to find the best way to deliver services to government agencies.
-We are getting wise about what we want and how we want it delivered," asserts Treadwell.
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