Sir Brian Pitman knows about success – and failure. Having first joined Lloyds Bank in 1952, he went on to become one of the City’s most celebrated bankers whose advice and leadership led to such plaudits from his peers as being named Financial World European Banking CEO of the year in 1993 and KPMG Business Leader of the Year in 1998.
On the other hand, he also holds the rather more dubious and unwelcome distinction of being the man who presided over the biggest loss ever recorded by a UK bank, when Lloyds TSB slumped to a £715 million deficit before tax in 1989. But that – and an abortive bid to buy Midland Bank in 1992 aside – Pitman’s career has generally been one in which his star has been in the ascendancy as a glance at his directory of interests reveals.
He is currently a director of ITV; a director of Singapore Airlines; a director of Virgin Atlantic Airways; a director of Tomkins; a director of The Carphone Warehouse Group; a senior advisor to Morgan Stanley; and a governor of Ashridge Management College.
Starting a revolution
He was also at the forefront of the outsourcing revolution in financial services. At a time when financial companies are coming under heavy fire from customers about outsourcing and offshoring, he remains a staunch and defiant advocate of the practise.
“We first started outsourcing at Lloyds some 25 years ago because we did everything ourselves,” he says. “In those days, everyone was an employee of the company. We started to ask why? Why did we have drivers who were employees of the company? We had our own printing works and our own canteen. Surely someone could do it better for us? Could a catering firm come in from outside and enter a service contract with us?” Seeing that there was a better way to do things did not mean that success was ensured – especially when it came to the motivations and drivers for outsourcing.
"I can’t emphasise too much that what you’re trying to do is outsource to improve the customer experience"
Sir Brian Pitman
“We made mistakes. We saw it as a cheaper, not as a better, way of doing things,” admits Pitman. “We have redefined what is the core business of a bank. Lloyds and Barclays, for example, have teamed up to outsource cheque clearance – that was something that 20 years ago we’d have seen as the core business of a bank. So there has been the complete outsourcing of something that was seen as a core business.”
This is true outside of banking, he reasons, citing an example from another one of his business interests as validation of the principle that functions once perceived as core can be better handled by third-parties. “If you look at the TV business, Channel 4 outsources its news to ITN, an ITV company,” he says. “The reason it does that is because ITN can do it better and more effectively. Channel 4 outsources practically everything and makes nothing but it controls the process and that’s the key,” he says.
“Retailing has been the most successful sector when it comes to outsourcing. Most retailers do not make anything, so all they really do is outsource. When they have books or clothes manufactured, the process has been given over to other people with the terms and conditions agreed in advance. Retailers are used to defining what clothes they will make, what the quality will be, what the stitching will be, what will be paid for them and so on – they are used to quality control in these areas.
“If you’re having a dress made, then you decide on the design, choose the cloth from India, choose who is going to do the stitching and choose the process. If it’s got your label on it, you’re going to be concerned about the quality of the product. So you hire the Italian designer and the Shri Lankan stitcher.
“I can’t emphasise too much that what you’re trying to do is outsource to improve the customer experience. Singapore Airlines is regularly voted the best airline. It doesn’t outsource something because it is cheaper, it does it because it is superior. If you fly from Singapore to Paris, you get a designer bag. The airline doesn’t make those bags but it does control the process.”
As Pitman observes, control is the key – and the major responsibility of the customer. Pitman is adamant on the importance of maintaining both control and responsibility. “There have been many outsourcing failures and they get lots of publicity. These failures usually come from projects not receiving enough planning,” he says. Another factor that is responsible for project failure is the driver for outsourcing. Why are companies embarking on such a strategy?
“You have people in the company who embark on outsourcing because they think it is the right thing to do,” says Pitman. “Outsourcing used to be about price and that was the biggest mistake. The result was that companies got into totally inflexible contracts. They couldn’t anticipate five years ahead and didn’t give themselves enough room to move. This was particularly the case in government. If you try to get things on the cheap then you will get what you expect.”
