Prism Alliance Delivers "Red-Hot IT" to Royal Mail

Few organizations are woven as deeply into the fabric of British life as the Royal Mail Group. It has a proud record of more than 360 years of providing the public with postal services. The group's 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; and the Parcelforce Worldwide delivery network covers more than 99.6 percent of the world's population.

But even trusted and embedded organizations can struggle. The group has been facing an extraordinary array of business challenges. It is losing money — more than 1 million per day in 2002 and 2003. It is facing competition, as a result of the United Kingdom Postal Services Commission's (Postcomm's) licensing of other companies to operate, typically in the profitable business-to-business market among large urban centers. It is dealing with a regulator that is setting tough standards of service and monitoring them closely. The factors all point to a pressing need for corporate renewal.

The Royal Mail 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.

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 1.5 billion, is one of the largest ever signed in the UK. "It is," said Royal Mail CEO Adam Crozier, "a vital component in our renewal plan."

Because Royal Mail traditionally does not outsource, the decision to contract out its IT is an indication of the commitment to renewal. Royal Mail, says its 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 behavior. We had to improve the quality of our service."

Another imperative was that the group move from fixed to variable costs, because in the postal business, it is hard to predict what is going to happen to demand over the next decade. Burden, a veteran of the airline business, notes that in that industry "you can reasonably predict that there will be more people traveling. In the field of postal services, there are questions over such trends as the Internet, the replacement of paper-based bills and the shift toward electronic deposits for pensioners rather than pension books."

There were other reasons why outsourcing was attractive. Royal Mail had to avoid capital and revenue expenditure. It needed access to new skills. It could also transfer the book value of its related assets to a service provider.

A new kind of "value network"

he deal, which was signed in May 2003, has identified savings of ?250 million that will be generated over the life of the 10-year contract. But it has many distinctive and ground-breaking elements to it, including 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 focuses on each partner's unique strengths. The Prism Alliance was formed in February 2002, combining 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.

CSC's Guy Hains, president and CEO of the Prism Alliance, says that in a traditional alliance only the prime contractor interacts with the business customer, which 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 three key partners but beyond that, to the entire industry, to players both big and small who can accelerate the pace of change," Hains says. "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.

"Recognizing 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 and close interworking among the three key players 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 review and simplify continually.

This is echoed by Burden. "Legally, CSC is the prime contractor," he says, "but operationally we see the Alliance. Guy Hains is the CEO of the Alliance and we want to interface with the Alliance."

Other technology suppliers - and there are many - have come under the umbrella of the Alliance. Burden says he expects CSC to manage them as well.

The Prism Alliance's tasks

The Prism Alliance will be responsible for running Royal Mail's data centers, data networks, voice services, desktop computers and more than 600 business application systems. As prime contractor, CSC will be 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, have now transferred from Royal Mail to CSC, Xansa and BT. CSC will account for approximately 1,470 employees, Xansa 220 employees and BT 45 employees. CSC will manage the contract and be 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 will also develop and maintain applications and provide a range of professional services supporting business-critical systems.

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 center operations and intracompany video and audio conferencing. Xansa will provide application management and enterprise solutions to Post Office Ltd. and Royal Mail corporate functions. Approximately 250 technology people are being retained in the Royal Mail group. Burden intends to refocus that team on the business implications of technology.

Looking to the future, there are plans to move Royal Mail's networks from a fixed to a variable structure, which will result in huge cost savings; and to consolidate and rationalize its IT to reflect the simplification of the group's business. For Royal Mail to get the maximum business benefit from IT, the Alliance will need to deliver systems that are absolutely aligned to the core postal business processes of sorting and distribution.

"Today, as we launch the Prism Alliance, our key focus is on delivery of the best IT - 'red-hot IT' - to support Royal Mail, recognizing the pressures they face," Hains says. "Once successful, we look forward to supporting the growth and development of other parts of their business, as the Prism Alliance."

The contract underlines CSC's commitment to the UK public sector. More importantly, it is a significant step in Royal Mail's journey of renewal. "Technology plays a key role in the renewal program," says CIO Burden. "It is the only way that we can get to the cost structure that will allow us to compete. We are changing the fundamental efficiency of the organization."

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