In 1998 Wayne Saunders joined Southcorp as its first CIO, with a mandate to transform the multinational's IT department into a business-driven, service-based entity. Three years down the track, CIO revisits Saunders to find out if whether it was a Mission Impossible or a . . .

When Southcorp relocates its head office to Sydney in October this year, its chief information officer and CIO magazine editorial board member Wayne Saunders won't be coming along. For personal reasons, he's elected to stay put in Melbourne and will be parting company with Southcorp at that time. The significant change and transformation through which Southcorp is currently going is not just physical. Nevertheless, since joining the company three years ago, Saunders believes he has accomplished his mission there, so his impending departure is well timed.

Back in 1998, Southcorp was a multidimensional organisation that had diversified and grown through the 1980s and 1990s and had four divisions - Whitegoods, Water Heater, Packaging and Wine - each with its own IT shop. It was for this reason that Saunders was brought into the company in the newly created CIO role.

"When I joined, each business was responsible for its own IT. They each had their own data centres, help desks and everything else. There was no IT steering committee, no synergy, no governance or policies to speak of - or, in fact, encouragement for any of those IT shops to come together," Saunders says.

"My first mandate was to put together a strategy that looked at how Southcorp could take IT from the backroom into the 21st century and drive out better value for each of the businesses. Part of the strategy I took was to consolidate where it seemed sensible, such as in the infrastructure space. By chance, all of the businesses were running on Hewlett-Packard hardware and three of them were running SAP. So we also moved the Wine division onto SAP. The next move was to look at how we could capitalise on the skill sets we had for each of the divisions, while the businesses retained ownership of the analysis and responsibility for aligning IT and business."

Not surprisingly, there was some fairly fierce protection of territory on the part of the businesses and Saunders admits that it took about three months and a lot of consultation to pull the strategy together and get each of the CEOs of the four businesses to agree to it. He then took it to the board for rubber-stamping, which was towards the end of 1998.

The following year, Saunders says, Southcorp concentrated on implementing governance models and best practice in technology management and, in particular, consolidating its infrastructure. In the case of the latter, the company concluded that it would be better off outsourcing its infrastructure than consolidating it internally.

"We believed that bringing the disparate entities together would occur much more quickly under an outsourcing arrangement," Saunders says. "The other key driver was service delivery. We needed to lift ourselves to a new plateau in the company [in terms of delivering IT]. We believed it was easier for an organisation that lives and breathes this stuff to do that for us than try to do it ourselves, given the difficulty in attracting and retaining talented staff and keeping abreast of the latest technologies (see "Access to Skills", page 36). We also wanted a company that could support us globally."

After a rigorous tender process, Southcorp outsourced all of its infrastructure - including its data centres, help desks and network management - to IBM Global Services Australia (IBM GSA) in June 2000. This involved the transfer of 45 IT staff from Southcorp to IBM GSA. KPMG assisted Southcorp in developing the tender, the evaluation process and the negotiation and actual implementation of the contract.

In 2000 Southcorp also built a shared model for e-business for the divisions, of which it outsourced the hosting environment to Optus. However, while Saunders describes this model for IT as being mature in thought and acceptance, he says it is now being pulled apart due to the changing nature of Southcorp's business.

The company sold its Whitegoods group in 1999 and its Packaging division in January this year. It also acquired Rosemount Wines in February this year and, at the time of writing, is looking to sell the Water Heater group, effectively ending up solely as a wine company, albeit a leading player in the global industry. This restructuring of the company is also behind its move to Sydney, given that Packaging was Melbourne-based and Rosemount Wines, as well as Water Heater, are based in Sydney.

"We have the three divisions sharing the infrastructure [through the IBM GSA arrangement] and sharing the hosting environment, which is a layer on top of our standard infrastructure. So we have an interesting issue to deal with at the moment, which is how to continue to support the Packaging and Water Heater businesses while they are [moving] out of the Southcorp environment.

"We have the licence agreements to consider. The environment we set up, particularly the hosting environment, was based on best-of-breed hardware and software and the businesses that are split off may not choose to or may not be able to afford the technologies that we're using. The businesses that remain - the Wine groups - may also have an issue in terms of maintenance costs [when they are solely responsible for them]," Saunders says.

