IT Outsourcing at the BBC

Background

On 1st October 2004, the BBC signed an IT outsourcing contract with Siemens Business Services (SBS). It sold BBCTL which provided content management solutions to media enterprises in North America and the BBC. This contract was one of its kind in the media industry and the largest secured by SBS. The main reason for signing this contract was cost reduction, largely being pushed by the UK government (Case Study). However, there were other reasons to outsource, with the process of selecting a supplier being particularly interesting.

Introduction

Outsourcing involves the transfer of management and/ or the day to day execution of an entire business function to an external service provider. The client organization and the supplier enter into a contractual agreement and under that agreement the supplier acquires the means of production in the form of a transfer of people, assets and other resources from the client. The client then agrees to procure the services from the supplier for the term of the contract (en.wikipedia.org). In terms of the contractual agreement between the BBC and SBS, the BBC transferred 1,400 staff and access to £20 million worth of contracts with the agreement that SBS would provide technology support and services (Case Study).

Reasons for the BBC to Outsource

It could be said that the BBC outsourced for one reason – cost reduction via pressure from the UK Government. In order to achieve this, the BBC started BBCTL. The aim of this was to increase revenues for the parent company by providing technology services to the third party media enterprises (Case Study). This was the latest in a range of innovative ideas implemented by the BBC since its origin in 1922. However, pressure from the UK Government began to mount which led the CTO, John Varney, to consider outsourcing their IT (Case Study).

The BBC projected that it would save approximately £20 to £30 million per year through outsourcing (Case Study). However, mistakes were made when estimating cost reduction with the BBC Governors being briefed on yearly savings of £35.2 million. In the first year of the contract there were savings of £22 million, £13.4 million lower than the guaranteed level however, the BBC now expects to make savings of £40 million per year for the remainder of the contract, though the Government remain speculative on this (House of Commons, Committee of Public Accounts, 2007).

Another reason that John Varney gave for outsourcing was that BBCTL deserved to belong to a ‘technology parent’ rather than a ‘content parent’. He felt that there were views that the BBC should not be investing in speculative technology (Case Study), as the BBC was a media company.

Further, if the BBC decided against outsourcing, the pressure it was under from the government may have led it to cut up to 300 jobs in a project named Project Leo (Case Study).

The Positive Aspects in Selecting a Supplier

The process of selecting a supplier was co-ordinated particularly well with a team of 26 core members looking after the deal (Case Study). From a pre-qualifying questionnaire, nine suppliers were short-listed with eight entering the bidding process. The information that they were asked to supply was: their process for providing outsourced services and the requirements for the transformation at the BBC. In using this information, three preferred bidders were announced with one pulling out leaving Accenture and SBS. Finally, SBS were chosen as the preferred bidder due to their knowledge of the BBC’s culture (Case Study). I feel that the process of selecting a supplier was undertaken meticulously with right down to the detail of aligning the two companies’ cultures to ensure the best transition possible.

Also, throughout the bidding process, the BBC used a criteria for evaluation (Case Study) to best ensure the right supplier was chosen. I feel that this further enforces the point that they spent a great deal of time and effort ensuring that they got the right supplier to meet their needs.

The Negative Aspects in Selecting a Supplier

In relation to the employees of BBCTL, the bidding process was not managed well. The decision to sell came as a shock and throughout the bidding process right to the decision to sell, the issue of job cuts was handled poorly. Industrial action was planned by the union, BECTU, which was only called off due to a legal technicality (McCue, 2004). This problem was further inflamed when the BBC gave the final two bidders Project Leo. Luke Crawley, a BECTU official, commented that: “we always knew that there was a risk of staff being fired once the sale went through but, it’s astonishing that the current management are not just making the bullets but, loading them into the new employer’s gun” (Oates, 2004).

Another problem when negotiating with SBS is they signed a contract for 10 years which may be too long as this type of contract had not yet been tested, if it was to fail, the BBC would be locked into the contract for a huge length of time.

Also, the BBC did not include profit sharing in the company if SBS’ returns exceeded a specific level (House of Commons, Committee of Public Accounts, 2007). If the return does exceed a specific level, the BBC may have been able to increase its revenues to the governments desires by gaining from SBS’ investments.

Further, in outsourcing, the BBC has lost intellectual property rights over some of its award-winning technologies and has lost its ties with the latest technology innovations in an industry that is increasingly using IT (Case Study). This could be a major problem in the future for the BBC as up to the present date the BBC has stayed in line with its competitors by being innovative.

In relation to this, SBS has become one of the leading IT vendors in the broadcasting industry, with the potential to substantially expand outside of its core BBC market (Case Study). This may be seen as a foregone opportunity for the BBC to have increased revenues. However, it may also be noted that the BBC is a media company, not a technology company and it may not have had the expertise to expand in the way that SBS has.

Conclusion

In conclusion, I feel that the BBC has made a bad decision in the way it has outsourced its IT services. This is mainly due to the fact that it has lost the potential to innovate through IT especially since most of the media industry is increasingly using IT. Further, through selling off its IT subsidiary, it has lost valuable intellectual property rights over its award winning technologies and did not even include a profit sharing clause into the contract. I believe that this decision will only benefit the BBC in the short-term in cost reductions and they may have been better off investing in BBCTL to gain further revenues.

References

Case Study – Kumar, K, V, Information Technology Outsourcing at the BBC, ICFAI Centre for Management Research, 2006

House of Commons, Committee of Public Accounts, BBC Outsourcing: the Contract between the BBC and Siemens Business Service, June 2007
www.publications.parliment.uk/pa/cm200607/cmselect/cmpubacc/118/118.pdf

McCue, A, BBC Completes £1.9 billion IT sell-off to Siemens: Union Accuses the BBC of selling off its ‘Crown Jewels’ to the Private Sector, Silicon, October 2004
http://management.silicon.com/government/0,39024677,39124584,00.htm

Oates, J, The BBC Outsource Deal Includes Staff Black List, The Register, June 2004
www.theregister.co.uk/2004/06/16/bbc_strike/

http://en.wikipedia.org/wiki/Outsourcing