BBC Outsourcing Case Study

Outsourcing involves the transfer of management and/or day-to-day execution of an entire business function to an external service provider. (Overby, S., 2007) In the case of the BBC this involved transferring their IT subsidiary (BBCTL) to Siemens Business Services (SBS). An outsourcing contract can also be characterised by the service provider providing services back to the customer at a price and service level agreed by contract and it is not unusual for staff and assets to also be transferred. (Pinsent Masons, 2004) For the BBC this meant they were to buy back services from SBS at a cost of £1.9billion over 10 years and transferred 400 employees to the new entity.

The BBC is reliant upon the UK government in order to stay in business as the government renews the Royal Charter every ten years and provides a substantial amount of funding to the company. It is for these reasons that the BBC had to consider taking drastic action when the government placed pressure on it to cut costs and increase revenues. In an attempt to reduce costs there was talk of cutting approximately 350 jobs in the technology division but this was not accepted as a suitable proposition as BBCTL had developed a number of award winning technologies. (Kumar, 2006)

The alternative? Outsourcing. It was estimated that approximately £30 million could be saved each year by buying back IT from a 3rd party as they would no longer incur the costs and management problems associated with their current technology set-up. This illustrates why the decision was taken to outsource IT as it would help to cut costs whilst retaining employees.

The BBC selected a supplier by following EUPP procedures and advertising the bid open for all on the OJEC website. (Kumar, 2006) Although this is a requirement which would be placed on any firm it can be viewed as a positive aspect of the process employed to select a winner because it led to a huge number of bids being received. This is a major positive because it means that the BBC had a number of options to choose from rather than being forced into a contract with a supplier who does not fully meet their needs simply because no other options were identified. The fact that so many bids were received also means that the BBC would have been able to negotiate a suitable deal because the companies would be aware that they had competition for the contract.

A further positive aspect of the process is that the contract placed very specific requirements on the winner. Outsourcing will only be successful if the company knows exactly what it hopes to achieve from the contract (Srinivasan, S., 2003) and if the criteria which the 3rd party must adhere to are clear from the very beginning. (http://www.macronimous.com/resources/outsourcing_best_practices.htm). The requirements which were set out by the BBC (Kumar, 2006, p.5) were therefore extremely useful in determining the winner because they illustrate the company’s expectations and ensure that all bidders have the same information about what is expected of them; thus ensuring that anyone who does bid can assure the BBC that they meet these minimum contractual requirements.

Furthermore, the BBC’s criteria for evaluation are also a positive aspect of the process because they appear to be appropriate for a contract of this nature. These criteria include not only financial benefits but also consider cultural issues which will be important to their employees. The fact that the BBC explicitly considered cultural factors is extremely important because good staff are one of the most valuable assets in any company and so their future must be given the necessary consideration.

However, naming cultural fit as one of the evaluation criteria is only a small step, it is necessary to actually follow this up. One of the critical factors in gaining employee support for change is open and honest communication from the start (IAOP, 2007). The BBC ignored this fact to their detriment by failing to keep the union (BECTU) informed. The decision to sell BBCTL came as a shock (Kumar, 2006) and this was undoubtedly one of the most negative aspects of the process because it encouraged BECTU to make life very difficult for the BBC. By failing to communicate with BECTU the BBC failed to meet their deadline for completion as there had been threats of industrial action and the government wished to meet with BECTU before they would approve the deal. (Kumar, 2006) Although the union did not manage to prevent the deal going ahead the BBC can still learn a valuable lesson from this as the process could have been a lot smoother and quicker had they given their employees the courtesy of keeping them well informed.

Another negative aspect of the process to select a winner is that the BBC made no use of outside consultants. Outside consultants are particularly useful for assessment work i.e predicted savings because they have the huge benefit of being objective. (Klepper & Jones, 2007) Had the BBC considered this as part of their process it is likely that they would not have miscalculated the savings which the contract would provide. The National Audit Office (NAO) discovered that the BBC had overestimated savings by including a one-off cost in its calculations. (Espiner, T., 2006) This is clearly a problem because disgruntled staff are unlikely to believe that such overestimation was a genuine mistake as BECTU had warned from the start that the contract would not provide the expected benefits. Had the work been carried out by an objective outsider then the figures would have been more credible and any repercussions could be deflected away from the BBC.

Furthermore, there was inconsistency in the people used by the BBC in the decision-making process. An evaluating team of 26 core members was appointed to look after the deal but only 8 people evaluated the pre-qualifying questionnaires and more than 100 people participated in the final stage negotiations. (Kumar, 2006) It is difficult to see how any consensus view could be established when some people had not even witnessed the process from start to finish. Additionally, smaller teams tend to be more effective (Klepper & Jones, 2007) and so the process could have been more effective had the BBC accepted that outsourcing requires time and patience rather than increasing its team to over 100 in order to push the deal through on schedule.

In conclusion, the BBC was wise to outsource their IT as they have been able to save costs whilst retaining staff. Furthermore, the contract appears to be working properly as SBS have upgraded the website, the election results broadcast was a huge success, innovation has been taken seriously and the deal has become a trend-setter. It is difficult to see how this could have been more successful as it has gone beyond being a money saving technique to actually become a useful tool for the BBC.
REFERENCES
Espiner, T., “BBC Hits Outsourcing Costs Snag”, http://services.silicon.com/itoutsourcing/0,3800004871,39160280,00.htm, accessed 24 November 2007

Klepper & Jones, “Outsourcing IT Systems and Services”, www.businessforum.com/woj01.html, accessed 19 November 2007

Kumar, M., “Information Technology Outsourcing at BBC”, 2006

IAOP, 2007

Overby, S., “ABC: An Introduction to IT Outsourcing”, 2007, www.cio.com, accessed 20 November 2007

Pinsent Masons, “An Introduction to IT Outsouring”, www.out-law.com/page-501, 2004, accessed 20 November 2007