Outsourcing Case Study: Rolls-Royce

While Rolls-Royce's mega outsourcing deal with EDS has brought continuity and reliable IT operations, it has also revealed some of the risks of a long-term exclusive relationship.

The aircraft engine and car manufacturer struck its first outsourcing agreement for infrastructure operations and programme delivery with EDS in 1996.

A new exclusive $2.1bn (£1.2bn) deal was agreed in 2000, covering 90 per cent of IT services for Rolls-Royce, extending until 2012.

Rolls-Royce has retained a small team of senior IT and contract management staff and specialised in-house developed code expertise.

Meanwhile, EDS has helped the company move from the mainframe as the central solution to an outsourced hosted environment. "We couldn't do it without help," admits Luc Schmitz, IT director at Rolls-Royce.

EDS is also responsible for developing ebusiness systems, infrastructure, network, systems, applications and end-user support.

Schmitz says having one global deal for multi-source arrangements has had "lots of positive effects".

"We have enjoyed a continuity factor with very stable operations. We also have a predictable turnover of IT staff so there is no rockiness," he says.

Three years into the contract, Schmitz says availability remains high and critical IT programmes, such as the rollout of a major single-entity SAP programme, have been delivered.

However, Schmitz admits there is a downside. "There have been challenges in aligning goals. It was bumpy," he says.

He advises companies taking a similar route to make long-term provisions through strict annual and quarterly plans informed by business value.

"There is a risk in having a monopolistic contract with 90 per cent of IT estates outsourced. The original contractual scope is a snapshot. Long-term agreements will struggle to survive based on the original scope definition," he says.

Risks are minimised by "keeping things fresh and changing the EDS management team periodically", he adds.

Rolls-Royce also has an open procurement provision as part of the contract, which reduces prices "if IBM or Accenture offer better value for money," says Schmitz. "Cost savings are made by having a four-year price book and then re-negotiating."

EDS also gives performance guarantees, and benchmarking is facilitated by a third party. But mistakes have been made.

"Outsourcing IT architects was a step too far," says Schmitz. "We ceased to be an intelligent customer, and were no longer able to define our IT requirement. We will transfer them back over the next year."

Willingness to adapt to unexpected events is also important for success.

"The scope of the contract with EDS changed after 11 September. We had to re-plan as demand fell. We focused less on ebusiness and more on e-enablement, providing for online meetings, for example," says Schmitz.