Helaba - Consistent outsourcing and negotiation
Landesbank Hessen-Thüringen (Helaba) outsourced the care of its PC workstation systems to an IT service provider. CIO Dr Jörg Raaymann and his team have invested a great deal of time and energy in preparing the agreement. Maturity has been asked to review the contract components and prices during the contract negotiations to ensure that they conform to the market. This has allowed Helaba to negotiate with the service provider from a position of strength.
Jörg Raaymann is a well-known supporter of outsourcing. “Anything that is not part of the core business should be outsourced”, demands the bank manager who has been head of the Organisation and Information Technology Division at Landesbank Hessen-Thüringen (Helaba) for the last five years. This outsourcing strategy to date has covered the mainframes, the client-server architecture and the networks of the financial services provider. As long ago as 2001 these were outsourced to the service provider, Informatik Zentrum Bayern (IZB), at the time a joint subsidiary with Bayerische Landesbank and now a subsidiary of the merged Sparkasse service provider, Finanz Informatik. “To date we have progressed quite a long way with outsourcing the operational environment”, says Raaymann, “apart from the subject of desktop management”.
The bank’s CIO is currently working on the consistent continuation of the IT strategy he has been pursuing for the last three years, namely to improve Helaba’s IT operations in the form of an overall sourcing strategy. “The declared objective is to take a clear step in production depth in the run sectors”, explained Raaymann. The “Desktop Management Outsourcing” project was started at the beginning of 2007 and has been extended to the summer of 2008 – “because we have invested a great deal of work in the quality of drafting the contract.” The focal point of the project is the 3,400 workstations of the personnel. In addition to the provision of the PC systems, the contract covers external support including IMACD (installations, moves, additions, changes and disposal), break/fix services as well as software distribution and patch management. The full scope of the order also includes the service desk, parts of IT purchasing, migration and finally project-related services.
Reputation and references
The original six service providers on the long list was further reduced before Hewlett-Packard (HP) was finally selected as the partner for the project. According to Raaymann, “reputation and references” were two of the criteria which played a major role in favour of the IT heavyweight, “The customer profile of HP in the finance sector convinced me”. In the experience of the CIO, HP also has a good record of working well with other service providers. Since Helaba has outsourced a large proportion of its IT to IZB, “multi-vendor management is an important subject”. Ultimately the aim is to maintain a triangular relationship over a period of at least five years. In addition Raaymann expects HP to demonstrate an ability to innovate and a high level of flexibility. The fact that the American group can also provide support in other countries is another plus point for Helaba. However, this only affects the “next stage” of the sourcing strategy.
Loopholes in the contract
After reaching the agreement in principle with HP, the Maturity benchmarking team became involved. CIO Raaymann wanted to verify whether the prices were within a reasonable range. In addition, Maturity was asked to review the contracts for possible loopholes and to analyse the various contract components to ensure that they were state of the art. “This would enable us to identify how the contract compared to other similar projects of our competitors and other companies”, says Raaymann. For the Helaba CIO, a review of the contract together with the prices and services are paramount in a benchmark process. “The structure of the contract may have effects on the commercial basis of the operations, which in turn will affect the entire case”. As a result the contract review is also an important part of the quantitative benchmark project.
“The benchmarking process itself was a relatively painless process for us”, says Raaymann. The contract documents were sent to Maturity at the draft stage and the changes were made gradually so that the costs of the benchmarking project for Helaba were kept within reason. The negotiations between the Landesbank and the US service provider did not run entire smoothly, however, admits the CIO, “Ultimately, however, we reached a situation where both sides were able to work together”, reports Raaymann. The fact that each partner wanted to maintain its standpoint in the contract negotiations was simply par for the course. A total of 99 clauses in the blanket contract, the service level agreements (SLAs) and various detailed agreements relating to remuneration, organisation and the processes were reviewed and analysed by Maturity.
Are the costs in line with the market?
In addition Maturity checked the negotiated prices and compared them to the values of a peer group in its own benchmark database. This comparison group comprised seven companies, primarily financial services companies based in German-speaking countries and the Netherlands with similar outsourcing contracts to Helaba. A total of five different IT service providers look after the members of the peer group which means that the comparison reflected the entire sector. After around six weeks the first results meeting was held between Helaba and Maturity in which, according to Raaymann, “our values were essentially confirmed”. In addition the Landesbank was given information about which points still had to be ironed out in the contract negotiations.
Discrepancies from the “standard” included the provision relating to penalties – “Maturity told us that we had gone a little too far”, remembers Raaymann. Similarly “ambitious” targets to its penalty provisions had also been pursued by the Landesbank in terms of its liability demands. The analysis of comparable outsourcing contracts showed both sides the standard level of liability. Improvements to the content of the contract were also suggested. Ultimately CIO Raaymann believes that it proved a very worthwhile exercise, “We managed to achieve the inclusion of almost all the points that we wanted to insert in the contract.” As far as the prices were concerned, the Landesbank also managed to achieve significantly better levels than the peer group average.
IT service providers themselves no longer have any objections to benchmarks of prices and services if a customer requests them. The Helaba outsourcing contract with IZB was also subjected to a benchmark. According to Raaymann, “The services providers approve because at the end of the day they are hoping to get confirmation that their prices are good.” Furthermore, Helaba agreed with HP in the contract that a price review would be carried out after two years. After all, there is a great deal of pressure on the cost of outsourcing services which means that in most cases renegotiations are very worth while for clients.
Negotiate from a position of strength
Regardless of the partner selected, Raaymann believes the benchmarking is a “valuable instrument” with which to verify a company’s own ideas and negotiation results. This in turn allows the clients of IT service providers to negotiate from a position of strength because they can specify their own location. The criteria in favour of Maturity were similar to those for HP – reputation, references and also the speed of implementation.
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