Delivering 'Red-Hot IT' to Royal Mail
Klant: Royal Mail
Uitdaging An ambitious strategic vision for the company, ‘to be the best postal operator in the world’. Execution of this vision hinged upon the four goals of the renewal plan – being a great place to work, improving customer service, returning to profitability and delivering positive cash flow.
Oplossing: Royal Mail signed a landmark outsourcing deal with the CSC-led Prism Alliance. The contract valued at £1.5bn, is one of the largest ever signed in the UK and was seen as a vital component in their renewal plan.
Resultaat: The deal, identified a £250m saving which will be generated over the life of the ten-year contract.
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Few organisations are woven as deeply into the fabric of British life as the Royal Mail Group. Its three brands touch people’s lives daily: Royal Mail delivers 82 million items per day to 27 million addresses; 28 million people visit a Post Office® branch every week to use its 170 different products and services; its Parcelforce Worldwide delivery network covers more than 99.6 per cent of the world’s population.
But even trusted and embedded organisations can struggle. And the group has been facing an extraordinary array of business challenges. It was losing money, facing competition, as a result of the Postal Services Commission (Postcomm), licensing other companies to operate and dealing with a regulator setting tough standards of service and monitoring them closely. Add to this a history of not-always-sweetness-and-light relationship with the trade unions, and you have quite an agenda for a management team intent on corporate renewal.
The Prism Alliance
The board has set an ambitious strategic vision for the company - to be the best postal operator in the world. The execution of this vision hinges upon the four goals of the renewal plan: being a great place to work; improving customer service; returning to profitability; and delivering positive cash flow. And it is in that context that one should look at the landmark outsourcing deal that Royal Mail has signed with the CSC-led Prism Alliance. The contract, valued at £1.5bn, is one of the largest ever signed in the UK. “It is,” said Adam Crozier,“a vital component in our renewal plan.” There had not been much tradition of outsourcing at Royal Mail. Indeed, it could have been a contender for one of the country’s most vertically integrated businesses.
The Challenge
The decision to contract out its IT is another indication of the commitment to renewal. Royal Mail, says CIO David Burden, set out to use outsourcing to address a number of business drivers.
“We had to improve prices,” he says. “We had to change our cost structures and our internal behaviours. We had to improve the quality of our service.” Another imperative was that the group needed to move from fixed to variable costs. Why? Because in this business, it is very hard to predict what is going to happen to demand over, say, the next decade and there were other good reasons why outsourcing was attractive. Royal Mail had to avoid capital and revenue expenditure and it needed access to new skills. As a minor aside, it could transfer the book value of its related assets to a service provider.
The deal has identified savings of £250m that will be generated over the life of the ten-year contract. It also has many distinctive and ground-breaking elements to it, not least of which is the concept of the Alliance itself, which includes BT and Xansa. From the outset of the procurement process, CSC looked to form a “best-in-class” alliance. It sought to build what it described as a partnership “value network” – a construct that focused on respecting the differences that people with different experiences bring. The Prism Alliance was formed, synthesising the expertise of CSC, BT and Xansa. Contractually, it is a traditional prime and sub-contractor relationship, with CSC accountable for the entire end-to-end service provided. But outside of that contractual basis, it is very different. Guy Hains, CSC President describes exactly what’s different. “In a traditional alliance within the IT industry, the prime contractor dominates and filters work, information and business opportunities through to subcontractors who will rarely interface with the business customer. This can lead to missed opportunities for the customer, and can stifle innovation. Within Prism, we are freeing up those access channels with a particular focus on looking for new ideas and building on experience, not just from the 3 key partners but beyond that, to the entire industry, to players both big and small that can accelerate the pace of change. This way, Royal Mail gets the benefit of what the industry calls ‘smart-sourcing’ without having to worry about the integration challenge of dealing with a vast number of suppliers.”
“Recognising the size, scale and diverse business mix within Royal Mail, coupled with the scale of business change demanded, our view is that one size doesn’t fit all. No one player could get them there at the speed required - broad access to the IT industry supply base makes sense.” As with any alliance, governance is critical. Within the Prism Alliance, clear rules of engagement, close interworking amongst the top team, with the three key players in a peer-to-peer relationship will drive long-term success. All parties have a shared vision and the management structure and processes seek to mirror those within Royal Mail’s own business, something that both parties are committed to continually review and simplify. This is echoed by Burden. “Legally, CSC is the prime contractor,” he says, “but operationally we see the Alliance.
So just what has the Prism Alliance taken on?
It is responsible for running Royal Mail’s data centres, data networks, voice services, desktop computers and more than 600 business application systems. As prime contractor, CSC is responsible for the overall management of the contract, the relationship and the services that are to be delivered.
Some 1,735 people, mostly IT professionals, transferred from Royal Mail to CSC, Xansa and BT on existing terms and conditions under TUPE regulations. CSC account for approximately 1,470 employees, Xansa 220 employees and BT 45 employees. CSC manages the contract and is responsible for the maintenance of Royal Mail’s 42,000 desktop computers and the management and development of Royal Mail’s server, mainframe and IT processes. CSC also develops and maintains applications and provides a range of professional services supporting business critical systems. Under a sub-contract with CSC, BT will provide a new network and services, including local and wide area voice, data, mobile, internet and firewall technologies. BT will also provide support services for call centre operations and intra-company video and audio conferencing. Under a sub-contract with CSC, Xansa will provide application management and enterprise solutions to Post Office Ltd and Royal Mail corporate functions. Approximately 250 technology people have been retained in the Royal Mail group. Burden is intent on refocusing that team on the business implications of technology.
The Future
Looking to the future, there are plans to move Royal Mail’s networks from a fixed to variable structure, which in itself will result in huge cost savings; and the challenge to consolidate and rationalise their IT to reflect the simplification of the business operation that has occurred under Allan Leighton’s leadership.
For Royal Mail to really get the maximum business benefit from IT, the Alliance will need to ensure that it delivers systems that are absolutely aligned to the core postal business processes of sorting and distribution.
