(Outsourcing Accrues High Dividends)
The London Stock Exchange celebrated its 200th anniversary in 2002. Although it has deployed technology to support its business since the early 1970s, outsourcing and Accenture, the global technology services provider that has management responsibility for many of the Exchange’s information technology (IT) functions, have been prominent in business transformation changes since 1992.
Focused on competitive strategies by 2000, the Exchange fully realized its technology was world class and allowed the Exchange to perform better than its competitors. The London Stock Exchange has one of the lowest IT costs per trade, compared to its European and U.S. competitors.
In 2001, the Exchange brought in a CIO to ensure its IT outsourcing strategy took a more disciplined approach. Up to then, the outsourcing arrangement had been more of an “arms-length” relationship.
According to the Exchange’s CIO, David Lester, “No matter how high you set the bar, Accenture will always aim to jump over it. They have become a key partner and are prepared to pull out all the stops to get over the bar – and do it right – no matter where you set it. The challenge for the London Stock Exchange in the last two years has been putting in place the right internal technology team to set that bar high enough.”
Metamorphosis
When the Exchange’s markets moved to electronic market-making in 1987, each department managed its own IT, which included international, domestic, and clearing and settlement systems. By 1992, the Exchange had over 50 systems written in 15 different programming languages running on more than 15 disparate types of hardware. It needed to find a way to reduce costs and improve quality of service.
At the same time, the Exchange wanted to fund the next generation of systems, moving its environment from market-making into order-driven trading. The difference, explains Lester, requires systems and technology functions that match orders, eliminating much of the overhead and cost of telephone dealing against screen prices.
Accenture’s proposal in response to the Exchange’s RFP was to manage the processes, get the costs down, and then use the cost reduction to fund the building of the next-generation system.
“There’s something about working at the Exchange that makes people care,” states Lester. Around 400 Exchange employees, who were very proud of their work and association with the London Stock Exchange, were transferred to Accenture initially. With world-class expertise in transition methodologies, Accenture organized a series of onsite meetings and offsite social events to introduce itself to the Exchange’s employees. Eleven years later, many of those employees are still with Accenture, now proudly focused on opportunities to provide their expertise and best-practice IT services to other clients in addition to the Exchange.
The scope of work was huge. The provider consolidated around 30 systems onto two, with “everything at stake” if the project didn’t deliver. Accenture replaced the Exchange’s core trading systems in 1997. Through solid project and process methodology, Accenture then introduced more systems and cost efficiencies into the processes.
Effective communication is a key to their relationship management. As in any successful outsourcing relationship, the buyer’s level of trust and the provider’s level of trustworthiness are key factors. Lester says their established communication points extend “up and down” through the two organizations and operate on both a well-defined formal and informal basis. Lester’s advice to other buyers of outsourcing services is not only to ensure the contract wins on both sides but also to ensure that “the right people are engaged on both sides.”
As a result, they have one of the best Exchange trading systems in the world. “It is one of our competitive advantages going forward,” claims Lester.
Leveraging the Provider’s Ability to Produce More Value
The strategic picture changed in 2000-2001, when the Exchange became a PLC – driven for profit, with a shareholder model, rather than being a member-based institution. With competitive advantage now at the forefront of its objectives, it realizes the high return on investment from its outsourcing alliance with Accenture.
Seeking to achieve more value-based outcomes from their strategic outsourcing alliance, the Exchange introduced many pricing incentives to their contractual terms in 2001. “For example, for new projects Accenture puts in place ahead of schedule, they share in the benefits,” Lester explains. “In addition, if Accenture keeps taking costs out of our operations, they receive a percentage of the savings in the first year an initiative’s savings are achieved.”
It’s a genuine, well-managed partnership on both sides. Still, the new pricing vehicles should go a long way in allowing the relationship to be even more successful. Lester says the Exchange defines a successful relationship as a partnership “where there’s something in it for both parties, and both believe that it is well worth working hard for. We want them to be there in the future and to invest in our future. We don’t want something short term.”
Accenture keeps changing as the London Stock Exchange keeps changing – going forward together.
While achieving organizational objectives through outsourcing revolves around effective leveraging of people, process, and technology, the ‘people component’ is integral in all successful relationships. According to Lester, “Accenture’s people care about our success. We both want to make it happen.”
Lessons from the Outsourcing Journal:
- Optimal value from an outsourcing relationship begins with an attitude of both parties working together for successful outcomes in each other’s objectives.
- Because capturing value in an outsourcing arrangement is based on leveraging the service provider’s resources and expertise – and its willingness to invest in future benefits for the buyer – it should not be approached as a short-term arrangement.
- Savings achieved through a provider’s best practices, innovation, and technology can be more than a tactical goal; they can be a strategic objective used to fund investments into new IT infrastructure.