Case Study: Information Technology Outsourcing at the BBC

Outsourcing is a practice used by companies to reduce costs by transferring portions of work to outside suppliers rather than completing it internally (firstdata.com).

This is exactly what the British Broadcasting Corporation (BBC) did in 2004, when it signed a ten year IT outsourcing contract with Siemens Business Services. The Chief Technology Officer of the BBC, John Varney, claimed that by agreeing such a deal, the BBC could save £20-£30million a year over the course of the contract. It is difficult to argue against such a fact. Outsourcing to another company gave BBC Technology the benefits of being part of a global technology company and brings it the economies of scale and critical mass it needs to bring new applications through very quickly (information-age.com).

There were detractors of the deal though, for example BECTU-the independent union for those working in broadcasting and allied areas (bectu.org.uk). They claimed that it would lead to job losses and there was no guarantee outsourcing would be a success. There was also a general feeling that such cost cuts could be made “in-house” without the privatization of BBC Technology. Varney responded by claiming that such savings could not be realized without redundancies, and by cutting jobs the BBC’s would damage its ability to deliver necessary technological changes.

Encouragingly, eighty companies put themselves forward for the preliminary stage of the process. The BBC went through a particularly rigorous selection process before accepting Siemens’ offer. The fact that over one thousand man hours were spent negotiating with the final three candidates suggests the BBC could not be accused of allocating too little time to the decision. In addition to this, an analytical process was carried out by a sub-group not including Varney. This assessed the suppliers against all the BBC’s criteria using a scoring mechanism. Furthermore, Varney and “one or two others…questioned every decision, just to make sure there were no errors or judgement.”

There were a number of other positive aspects of the BBC’s selection process which can be praised.

In an interview with conspectus.com in 2005, Varney reveals himself in particular to be “passionate about making sure that the end users were involved in the selection process all the way through.” In the same interview he is attributed as saying that he personally answered emails from technology staff regarding any questions they may have had over the process or deal itself. Such personal staff support should be commended.

The selection process was not based purely on the value of money which could be saved. Instead, Varney claims that “the BBC also looked at the supplier’s understanding of a public service organization” by spending time on how the companies viewed and valued staff. While such an attitude would be praised were it to be carried out, it is this area which prompted such a negative attitude from BECTU and its members.

While BECTU claim that employees were promised that they would remain with the BBC after privatization, the final two firms had not came to a decision on the transfer of jobs and redundancies. This begs the question; who made such promises (the BBC or the two final companies) and why when “the winner of the contract was to buy BBC Technology along with all the staff members?”

Most business processes rely heavily on technology and as a result IT outsourcing became a popular option in the 1990s. Companies identified the capital, time and space-savings associated with reductions in staff, training, equipment and work environments as advantages of outsourcing IT (computerweekly.com).

However as with most projects, there are drawbacks also. Firstly, the company loses control over a crucial business service. This is always going to be the case regardless of the success or failure of a project. However, it is the consequences which define whether outsourcing is advantageous to the company or not. In this case SBS are now in control, but if they reduce costs and increase performance then it is obviously not a drawback of outsourcing. If however the IT services provided were to be of a poor standard then this obviously does become a major disadvantage.

The other potential drawback of outsourcing is the one most applicable to this case study; the damage to staff moral or “culture clashes” (Kobayashi-Hillary, 2005). Although all technical staff were to be transferred to SBS, the whole process may have left a “bad taste” in the mouth of other employees, who perhaps saw colleagues treated poorly.

The deal to outsource IT services has undoubtedly been a success for Siemens. As a result of this opportunity, they have earned themselves a good name and become one of the leading IT vendors in the broadcasting industry in Europe. SBS’s senior analyst believes the service they can provide is now second to none in the IT vendor community.

Despite criticism, the BBC have also benefited from the deal, although perhaps not to the extent they hoped to. In a report by parliamentary spending watchdog the Public Accounts Committee (PAC), it has now emerged the savings for the first year fell 38 per cent short of target at just £22m (news.zdnet.co.uk).

Edward Leigh MP, chair of the PAC, summarized most criticisms of the BBC when he said: "The BBC's approach to the contract has been distinctly second-rate. Its estimates of annual savings have fluctuated widely; many parts of the BBC are still using other suppliers; and there was no provision for the BBC to share profits above an agreed level. Indeed, the BBC has chosen not to check on how profitable the contract actually is for Siemens." (news.zdnet.co.uk)

Sources Used

Kobayashi-Hillary, M “Outsourcing to India Second Edition: The Offshore Advantage” Springer Berlin Heidelberg (2005)

news.firstdata.com/glossary.cfm
www.conspectus.com/2005/specialreport/downloads/ViewfromtheTop_Jan05.pdf
www.computerweekly.com/Articles/2007/05/31/224431/it-outsourcing-the-expert-view.htm
www.information-age.com/article/2004/october/the_bbc
www.bectu.org.uk
news.zdnet.co.uk/itmanagement/0,1000000308,39287767,00.htm