HP’s huge BSkyB court settlement highlights changed supplier relationships, say experts

HP’s £318 million settlement of the BSkyB-EDS court case emanates from a problem 10 years ago, and demonstrates how much relationships between businesses and their IT suppliers have changed since then, according to outsourcing experts.

While disputes continue to take place between clients and suppliers, in the 10-year period since BSkyB began its ill-fated customer relationship management project, clients and suppliers have become smarter about how they do business and measure outcomes.

“These days we have a completely different outsourcing landscape from 2000, when the BSkyB-EDS contract began,” said Anthony Miller, managing partner at analyst house TechMarketView.

“Many customers are on their second or third generation of outsourcing deals, or are at least more aware of the issues. They are both smarter and more demanding of their suppliers than businesses used to be.”

The BSkyB judge found that EDS' sales pitches had been deliberately misleading on the time required to do the work, a step taken to win the bid over rivals. Miller said that 10 years on, clients are conducting “much more” due diligence on suppliers and their abilities at the time of bids.

Businesses are also monitoring their suppliers’ progress more closely throughout the work, and many are aware of the importance of managing their suppliers properly, he said.

“There are now well-established project measurements that people can draw on,” Miller said. “And they understand the importance of continuing the dialogue between suppliers and customers. The days when businesses believed they could just chuck their IT over the fence and give the problem away are well over.”

Mike Henley, IT outsourcing expert at PA Consulting, said companies were increasingly demanding to know “which people are going to deliver a project” and “what methodology will be used”.

“This is critical. Businesses are aware of the hazards of buying a brand – it’s much better to know the exact people and that the methodology is proven and demonstrated,” said Henley. “There are plenty of cases where clients are even checking out the CVs of the project leaders at the supplier.”

In the BSkyB case, the head of customer software at EDS was found to have lied about his qualifications, which helped BSkyB lawyers swing the case against the supplier.

Martyn Hart, chairman of the National Outsourcing Association, said that today suppliers are equally keen to check their staff qualifications, with extra motivation from the BSkyB case.

“It’s very important to outsourcers that they not only ensure their staff are competent for the job, but that they can demonstrate this to the customer,” he said. “We’re seeing more suppliers ensuring staff have well-known outsourcing qualifications – and this is particularly prevalent among the second-tier suppliers that are keen to win new business on the quality argument.”

Nevertheless, commission-based selling, which the experts warned encouraged exaggeration from suppliers, is likely to remain. “Sales puff will always be involved in these pitches,” said Henley at PA Consulting. “But the improved intelligence of customers, especially with due diligence, is helping them get the results they expect.”

Businesses are also consulting benchmarks on cost, to ensure they are buying more wisely, Hart said. “Companies are going to the analysts and checking the right price points. If they are offered something that is seen as impossible for the money, many are querying it. That also helps avoid costs escalating during projects.”

The more recent waves of outsourcing have seen customers look for flexible price points, the experts added. But they cautioned businesses against paying for complex strategic results from IT schemes.

“Business benefits have always been the holy grail in outsourcing success,” said Miller. “But measuring strategic benefits can be very complex, and cause disputes over subjects like how many customers a new CRM system has helped retain.

“It’s often wiser to stick to a clear milestone and pricing model, with a pre-agreed price to any addition or reduction in users or functionality.”

Copyright © 2010 IDG Communications, Inc.

Shop Tech Products at Amazon