However, the agreement with IBM GSA does allow for Southcorp to sell a business and for that business to continue to run under the agreement for 12 months at the same service level and cost while it effectively sorts out what it's going to do.

Not Without Challenges

Saunders admits that the IBM GSA deal has had its challenges, the key issue being customer focus, but thinks his own background in the IT services industry has helped him to get value out of outsourcing arrangements and get providers to concentrate on delivering what they should be delivering. Saunders spent the last eight years before joining Southcorp with DMR Consulting, during which time he was involved in a number of outsourcing deals from the other side of the fence.

"Having strategised, sold and implemented outsourcing deals, I know what outsourcing should deliver in terms of [value] to the customer. My background helps me understand the outsourcing environment and the expectations that flow from it," says Saunders. "With Optus, it's business as usual and there are no issues. We're still in a transition phase with IBM GSA but we think we have a way forward with them. They've now looked and listened and I understand that they have brought in a new team. Things have much improved and we have a much greater level of confidence now that we're going to achieve our original goals.

"Ideally, we'll get to the stage where the relationship works seamlessly and is transparent in what it delivers to the business. If [the arrangement] achieves the service levels you've defined and agreed with your service provider, you should have no reason to worry. The view I take in outsourcing is that the service level defines what we require as an organisation. I don't care how or what [the provider] does to achieve that service level. The onus is on them to figure out what they have to do - that's what they signed up for," Saunders says.

On the applications front, Saunders says that integrating Southcorp and Rosemount Wines involves a significant amount of work because the demand planning and sales forecasting models and principles of the two groups are different and the company wants to present a single face to its customers. Whereas Southcorp has traditionally produced wines and then distributed them to various countries, regions and key customers, at Rosemount the sales forecast is developed and production set more according to customer demand, not to what it might have available.

Through the Looking Glass

According to Saunders, the perception of IT within Southcorp varies greatly. He says that at the senior levels in the businesses it's viewed much more strategically now than it was three years ago and that it is recognised as a key enabler and critical component of future success. He finds this is particularly the case in the Wine group, given the complexity of the business.

Ironically, though, Saunders believes it was the "dotcom crash" that really brought the potential and importance of IT to the attention of boards, even more so than Y2K, because it provided the opportunity for people like himself to educate top executives on such issues.

In fact, Saunders, who reports to Southcorp's CFO, has found his time with the company a great learning experience. It has helped him understand a lot more about how boards think, how they make decisions, what's important to them and what's not, as well as to gain a greater understanding of business models and how they work.

He says the most exciting aspect of the job was leading Southcorp's drive into e-commerce two years ago. Initially this was to provide its customers with better information and capabilities. However, the second step, which he says the company is moving towards, will enable them to track orders, both domestic and international, and eventually order online.

Managing the service providers has not been the biggest challenge for Saunders; rather it is getting each of the businesses to agree on a single strategy as they move forward. He thinks the key to being a successful CIO is to be viewed by the business leaders as their trusted consultant in all IT matters.

"It's also important to understand that you're responsible for ensuring your business environment is secure, that it can't be attacked and can survive a disaster, and to have people accountable for those governance issues. It's equally important as the CIO to be objective and not necessarily protect the status quo," Saunders concludes. vAccess to SkillsAccess to skills tops the list of virtually every survey on the reasons for outsourcing; and with loyalty changing and employment arrangements evolving, it is increasingly difficult to keep good people, according to Margaret Hurley, co-author of The Blurring Boundary of the Organisation: Outsourcing Comes of Age.

Launched in May 2001, the book is based on a multi-company research project undertaken by KPMG Consulting and its research arm, the Nolan Norton Institute. It found that outsourcing is becoming a basic business process in most organisations and predicts that the future shape of businesses will involve managing a smaller core operation with increased dealings with external service providers.

"Instead of corporations trying to be the best at everything, they have accepted they may need to turn to the best. Internally provided processes and externally provided activities will be intertwined, with a greater reliance on external roles. With this new thinking, corporations have also accepted that finding the best in one provider may not be possible," Hurley says.

