A painstaking attention to detail is the key to the recent $4bn (£2bn), five-year outsourcing contracts that Royal Dutch Shell has signed with three IT suppliers.

The deals aim to boost the agility of the IT department, improving efficiency and productivity.

“You need to spend a lot of time ensuring you have a good contract, and it takes sweat and faith,” says Swee Chen Goh, vice president for global IT services at the oil and gas giant.

“I am very Asian in my attitude to assessing a supplier; it is like handing a child into marriage in a good family.”

The multi-sourcing arrangement, which Shell describes as master services agreements with EDS, AT& T and T-Systems, is the largest IT deal in the energy sector. So there was no rush to dry the ink on the contracts.

“We are constantly looking at how IT can deliver and meet business needs, and two years ago we started to take a strategic look at sourcing. Investing in the front end of the programme was extremely important,” says Goh.

The decision came on the heels of a positive outsourcing experience. “We outsourced parts of the IT infrastructure four years ago. We were working with multiple suppliers, including Wipro, and it worked well for us, but we had a mix of global strategies,” she says.

Several factors pushed Shell towards its strategic outsourcing decision, including the growing need for oil and gas which has increased pressure on IT services.

“The increase in demand for oil and gas in the marketplace has put a huge demand on IT services. Access to easy oil is more limited, so we are having to dig deeper into technology to know how to access it,” says Goh.

She says the ability of IT to respond quickly to the demands of the business has become a necessity  – and achieving that agility is extremely important.

Shell wants to concentrate on technology that drives its competitive position in the oil and gas market, while its suppliers focus on improving essential IT capability.

On 1 July, EDS will take responsibility for end-user computing services and operational integration of infrastructure services, AT&T will become responsible for network and telecommunications, and T-Systems for hosting and storage.

Some 3,000 of the 3,600 staff and contractors manning Shell’s infrastructure division, located mainly in the UK, the Netherlands, the US and Malaysia, will transfer to the suppliers.

The remaining 600 employees will be retained by Shell to work for the internal infrastructure organisation, keeping hold of the reins on strategic management.

Under the terms of the contracts, integrated services will be provided to about 150,000 users in more than 1,500 sites across 100 countries.

The July handover date is the culmination of a structured programme spanning several years. The “strategic intent” phase began in 2006 and aimed to ensure internal workers knew the plan objectives, says Goh.

“For the programme to be successful, people had to be in the forefront of our considerations,” she says.

“We focused on communications and engaging people in the business, and keeping the organisation updated at each milestone. We also wanted to understand what was happening in the marketplace, so we could avoid the pitfalls.”

This process involved talking to corporations, learning best practice, meeting with suppliers and engaging consultants. “An early deliverable was a clear understanding of what Shell would insource and outsource,” says Goh.

The subsequent commercial feasibility phase provided scope around specific requirements, including financials, benefits and location strategy. Shell had almost finalised the small details of its demands by the time the request for proposal (RFP) was sent to suppliers in March 2007, but was still open to best practice advice.

“We were still learning how to get the best structure, and we listened to advice to consolidate five bundles of technology work into three,” says Goh.

She says being prepared to make adjustments to plans is an important factor in determining the best contract outcome.

“Initially, we decided to handle service integration ourselves, but we took advice to appoint a supplier,” she says.

“We are a large company managing a complex environment and could not assume to know it all. We took the approach of ‘we don’t know the best’ and to learn how to do strategic sourcing from the external market.”

Being open to ideas required transparency with internal stakeholders and suppliers throughout the negotiation process, says Goh. Such transparency paid off when Shell entered the contract negotiation phase in December last year.

“The contracts have just been signed and there are two things we did to ensure we could close well,” says Goh.

“We agreed with the Shell executive board that we would not proceed if mandatory goal conditions were not met concerning scope, financials, people principles and locations. Also, following the issue of RFP, we began legal discussions which typically begin during contract negotiation.”

Diligent preparation that involved agreeing key objectives with the business means Shell is not leaving innovation to chance. Before issuing the RFP, the organisation knew its aims for desktop IT and telecommunications.

“This ensures we will stay ahead of the game. For example, we will work with AT&T to transform our telecommunications infrastructure,” says Goh.

“We will also be looking at establishing an innovation group with suppliers, to provide clarity on how to innovate technology in the oil and gas industry.”

Shell is now embarking on the transition phase, where preparations for each supplier to take over specific areas of technology are completed. At the same time, the internal IT team will concentrate on service management.

“We need to look at the applications that manage services from a user perspective, because we will be managing business relationships and service levels,” says Goh. “We are still making decisions on tools and data standards for use across the application space.

“During the strategic intent phase we defined the delivery model for how we would operate from the day we moved IT infrastructure services to the three suppliers  – and we decided to retain points of control.”

Shell’s points of control include business interfaces and demand management  and compliance management – is one significant area that will be controlled in-house.

“The company has a lot of dealings with generally embargoed countries and joint ventures, and we must be careful how we treat these,” says Goh.

Supplier relationship management and contract management skills will also be honed internally to help realise promised rewards. As Shell shifts the way it delivers services and moves to strategic sourcing, the organisation will need to develop new in-house skills. A small group of project managers will co-ordinate business change.

“We are not deliberately recruiting; we will develop the skills of internal staff focusing on supplier relationships and contract management throughout the multi-year programme,” says Goh.

She envisages Shell will continue working with its three main suppliers if major objectives are achieved by the end of the contract.

“EDS, AT&T and T-Systems are the three suppliers we want to work with  – and in five years’ time we want to have achieved the benefits we expect out of the programme, in terms of being more agile and responding faster to the business, realising our location strategy  – the main hub being Malaysia  – and being able to grow the talents of people we have access to,” says Goh.

Next week: the third part of our definitive guide to outsourcing looks at the in-demand skills

Preparing to outsource

Involving the company, securing board buy-in and boosting employee understanding were three essential elements of Royal Dutch Shell’s recently agreed $4bn (£2bn) outsourcing strategy, says the firm’s vice president for global IT services Swee Chen Goh.

“We have not looked at sourcing as an IT initiative in isolation. It is about aligning IT to the business and improving the ability of IT to respond to the business and meet its demands,” she says.

The company moved to a single executive board to streamline decision-making in June 2005, when parent companies Royal Dutch Petroleum Company and Shell Transport & Trading Company unified.

Having a single chief executive and executive committee has made the multi-sourcing deal easier to realise, says Goh.

“It’s a big deal for us – the size is huge,” she says. “Shell is traditionally made up of separate entities and different operating units, but we have been in close communication with the executive committee and have met every single milestone and appointment with them throughout the process.”

The vision for the outsourcing contract was also very clear. “The mandate to us was that outsourcing is an old game, not a new one – and we had to position ourselves well for strategic sourcing; nothing beats front-end planning to ensure that,” says Goh.

Negotiating a financially beneficial contract which met with board approval did not mean employees were discounted during the process.

Shell worked to a set of what Goh describes as “global people principles” to ensure employees received as good a deal as possible. She says there will be minimal redundancies and that employee representative bodies are consulted on an ongoing basis.

“Reports about big job losses are factually not correct. With such a large deal, we have been able to land people in a favourable position,” says Goh. “If we had gone for a fragmented approach, we would not have been able to negotiate a good landing for employees.”

She says Shell has run “facing change” workshops to help people prepare for options outside Shell. Employees have also met with suppliers and been kept informed about what the outsourcing process means.

“It was part of our mandatory criteria in deals with the executive committee about where we land folk. We instigated the principle of respecting individuals and handling engagement with employees in a responsible and transparent manner,” says Goh.

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