Carrying the Olympic Torch in Outsourcing Transactions

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[authors: Tania L. Williams]

London has just witnessed an amazing summer of sport, with the Olympics and Paralympics having come to a close. Yet the impact of the Games may be broader than simply having provided Londoners (and the world) with a brilliant injection of morale and amazing photo opportunities. There are many chances for businesses to learn valuable lessons from the Games, including in the areas of risk management and project management.

1. The Olympic Paradigm - Think Ahead

As expected, the Games brought certain challenges for businesses in London. Many challenges were clear and highlighted well in advance so that businesses could plan and ensure that sufficient contingencies, tailored to their specific business needs, were in place to keep things ticking over.

For example, a combination of anticipated road congestion, increased security and millions of visitors in London was expected to impact deliveries for businesses. To avoid delays, companies receiving or sending deliveries could plan in advance to arrange for off-peak deliveries or accept deliveries in bulk prior to the busiest days.

Courier companies had to consider not only the anticipated road congestion but also the ways in which their clients might look to mitigate such risks. Courier company DHL hired a team of jogging couriers to help with deliveries during the Games. JogPost, a delivery company that solely uses on foot couriers, was contracted by DHL to carry out crucial business deliveries by foot and public transport.

Phil Couchman, CEO of DHL Express UK, said "Keeping London moving is a priority for us; our customers expect their critical deliveries to arrive on time regardless of what's happening in London. By using innovative delivery methods we are able to sustain our high service levels during what will be a busy time for businesses, and also reduce our carbon footprint by sending fewer vehicles into the city."

Another example of savvy advanced planning came in the form of the website testing that the London Organising Committee of the Olympic and Paralympic Games (LOCOG) undertook. Paul Bunnell, the Lead Web Architect for LOCOG has been quoted as saying "We began working with SOASTA CloudTest six months prior to the games to find all the possible bottlenecks which could prevent the best user experience possible and avoid a catastrophic situation, which could impact the London 2012 brand. The application, infrastructure and all the third-party integration points needed to go through capacity planning and stress testing with different load patterns to ensure reliability and performance 24/7 especially during popular events such as the Opening Ceremonies and 100-meters final. The testing teams were spread across the globe and utilized CloudTest's ability to provide real-time results to adapt the testing, something that legacy toolsets are unable to do."

Doesn't this all sound like a recipe for thoughtful and well-targeted planning for complex outsourcing? Let's review:

  • Contingency planning to meet anticipated business needs;
  • Use of alternative delivery times to avoid service complications occasioned by peak volume (traffic);
  • Innovative delivery models to sustain high services levels; and
  • Stress testing (with different load patterns) to ensure reliability across applications, infrastructure and third-party integration points.

2. Planning in the Outsourcing Paradigm

In the context of supply or outsourcing arrangements, the customer should identify at the outset the primary risks and potential issues that may arise during the life of the project to ensure appropriate actions are taken to reduce these risks. The customer, in conjunction with its supplier, should develop strategies for mitigating the risks, and also put in place practical solutions if those risks or related issues arise. A thoughtful risk assessment should yield contractual protections for the customer, such as an obligation on the supplier to prepare for, test and implement business continuity (BC) and disaster recovery (DR) plans.

It is equally important for a customer to ensure that the contract and operational risk registers are evaluated regularly throughout the life of the outsourcing. The smart customer carries the "torch" of diligence throughout the life of an outsourcing by reviewing the contract and associated operational risk mitigation mechanisms (such as BC and DR plans) to assess whether there have been (or should be) any changes to the assumptions or scenarios that were envisaged when the contract and plans were put in place, and whether the risk profile of the engagement has changed.

3. Teamwork is Paramount

Management of third party suppliers is absolutely vital. Imagine, for example, if DHL neglected to managed and integrate the JogPost foot courier solution with its own. A good contract will provide a framework for regular and ongoing communication between the parties so that there are no surprises for either side. Moreover, the contract should set out a process for escalating issues through internal management levels within appropriate timescales, so that concerns can be addressed and resolved promptly at the suitable level.
Customers may also look to include specific remedies in the contract which gives the customer certain rights if problems surface that are not quickly resolved or are severe enough to merit more significant intervention. For example, the customer may require increased performance-monitoring following supplier failures to allow for more informed analysis of the problems and possible resolutions. Depending on the service, for more severe service issues the customer may also include "step-in" rights, which allow the customer or their nominated provider to take over responsibility for all or part of the services if the supplier fails to meet its obligations.

Finally, the customer should consider carefully its termination rights to ensure it has the rights it needs to exit a contract upon supplier default and engage with other suppliers promptly.

4. Practice Makes Perfect

Like the athletes themselves, LOCOG honed its skills with a series of test events prior to the Games themselves. There were full dress rehearsals for both opening and closing ceremonies for Games and various other events. The official London 2012 sports testing programme helped to test vital areas of operations ahead of the Games with 42 test events across 28 venues.

This principle can be and is applied to many aspects of well framed supply or outsourcing contracts. A good example is in relation to transition and transformation. Where an outsourcing involves significant transition and, in particular, transformative activities, those activities are often conducted in a staged or iterative process (e.g., by service tower, by region, etc.), rather than under a big-bang approach. This way, the impact of any failures can be limited to and the solutions achieved can be applied to subsequent installments of the service. Under this approach the lessons learned and applied in earlier iterations enable more effective downstream delivery.

Published In: General Business Updates, International Trade Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Pillsbury Global Sourcing Practice | Attorney Advertising

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