Business Transformation, Proven Success Factors

Does your outsourcing service provider really have your best interests at heart?

An Executive Briefing by Kathy Goolsby

Executive Summary

The results achieved in many outsourcing arrangements differ considerably from the expectations at the outset. While some fail to achieve their goals, others are propelled beyond initial hopes. The difference does not depend solely on provider resources and expertise; it is, after all, up to the buyer of outsourced services to channel the direction of services when it selects a service provider and structures the outsourcing agreement.

Occasionally, some outsourcing relationships flow into a “trusted partner” status, with the parties truly working together to achieve goals that benefit both companies and harvesting continually growing benefits over a long term. This is the type of relationship required in an outsourced solution aiming to achieve business transformational objectives.

The list of such relationships, however, is sparsely populated.

An exception is the highly successful relationship between TransUnion, LLC (a global provider of business intelligence services) and its trusted partner, Acxiom Corporation (a global provider of customer and information management solutions). Working together since 1992, they clear the high jumps over inflexible contracts and complex unanticipated changes in TransUnion’s business environment (industry and technology impacts, as well as growth strategies). Despite these types of hurdles—which ended many early outsourcing relationships and still cause significant problems for many existing today—this outsourcing relationship is successfully enabling TransUnion’s competitive advantages and transforming its business.

This model outsourcing relationship provides a roadmap strategy for companies now considering a business transformational outsourcing arrangement. This paper is an intimate look at how their relationship evolved and strengthened as they undertook business transformational goals. The paper provides insight into provider selection criteria, best practices and key factors for success.

Launching the Initiative

TransUnion, in the early 1990s, had several business challenges. The company had successfully transitioned from a regional to a national provider of information services in the U.S. credit reporting industry, but its market share reflected the reality of competing against companies that were then four times larger than TransUnion.

Three primary strategic objectives caused TransUnion to initially consider outsourcing:

§            Innovate and expand products around credit data

§            Develop a stronger national presence and increase market share

§            Transform from an internally driven cost center to a customer-focused, externally driven business

These goals reflected the top item on the new CEO’s agenda and the company’s primary driver for outsourcing—a need to focus on the core business. Senior leadership had been spending an inordinate amount of time on funding and acquiring technology, planning for capacity, and ensuring availability. With cost and availability issues impacting the performance in its data center, TransUnion decided to outsource those operations.

A search among the provider community determined several companies could operate TransUnion’s data center and save money. Among them, Acxiom was a strong contender, with three points tipping the scale in its direction:

1)       more than 20 years of expertise in data center outsourcing

2)       known for supporting large relational databases

3)       promised a 10-percent cost reduction the first year, plus leveraging hardware growth and life cycles and continual cost control/reduction for the remainder of a 10-year agreement

All three points, however, were tactical; and TransUnion was really looking for a strategic “partner” that would assist in the company’s transformation efforts. More than just expertise in operating its data center, TransUnion sought a provider that wanted to grow along with TransUnion and would be committed to helping the credit bureau focus on how it needed to operate (from a technology perspective) so it could effectively compete on the global stage.

Provider Selection Criteria

In any outsourcing arrangement, the buyer’s core objective determines the direction in provider selection, as follows.

• If the core objective is simply transactional and tactical (such as cutting costs or moving assets/resources off a balance sheet), buyers should:

• Issue a request for proposal

• Select the provider with the best capabilities and lowest price

• Use a short-term contract and go back to market for competitive bids every two or three years

• If the core objective is more strategic and/or transformational, buyers should:

• Seek a provider for a long-term relationship; this requires that both companies’ corporate cultures are compatible

• Use a long-term contract, ensuring that it

• is flexible for business changes over time

•  has mechanisms to realign interests, as needed, over time

TransUnion, focused on achieving the latter scenario, knew its outsourcing relationship could be successful for strategic, long-term goals only if both companies trust each other and keep each other’s best interests at heart. This attitude was present even in the early days of TransUnion’s negotiations with Acxiom for a potential outsourcing alliance.

Evidence of their corporate compatibility (cultural fit) was also visible in the early days of developing and negotiating the outsourced solution. Both companies are data driven, technology driven, have a similar market focus and even some of the same customers. So there were early natural synergies. Moreover, both take calculated risks, are innovative and invest heavily in research and development. They are alike in their informal environments and in their entrepreneurial approach to a competitive market and solving consumer problems. They avoid politics-oriented decisions and having to climb ladders a rung at a time in making decisions and future plans.

In Acxiom, TransUnion found a company that shared its belief in doing what it takes to accomplish goals. Their early discussions on how to work together enabled them to determine whether they wanted to work with each other and how their separate strengths could be mutually beneficial—even more important considerations than the initial economics of the relationship.  

Risk Mitigation

Although Acxiom’s expertise was in data centers and database technology at that time, it had few customers for which it was providing services at the same scale that TransUnion needed. In addition to due diligence on Acxiom’s capabilities and reputation, TransUnion took several steps to mitigate initial risks: 

• the data center remained on TransUnion’s premises

• 93 hardware/support associates transferred to Acxiom but remained onsite at TransUnion

• 136 service level agreements (SLAs), which focused on both companies’ accountability

• well-documented governance/relationship management agreement

• reliance on Acxiom’s expertise in seamless transitions

• operational improvements were implemented in incremental steps to mitigate the risk of business interruption and ensure reliability

With no dramatic initial changes or upheaval, and still having the capability to bring the work back in house in case the relationship was not as successful as anticipated, they signed a 10-year outsourcing agreement for data center operations in 1992 with the hope that it would eventually become just one component of a growing relationship.

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