A Case Study of an Outsourcing

Decision Project in a Large Public

Organization

Sven Carlsson
Informatics, Lund University
Björn Johansson
CAICT, Copenhagen Business School
 The Case
• MeLo’s (Messaging and Logistics) Outsourcing
project
• 35 000 employees
• The outsourcing project started in 2002 (after
a major restructuring)
• Completed in 14 months
• Resulted in a 6 years contract
• And that MeLo decided to use an external
partner for hosting of ICT
Organization of the EffectIT project

Sterring Committee
EffectIT Project

Sterring Committee
Outsourcing Project
Assistant Project
Project leader
leader
EffectIT Project
EffectIT Project

Process- Support
Outsourcing Model for Application
Based Business
Project IT control Architectur
IT Calculation
April, 2002
R
and eque
inv st fo
itat r in
ion for
o f t ma
end tion
er

October, 2002
Ten
d er i
n vi
tati
o n

Eva

December, 2002
l uat
ion
of t
end
e rs

February, 2003
project

Agr Due
eem dili
ent genc
p ro e a
pos nd
als
March, 2003

Ne
got
iati
on
June, 2003
Implementation
A timeline for the outsourcing decision
Request for information and invitation of tender

This step consisted of three main activities:

1) producing the request for information, distribution and

evaluation of the information,

2) producing a business case that described an outsourcing

case,

3) development of a tender invitation

Tender invitation

This step consisted of three main activities:

1) construction of a package with additional information for

the invitation of tenders,

2) answering of questions from possible providers,

3) planning and preparation for the evaluation of tenders.

Evaluation of tenders

There were four main activities in the step:

1) evaluation of tenders,

2) develop a “short-list”,

3) the start of preparing the contract, and

4) preparation of due diligence.

Due diligence and Agreement proposals

The next step in the project consisted of two activities:

1) to conduct a due diligence with the two potential providers

from the short-list,

2) to create the proposal of agreement.

Negotiation

The next step in the outsourcing project was the negotiation

with providers. The step consisted of three activities:

1) negotiation preparation,

2) final negotiation, and

3) the delivery to the provider that were finally chosen.

 Table Request for Information
1 Decisions and Invitation
made in MeLo's of Tender
outsourcing project
Label What was the decision about?
A1 Deciding on the start of the sourcing decision project
A2 Decision on the project plan and steps in the project
A3 Strategic decision that MeLo should focus on its core business
A4 Decision that the outsourcing project should be part of EffectIT and E25
A5 Increase the outsourcing project with the request for information (RFI) activity
A6 Decision on which “potential” providers that should have the RFI
A7 Decision on which providers that invitation of tender should be distributed to
A8 Deciding that a business case was necessary to have as a foundation for the
decision that was needed to make in MeLo’s executive committee
A9 Suggest outsourcing as the way to organize MeLo’s ICT in the future
A10 Deciding that the project could continue with the decision-making process, and
thereby start the purchasing phase
A11 Decision on running workshops aiming at change the negative feelings about
outsourcing among employees
A12 New date for completion of the project
A13 Permission of recruiting a person responsible for the procuring unit
A 14 Deciding on keeping the “old” structure of the invitation of tender
 Tender Invitation
Label What was the decision about?
B1 Deciding that the scope of the project should increase
B2 Deciding on implementing networks of contacts between the project and the
business units
B3 Deciding on which units that are involved in the sourcing project
B4 Deciding on resources (number of personnel and teams) for the evaluation work
B5 Deciding on termination of usage of x-consultants in the project
B6 Deciding on a new consultant (y-consultant) as assistant project leader
B7 Deciding on recruiting a colleague (Internal “consultant”) as assistant project leader
B8 Deciding on using a reference group and the composition of this group for quality
assurance of tender invitation
B9 Deciding on which providers that tender invitation should be submitted to
B10 Deciding the day for final submission of tenders
B11 Decision on a change of localization for the project
 Evaluation of Tenders
Label What was the decision about?
C1 Decision on which providers that should have the possibility to present themselves

C2 Deciding on dismissal of two of the providers (going from six to four)

C3 A decision that more information was needed to be able to come up with a list of two
providers
C4 Deciding on a short-list with two providers
C5 Decision on that the work should continue with the two providers at the short-list
C6 Deciding that MeLo should present its proposal for contract
C7 Deciding that the presented proposal should guide the negotiation
C8 Deciding that the proposal for contract should be a whole new document
C9 Deciding that the project should have an own steering committee
C10 Deciding on the constellation of the new steering committee
C11 A decision that the steering committee for the outsourcing project should meet once
a week
C12 Deciding on appointment of a new assistant project leader
C13 Decision on the time necessary to make the evaluation of tenders
 Due Diligence and Agreement Proposals

Label What was the decision about?

D1 Deciding on full openness during due diligence

D2 Deciding on some restrictions on the “full openness” for instance, list of employees
supposed to change employment
D3 Deciding on an investigation and suggestion of a model for fee payment that were
considered as “normal” on the market
D4 Deciding on that the quality of the proposal was good enough

D5 Deciding on usage of the internal proposal instead of using the proposals

delivered from the providers
D6 Decision on who the responsible for the procuring organization should be

D7 Deciding that recruitment of personnel for the procuring organization should come
in action
D8 Deciding that distribution of proposal agreement should be done
 Negotiation

Label What was the decision about?

E1 Decision on giving potential providers the ability to become

familiar with the proposal

E2 Decision that the provider should state a price for demanded

services
E3 Deciding that the outsourcing project should have the rights to
start the final negotiation

E4 Decision on the composition of the final negotiation group

E5 Final decision on which provider to sign a contract with

E6 Deciding that MeLo should use an external provider for provision

of its ICT infrastructure and hosting of ICT and that the CEO
could sign the contract
 Discussion
• Decided on outsourcing before the
outsourcing decision project started
• The aim of the project was not clear enough
and this raised a lot of problems
– Low commitment for the project leading to a lack
of support in the project
– Lack of resorces in combination with different
perceptions of outsourcing benefits and
drawbacks made the ordering unit did not
materialize
– Unclear and misleading information influenced
the final steps in the project negatively
 Conclusions
• Based on the case study, two conclusions can
be made
– Extremly important in an outsourcing decision
project that the reason for starting the process is
clear and that the aim of the project also is clear
– Having well developed ICT governance and
management is also important for the success of
the process