CSC and BAE: An Enduring Partnership

By Louise Baverstock

In May, transatlantic defense and aerospace giant BAE Systems extended a 12-year outsourcing relationship with CSC for another five years. This is the third time the partnership has been renewed, and the latest five-year contract is valued at about $1.9 billion.

The original contract — $1.5 billion for 10 years —  made a big splash in 1994 because it was the largest outsourcing contract awarded to a single supplier in Europe at the time. What began as one of the biggest outsourcing deals in an era of big deals is now one of the longest-running partnerships in a highly competitive market.

The two companies have successfully grappled with the biggest challenges in any outsourcing agreement: building mutual trust over the long haul and creating an effective deal management structure. And they have kept a focus on the business even while doing some highly complex IT implementations.

From driving down costs to building a strategic partnership

The 1994 agreement with what was then British Aerospace (BAe) may have been unusual in its size, but the original contract was otherwise about fairly standard IT infrastructure outsourcing: rationalize, consolidate, and standardize to improve service delivery and reduce costs.

The biggest task in the first years of the contract was to integrate the former BAe’s four divisions. CSC consolidated 21 data centers into three, numerous help desks into two, and put the divisions up on one integrated corporate network — all without disrupting any of their operations. For the first six years, CSC managed the full range of BAe’s IT operations from mainframe and mid-range computers to servers and desktops, including wide and local area networking, help desk, and applications support.

The main goal of the original contract was to drive down costs, and CSC did that. In just the first 18 months of the contract, IT costs dropped by 30 percent.

BAe was CSC Europe’s biggest client, and it gave CSC its biggest operational challenge. But a much bigger challenge, as well as a change in the nature of the relationship, was still to come.

In 2000, British Aerospace merged with Marconi Electronic Systems to become BAE Systems. The merger extended BAE Systems’ operations to North America, doubling the size of the IT operation CSC would have to manage, and requiring a new contract. Since 2000, CSC has provided IT services to support 13 BAE Systems’ businesses and joint ventures in about 117 locations in the UK and North America.

The difference between the two agreements was that by 2000 British Aerospace and CSC had spent six years getting to know and trust each other, and CSC had acquired a deep knowledge of its client’s business and market.

Devising a governance model

As BAE Systems has grown into a transatlantic defense and aerospace company, the scope of the outsourcing agreement has presented ever larger management challenges.

It’s often the case, even on smaller accounts, says Russ Owen, CSC’s group president for the BAE Systems global account, that account executives are too busy with day-to-day operations to focus on driving joint business strategies with clients. To ensure that doesn’t happen on this account, BAE Systems and CSC have devised an innovative governance model that assigns two CSC directors to each BAE Systems operating unit or group.

The business group directors are a hybrid of management consultants and account executives. Their job is to become intimately familiar with the business needs of their operating units and to bring in innovative ways to meet those needs. They also make sure the demand plans the operating units want to put into the annual operating plan are in line with the units’ business strategies. The client services directors focus on delivering the IT services that are spelled out in the contract. The point of this governance structure is to see that account planning is in line with BAE Systems’ overall business strategy.

One part of this governance model is called the Continuous Improvement Framework, a collaborative approach that CSC developed with BAE Systems. Each year, the two companies select areas to be the targets of focused programs, jointly sponsored at a senior level, to drive continuous improvement. The results in improved service delivery and reduced cost have won CSC two BAE Systems’ Chairman’s Awards for Innovation.

Finding the key to a strong relationship

Over the last 12 years, BAE Systems has expanded into new markets and grown through mergers and acquisitions on both sides of the Atlantic. CSC has supported this business strategy by helping to streamline business processes, modernize engineering and supply-chain operations, and reduce costs. Most recently the two companies have worked together to standardize the desktop offering across the business, through the Desktop Relife Program. This has provided BAE Systems with a company-wide platform, making it easier to integrate new businesses, and collaborate across the enterprise.

The key to this long and stable relationship may be the combinations of the two companies’ deep experience in the European and American aerospace and defense markets and their mutual willingness to be flexible in handling a huge, and hugely complex, contract. In a 2005 case study, the Financial Times put it this way:

“BAE Systems has seized on a core truth about managed services. The best supplier is one that sees its role as an active agent for change in every aspect of the customer’s business. By looking beyond the detail of IT and working as a high-powered business partner, CSC has kept its customer’s technology up to date while reining in the cost of computing.”

Sidebar:

CSC and BAE: Renewing a Long Relationship

In 2005, BAE Systems took a close look at its IT outsourcing contract with CSC. The second extension of the contract was due to end in October, and BAE Systems’ IT Council wanted to evaluate its options. The two companies had worked together for a long time — more than 12 years — and the Council recognized that CSC had improved IT services in the last few years. But they also wanted better value for money. So BAE Systems set up Project ’06 to decide what to do next: sign a new agreement with CSC or issue a request for proposal to the wider marketplace.

The Project ’06 team decided to combine those two alternatives. The team did draw up a market-ready RFP. However, in recognition of the long-standing relationship between the two companies, CSC was given the opportunity to bid against that RFP before it was put out to the wider marketplace. Although CSC was the only bidder, it had to present itself afresh, as though it were in competition with other service providers. CSC met the challenge.

BAE Systems’ Executive Committee agreed to continue the partnership with CSC by drawing up a new five-year agreement, which took effect on May 1. There is no “lock-in,” however, so BAE Systems is able to bring in third parties when it believes that is what one of the businesses requires. The contract extension also includes some new features, such as an increased focus on service-level agreements and a two-year program to transform IT services.