Big Changes at a Big Company

For years, $US28.2 billion United Technologies Corp­oration, or UTC, acted primarily as a holding company for its subsidiaries - Carrier, Hamilton Sundstrand, Otis, Pratt & Whitney, Sikorsky Aircraft and UTC Power - with offices in nearly 180 countries. Each subsidiary had its own enterprise systems, processes for sourcing projects and IT organisational structures. UTC continues to function as a holding company, but it also provides support for its subsidiaries for common business processes such as HR and indirect sourcing. In 2001, chairman and CEO George David decided it was high time for UTC to reap some benefits from the combined size and power of its companies. He issued a decree that UTC squeeze $US500 million out of its annual $US3.5 billion direct procurement costs. Doucette, who had just been promoted to CIO of UTC, was responsible for $US40 million of the mandated savings.

In addition to doing the more obvious things such as centralising back-office IT functions and standardising all locations on certain platforms, Doucette's experience told him that he could wring a hearty chunk of change out of application costs by sending more work to India. With the help of UTC's sourcing office in the finance department, Doucette ran the numbers. The office estimated that he could cut $US28 million of an annual $US125 million spent. The savings would come as UTC began replacing high-priced US contractors with less expensive Indian labour.

UTC's subsidiaries had begun outsourcing to India long before UTC set up a corporate strategy to support it. In addition to the Pune, India-based development centre Wood set up for Otis Asia Pacific in 1995, Otis's US headquarters began sending projects to Bangalore-based Wipro Technologies four years ago when Doucette was CIO of that division. "It wasn't cost-driven at the time. It was just to get the work done," Doucette explains. But two years later, he decided it was time to develop an overarching strategy and process for sending software work to India.

First he revisited the decision to make India his country of choice. New players such as Russia and China had joined the IT services game, and Doucette gave them a look. Ultimately, however, he decided India was still the best choice because of the maturity of the software companies operating there. "It's taken India 10 years to get to where they are," Doucette says.

Vetting the Indian Vendors

Then it was time to start crunching some serious numbers. In order to help UTC's divisions buy in to the idea of outsourcing to India and leverage the conglomerate's scale, Doucette thought it best to create a list of preferred vendors and negotiate prices up front. With part-time help from three employees in UTC's sourcing office, he issued RFQs (what UTC calls RFPs) on the three main areas of work UTC would need done: mainframe, e-commerce and ERP programming. The company received bids from 43 vendors via an automated online system called FreeMarkets - basically an eBay for corporate procurement in which UTC holds a stake. From there, the sourcing team began whittling down the list based not only on bid prices (Doucette ruled out the five lowest bidders), but on 500 discrete criteria in the areas of service offerings and capabilities, price, management practices and procedures, customer base, and business profile and strategy. Holding a giant spreadsheet, Doucette explains how the sourcing staff scored each vendor from one to five on each criterion, giving more weight to service offerings and price than to other, less important criteria such as business strategy and customer base.

The sourcing people informed their scoring not only with their own experience but with input from those at UTC already doing offshore outsourcing, visits to the companies and interviews with customers. The sourcing staff trimmed the list down to 20, and then Doucette and the other UTC business unit CIOs settled on five preferred providers - Wipro Technologies, Mumbai-based Tata Consultancy Services (TCS), HCL Perot Systems (HPS) and HCL Infosystems (both based in Noida), and ITC Infotech India in Calcutta. Such a strategy is common. "More than 70 per cent of companies going to India are putting together lists of two or three vendors to work with," says Dean Davison, vice president of service management strategies with Meta Group.

Finally, Doucette signed contracts with the five companies, creating fixed prices for development and maintenance work for all UTC divisions. The entire process took about three months.