BBC IT Outsourcing case

Were the BBC wise to outsource their IT?

It is difficult to determine at this point in time whether or not it was wise for the BBC to outsource their IT division to SBS. Only time will truly reveal if the change was beneficial. Fortunately, early indications, evidence and justifications combined with current IT outsourcing research go some way in highlighting the fact that outsourcing was a good decision and in the best interests of the BBC.

The initial reasons provided by high ranking BBC members certainly justified the decision to outsource. After a thorough review of potential outsourcing benefits, it was revealed that the BBC would likely save roughly £30 million per year over the contractual period of ten years. The potential to make such savings cannot and would not be ignored by any company, especially in today’s competitive market environment.

In general, cost reduction is the main reason for outsourcing (Jones 2006), and if a significant cost reduction opportunity arises, a company should certainly pursue it. Understandably, other factors must be taken into consideration as well. The decision to outsource IT is a significant strategic one which requires careful proper planning (Lemon 2005). The BBC did implement this necessary planning through conducting an extensive benefits review and a lengthy supplier selection process. Moreover, the candidate suppliers consisted of world class experts in the IT field, leaving the BBC spoiled for choice.

Through outsourcing their IT division, the BBC has got much less to concern themselves with technology wise. As a result, they can focus far more on their core activities which are crucial for future success, e.g. programming content. Similarly, advanced IT problems are dealt with instead by the supplier, meaning the BBC do not have to purchase new equipment and retrain (or hire new) employees. Furthermore, when a company deals with an experienced supplier such as SBS, they are able to themselves gain valuable expertise which is an added inducement for outsourcing (Tesler 2005).

It was apparent that if the sale did not go through, the BBC would have to cut more than 300 jobs to meet internal savings targets (Kumar 2006) – an outcome which they were fortunately able to avoid. Severe pressure from the UK government to cut costs and increase revenues also meant that it was not just wise, but to an extent essential, for the outsourcing to take place.

The successful complex IT infrastructure that SBS built to receive and collate election results and present these to television viewers in an engaging way is a clear indicator that IT outsourcing is not just beneficial from a cost reduction point of view. Such displays of technological master-class could quite easily help boost BBC revenues and ratings.

To analyse things from a different perspective, it is worth discussing some of the opposing arguments surrounding the IT outsourcing. Although IT outsourcing is usually a financially beneficial process, there is always a risk of failure – research shows that 1 in 5 outsourcing deals is terminated due to poor performance (McCue 2005). Similarly, studies also show that 20% to 35% of IT outsourcing contracts are not revived after they expire (Tesler 2005), which suggests that service quality is poor or prices are too high.

The loss of control of the IT division through outsourcing is classed by some as a disadvantage due to the potential for things to go wrong, while being out of the BBC’s hands. However, this is the risk that has to be taken, and is hopefully eradicated through selection of the right supplier. The BBC’s supplier selection process did seem extensive and sufficient enough to ensure that the right supplier was chosen.

As recently as 2006, not long after the change, it was revealed that the BBC had substantially over-estimated the cost savings which subsequently detracts significantly from the attractiveness of the initial savings proposition. Savings for the first year were £22m - 38% short of the guaranteed £35m target (McCue 2007). However, this is still a substantial saving which indicates that the BBC’s outsourcing decision was beneficial and correct.


Supplier selection process

Positive aspects of the process

It was clear that the BBC did employ an extensive supplier selection process from the outset. The evaluation team put in place to select the right supplier consisted of 26 key individuals which was more than efficient. The criteria they used for evaluation were specific and thus ensured that the team would ultimately make the best decision.

The initial contract requirements advertised were detailed and specific which meant that those suppliers not able to meet these requirements refrained from applying meaning evaluation time was saved – an example of process efficiency.

An exhaustive and robust research driven process was implemented to help in the hunt for the right supplier. A pre-qualifying questionnaire sent to all bidding companies was a useful method for information gathering, as well as proving effective in cutting down the candidate list (Kumar 2006).

Even when the list was narrowed down to 3 candidates, the process did not become any less intensive – a point which illustrates how thorough the overall process was. A team of more than 100 BBC employees carried out more than 1000 man days of communications (including negotiations and expectations discussions) with the three finalists to ensure that the best candidate finalists were chosen.

Negative aspects of the process

When selecting a supplier, companies must assess the capabilities and competencies of potential candidates rather than their resources (Willcocks & Cullen 2006). John Varney (Chief Technology Officer of BBC) said SBS were picked partly due to the “vast resources available” within the company (Kumar 2006). Perhaps capabilities and competencies were overlooked to an extent, highlighted by recent indications of minor failures in the form of over budget projects and various delays in project completion (McCue 2007). Capabilities and competencies could have been further assessed, perhaps through consultation with other companies which have worked with each of the suppliers previously, which would have undoubtedly helped in the decision making process.

Research has shown that the CEO of a company must be involved in the process of selecting the supplier because, while some organisations perceive outsourcing as an opportunity to pass on risk, in practice such risk displacement is often illusive (Willcocks & Cullen 2006). The supplier selection decision was of massive importance to BBC. The wrong choice could potentially have drastic consequences for the company. Thus, it would surely have been sensible for the CEO to have been involved within the selection process, especially since the CEO is the head decision maker within an organisation.

Furthermore, the evalulatory team in place could have and should have been in constant communication with both the CTO and CEO to provide progress reports and report on any developments/issues relating to the supplier selection process. This would have helped make the overall process more efficient and effective, increasing probability that the best possible supplier would have been chosen.


Conclusion

It is my opinion that the BBC were definitely right to outsource their IT. Although there may be some potential disadvantages from doing this, the positives definitely outweigh the negatives.



References

Jones, C., (2006), “When Outsourcing Isn’t a Good Option”, IT Business Edge, February.
Available at http://www.itbusinessedge.com/item/?ci=15413

Kumar, M., (2006), “Information Technology Outsourcing at BBC”, ICFAI Centre for Management Research.

Lemon, S., (2005), “Outsourcing requires careful planning”, InfoWorld, July.
Available at http://www.infoworld.com/article/05/07/20/HNoutsourcingplanning_1.html

McCue, A., (2005), “CIO Jury: Does outsourcing work?”, http://www.silicon.com/, June.
Available at http://management.silicon.com/itdirector/0,39024673,39130905,00.htm?r=2

McCue, A., (2007), “MPs condemn BBC outsourcing costs”, http://www.zdnet.co.uk/, June.
Available at
http://news.zdnet.co.uk/itmanagement/0,1000000308,39287767,00.htm?r=4

Tesler, B., (2005), “Outsourcing IT Development: Advantages and Disadvantages”, http://www.webspacestation.com/
Available at
http://www.webspacestation.com/it-outsourcing-news/articles/outsourcing.html

Thomas, D., (2005), “Preparations pay off for the most technically advanced election yet”, Computing, May.
Available at
http://www.computing.co.uk/computing/analysis/2076054/preparations-pay-technically-advanced-election-yet

Willcocks, L. & Cullen, S., (2006), “The CEO guide to selecting effective suppliers”.
Available at
http://66.102.9.104/search?q=cache:3gqO8-ND_3MJ:www.logicacmg.com/file/5419+The+CEO+guide+to+selecting+effective+suppliers&hl=en&ct=clnk&cd=2&gl=uk