"Your main aim should be towards the customers. If you get things right with the customers, then it will be good for the shareholders"
Sir Brian Pitman
If such an approach does lead to the ultimate failure of a project or in it not achieving its perceived potential, then the price for C-level executives is likely to be significant.
“When things go wrong, your shareholders will get on your back very quickly,” says Pitman. “Your main aim should be towards the customers. If you get things right with the customers, then it will be good for the shareholders. So focus on the customers all the time. When you make any change, ask if it will be good for the customers. For example, if you’re going to outsource catering, then if you do it on the cheap, the food might be awful. You need to get better food but at a lower price, a deal that improves the food that the staff will be eating,” he says.
“Change will create tensions within organisations. You are changing to someone who is superior to your current people. Those that you employ will want to transfer to the new suppliers and on the same terms. But the reality is that they have lived a softer life inside the company than they will inside the suppliers which will be a much more competitive world. They have to be willing to adapt to change more quickly,” says Pitman. “You will create tensions but they can be healthy if you have made the right decisions.
“They will find it a new experience but when you make changes that involve thousands of people who are moving from you to a new company then you have to give them some assurance. That’s a key part of the process but it’s not an easy process to manage.”
Pitman has worked mostly in the private sector and has a view of the differences between that and the public sector where outsourcing failures have been more visible. “In the public sector, it is a very slow process,” he says. “One difficulty is definition, which is so clear in the private sector. It is so much easier as we have to make a profit which government doesn’t have to.
“In the private sector, we have to become very skilful at specifying exactly what we want. If you want a house built and you don’t specify what you want very carefully then you will have to live in something that doesn’t meet your needs. Government contracts don’t spend enough time up front to specify what they want. It’s frequently the fault of not enough rigorous discipline. It requires lots of effort up front.
“But government does have skills that not many firms have. I remember a bank project where we deliberately employed people from the MoD as they had the skills for large projects. What rings the bell for politicians is money and cost. Politicians get the blame, whatever happens. It’s why so many businessmen who wind up in politics fare badly,” says Pitman.
“In my mind, it’s the preparation for the contract that makes it work,” he says. “You need to say, this is the service level that we want. If you want a telephone call answered within four rings, you can have it but it will cost. If you’re willing to wait one minute for the call to be answered, it will be a totally different price.
“It’s a case of deciding what you need and what level of customer service you want. That requires rigorous discipline that politicians don’t have. The public is never happy.”
So what advice would Pitman give to both public and private sector CIOs about choosing a supplier to support and enable their outsourcing objectives? “You have to have a shared vision. If you don’t have that when you get started then you will have problems,” he says. “The government is still learning how to do that. They say they want to do ‘X’ and then the supplier just jumps in and says ‘great, another million pound contract’.
“In choosing a supplier, you have to remember that the most important thing is the customer. Look at outsourcing telephone calls. Some of the difficulties that we’ve had in India are to do with culture and language. Those who have outsourced to South Africa where the accent is more easily understood have found that they have had a better experience. Indians speak English but it’s a different kind of English. If you’re hiring Indians to do computer programming, then you’ll get some of the best in the world; if you’re hiring them to have technical conversations with customers, then you’ll have difficulties. Customers will get irritated.”
But it is important to keep an open mind and move with the times, he cautions, as there are always new ways of doing things. “We live in a world of specialists, not generalists,” he says.
“Suppliers are becoming more specialist about doing things for you and are coming up with better systems all the time. For example, it may be more cost effective for airlines to have their own e-ticketing systems inhouse. But imagine a customer wants to buy a ticket in London to fly all over the world. If companies didn’t outsource then it wouldn’t work because the system and flexibility would be inferior to a specialist e-ticketing outsourcer. If you have in mind what is better for customers, you outsource the ticketing. You need to be constantly trying to develop ways in which you will be different and superior.