Case Study : Failure in Outsourcing provided by software outsourcing companies - Part 1

Case Overview:

The BSkyB project is a Call Centre and Customer Relationship Management (CRM) project for British Sky Broadcasting Group PLC. It kick started in November 2000 with Electronic Data Systems (EDS) acting as the system integrator for the development of the CRM system but due to some issues, in 2002, the BSkyB subsidiary, Sky Subscribers Services Ltd., took over the development work. The project intended to be ready by 2003 took six years to complete and initially failed to deliver the intended benefits leading to which BSkyB sued EDS (the vendor, later bought by Hewlett Packard) and the case was settled on January 26, 2010 by the UK High Court of Justice. It is considered to be one of IT industry’s longest running and most expensive court cases as the estimated legal costs were at least £45 million for each of the litigants. Also, The BskyB case is one of the few failed projects where litigation proceeded to court as normally, when projects fail, and the client sues the vendor because of that failure, the litigation is settled out of court.

About BskyB:

BskyB is a wholly owned subsidiary of British Sky Broadcasting Group PLC, which is the UK’s largest digital pay television platform operators and a leading broadcaster of sports, movies, entertainment and news. BSkyB also offers broadband and telephone services.

Why Outsourcing?

Unlike the normal sales, marketing and support CRM software was used by the sales people to manage accounts activities and thus BSkyB wanted to take a more strategic view of CRM deployment. The BSkyB forecasted that with the number of digital customers expected to rise to seven million by 2003, it realized it needs to have a cutting-edge CRM system which would not only enable it to respond quickly to fast changing customer demands but also move towards achieving lead innovation in customer service, and to maintain its industry-leading levels of customer retention and thus decided to install such a system. The CRM system formed an essential part of BSkyB’s interface with its customers. It was designed to facilitate, manage and record all customer-related transactions. It also allowed the client to bill and process payments from their customers.

Aspects that were considered for Outsourcing:

The system that was built around Sun Microsystems/Forte Software, hardware and middleware, and Chordiant Software’s CRM software, was to be installed at BSkyB’s contact centres in Livingston and Dunfermline, Scotland, where 1000 agents used to handle calls at any given time. An intelligent communications system provided by Lucent Technologies was included to enhance BSkyB’s automated pay-per-view booking process. Lucent Technologies was responsible for the billing package, and design and installation of the advanced communications solution at the two contact centres. The BskyB for its cutting edge CRM system needed to integrate all of this which would give them an advantage over their competitors. BSkyB knew that it was a complex project in view of large cost and scope, significant level of integration associated with it and also the technical complexities that would come up, it decided to outsource it to a software outsourcing company.

How was is it going to be implemented?

Following a tender process, BSkyB in 2000 appointed the US company EDS, and went in for a time and materials contract which mentioned that EDS would design, develop, implement and manage the CRM system and act as the system integrator for the project.

EDS estimated go-live delivery within 9 months and completion within 18 months, and EDS subcontracted Arthur Andersen to be in charge of the ‘‘Business Process’’ and ‘‘People & Change’’ work-streams. BSkyB employed EDS on a time-and-materials basis. BSkyB had no specific and clear project goals other than knowing it wanted a strategic CRM system.

Result:

Apparently, ambiguities from the start made it difficult to get clear requirements. As details of the project emerged, the project scope and complexity increased. In 2001, BskyB and EDS had to revisit the terms and conditions of the contract. After rounds of negotiation, it broke down and in March 2002, EDS handed over its system integrator responsibilities to a BSkyB subsidiary, Sky Subscribers Services Ltd, but continued to provide consultancy support for the project. Finally in December 2002, EDS pulled out of the contract completely and the contract ended. The project requirements remained unclear and kept changing until 2003. The project specifications remained so unclear that Sky had to set up a special team in order to define the exact requirements of the project.

The contract had a baseline budget of around £48 million but when it was terminated, BSkyB had spent £170 million on software, systems integration, infrastructure costs, and the remodeling of contact center facilities. The project ultimately took six years to complete and cost £265 million. In July 2002, BSkyB claimed £49 million compensation from EDS for lost time and benefits but the amount grew to £221 million by December 2003 and £430 million by August 2004. BSkyB began legal proceedings against EDS in August 2004 and at the commencement of the hearing, the claim stood at £709 million. The British High Court finally ruled after almost 6 years that:

• EDS made fraudulent misrepresentations about its ability to deliver the project within the stipulated time

• EDS made negligent misrepresentations prior to the renegotiation in 2001, inducing BSkyB to remain with EDS

• EDS breached the contract by failing to properly resource the project and failing ‘‘to exercise reasonable skill and care or conform to good industry practice followed by a software outsourcing company’’. 

BSkyB was awarded £318 million (of the £712 million they eventually asked for) in damages from EDS, now HP Enterprise Services UK.

Thus EDS failed as a software outsourcing company.

What went wrong?

The contract ran into difficulties in the initial twelve months several factors lead to an unsuccessful contract that went beyond just disagreements in renegotiating the terms and conditions. Problems identified in the software outsourcing company relate to the following high level risk factors: complexity, contract, requirements, planning and control, execution, and team.