The research also found that short-term outsourcing contracts of three years are replacing the five-to-10 year contracts popular in the early 1990s. Dissatisfied with poor performance and missed goals, the book says, many leading companies are scrapping old and highly generalised deals in favour of smaller, more focused agreements. Shorter contracts provide greater flexibility, as long-term contracts can't anticipate market conditions for the life of a contract, it concludes. Customers are sometimes also much better off with a smaller provider who tries harder, adds John Rundell, KPMG Consulting's Asia Pacific head of outsourcing.

However, sound agreements and contracts continue to underpin successful outsourcing, according to the KPMG book, and for a service-level agreement to remain worthwhile and useful it must change over time and with circumstances.

"The overwhelming message from virtually every interview and workshop [we undertook] for this study is that the absolute centre of any successful outsourcing arrangement is a strong mutual understanding of the objectives by both the customer and the service provider," Hurley says.

- K Power

Three-Year Itch

In his November 1998 interview with CIO, Saunders gave a hint - intentionally or not - that he had a bit of wanderlust in his heart. Opting to leave Southcorp after three years in the top IT spot is consistent with his past career choices.

I see myself as an agent of

change, and every two or three years during my career I have undergone a career

change. Southcorp was

attractive because its

diversity offered lots of

opportunities to test my

skills; it needed a lot of help

in the technology arena and

presented the right level of

challenge I was seeking -

growing and being global

- Wayne Saunders, CIO Magazine December, 1998Tick All the BoxesSaunders arrived at Southcorp in May 1998. CIO spoke with Saunders in November that year ("Taking Care of Business", December 1998 issue). He had spent the previous six months reviewing Southcorp's IT environment and culture, and developing a strategic plan for IT. The five-point, two-to-three year plan was designed to align Southcorp's business philosophies with IT, and included these goals:

Make IT business driven

Ensure simplicity and flexibility are the drivers for all things IT-related Make IT business benefits-based by ensuring all IT investments are achievable and have measurable results; Ensure IT focuses on constant performance improvements through, for example, setting service level agreements Build a business-smart IT organisation which, for example, creates greater awareness and understanding of IT throughout SouthcorpThe board approved the plan on October 30, 1998. In his interview with CIO, Saunders said he hoped to have the plan implemented by the end of 2000.

Jumping the Fence

Saunders found the move from IT services to the customer side of the industry interesting. The main difference for him, he says, is that as an internal consultant he now has teeth and that people will listen. However, he admits he has been disappointed in what he has seen in terms of customer focus from his new side of the desk.

Terry Milholland, on the other hand, EDS' global chief information officer and chief technology officer, changed sides from the other direction. Before joining the IT outsourcing and services giant in September 1999, Milholland spent 21 years with Boeing, where he was appointed CIO in early 1997.

According to Milholland, EDS' philosophy is to use what it sells and sell what it uses, and to this end EDS is a client of itself in terms of its internal IT. However, he concedes that service level agreements are not as formal as for external clients, especially when it comes to penalty clauses.

However, before Milholland's arrival, EDS had its own organisation responsible for its internal IT. Milholland still has an internal IT department of some 150 people, whom he says focus on systems and strategy, but he purchases desktop support, computational support for applications and some applications development and maintenance from EDS itself.

"I'm pragmatic as to what we outsource, and in that respect we're a typical EDS customer. My philosophy is to source from EDS, stay leading edge and be a reference account, but it depends on where the skills are. [Likewise], I don't want to build up staff to compete with the rest of the company. I also expect decent service and to be treated as a client," Milholland says.

Boeing is very demanding of what its IT community provides, Milholland says, and in that respect he faces the same problems and challenges at EDS. However, the 12,000-plus IT people that Boeing has makes it a large shop by customer standards but one that is still dwarfed by EDS' 120,000 IT professionals. Milholland says it took him a while to fully appreciate the difference. In addition, he says that the end result at Boeing was a product, at EDS it's a set of services.

"I thought I would be at Boeing for life, but EDS felt like the right place to be. It's an opportunity for me to change the way EDS operates internally and help it grow. The environment in which people are working is conducive to their careers; they're not trapped and we can offer them interesting opportunities within the company," Milholland says.

- K Power