Sprint Goes the Distance With IBM

Having inked several major "business-transformation outsourcing" (BTO) contracts of late including BP, Lincoln Financial, Proctor and Gamble, and Raytheon, Big Blue describes the Sprint deal as its biggest yet. BTO refers to IBM using its army of business consultants to help a client reengineer its business, while using IT to enable those changes.

In addition to bringing in a customer in key vertical and horizontal segments (telecommunications and customer service, respectively), the deal is important due to the dynamics of the partnership. Not only is it a major outsourcing deal for a blue-chip customer but there's a separate go-to-market component between the two companies.

Both parties stand to gain from each others' expertise in a way that underscores the changing nature of IT and business partnerships. "This is a very broad partnership," says Rebecca Scholl, a senior analyst at Gartner who specializes in business-process reengineering. "The metrics around what they are trying to accomplish are quite interesting and innovative."

Specifically, the Sprint partnership consists of four key components. The first, and most significant aspect of the deal centers around Sprint's global customer-care organization. IBM Business Consulting is taking over Sprint's eight customer-service centers and 21 vendor-managed ones, while unifying a slew of disparate CRM systems. That will include overseeing other partners, such as Convergys, which runs Sprint's call center in Nashville.

In so doing, the new CRM platform will provide intelligent call-routing to agents, intended at streamlining issue resolution. Sprint is also looking for IBM to increase utilization of self-service tools such as its Web site, which will reduce cost. And the company no doubt, is hoping IBM can help bolster its dismal customer-service track record. Sprint PCS ranked dead last in the wireless-service category of JD Power's annual customer-satisfaction survey last year.

This is a performance-based contract, meaning IBM will be compensated based on overall customer satisfaction. Another telecom provider who has gone that route with IBM, saw its customer satisfaction improve dramatically, according to JD Power. Nextel, which also outsourced its customer care to IBM in 2002, is now tied with Verizon for first place. IBM and Sprint will decide on the new CRM platform that will enable this change will be decided on within the next 90 days and will be supplied by either Amdocs' Clarify or Siebel, said Dean Douglas, vice president, IBM Global Services (IGS).

The second part of the deal focuses around application development and maintenance of systems that are used in customer-support functions. IBM Global Services will take on more application development and maintenance functions, expanding on a deal signed last September. Key here is leveraging IBM's Capability Maturity Model (CMM) levels 4 and 5, engineering capabilities improving quality of development and time to market. "IBM will introduce the more flexible service tools to us, allowing greater efficiencies," said Len Lauer, Sprint's president and COO, speaking at the company's securities-analysts conference on Feb. 4 in New York.

The go-to-market aspect of this relationship is perhaps gravy but nevertheless interesting. Noting that two thirds of all outsourcing deals have a telecommunications component to them, Sprint is calling on IBM to bring it in on more of its IT-outsourcing deals. This approach will allow Sprint to reach enterprise customers who rely on systems integrators like IBM for the telecommunications decision, Lauer said. "This combination of Sprint services and IBM's integration and IT expertise is expected to result in significant new revenue opportunities for both companies," he said. While IGS often uses AT&T (which partially outsourced its operations to Accenture) as a subcontractor, this deal paves the way for Sprint to see more of that action, particularly in cases where customers are looking for integrated wireless, local and long-distance voice and data services.

The final nugget of this deal centers around Sprint's agreement to invest $100 million in IBM's Service Provider Delivery Environment (SPDE), a rapid application-development solution designed to port desktops to mobile devices. Sprint executives see this as a key enabler of going to market with wireless-enabled applications.

It bears noting that Sprint's new CEO Gary Forsee and his executive team expended a good amount of time at last week's analyst meeting outlining this deal as a key element in the company's effort to transform itself. Part of that includes transitioning from a product-oriented company to one that is more customer-focused. Much of the responsibility for that success is now in the hands of IBM and its partners.

When it comes to looking up the food chain, though, analysts observe that IBM is clearly pinning its future on marrying business to IT -- with the emphasis on business transformation. "IBM is betting the farm that IT is going to become a utility like light or power that you turn off and on, and it will make most sense for most customers to outsource -- that's the long-term endgame," says Nina Lytton, president of Open Systems Advisors. The inherent risk is that it could backfire, although delving into 17 industries and addressing issues such as how banks should handle risk-management or how telcos should process billing is resonating well with customers. "IBM is reaching very broadly," Lytton says, "and the risk when you reach broadly is you may lose your balance and topple over."

Meanwhile if you're a frustrated Sprint customer but are reluctant to change carriers, hang in there -- chances are good that support and service will improve later this year.