Joint ventures
The partnership between Shell and Ernst & Young was illustrated above to describe a shared service centre project. But it is also a good example of a client and a service provider coming together, initially to achieve a long-term competitive position for the client and then to make additional profit by selling the service to third parties. Other similar joint ventures include Connect 2020, set up by Andersen Consulting and Thames Water in 1995 to provide total supply chain management solutions to the utilities industries and other markets. The first customer was Thames Water but third party customers were targeted from an early date and by the end of the first year of operation Connect 2020 had won a number of new consultancy contracts. At about the same time Perot Systems, an IT and outsourcing services provider, set up a joint venture with East Midlands Electricity (now part of Powergen) and quickly obtained significant sales of the products they developed throughout Europe.
Joint ventures are also on the increase between outsourcing service providers. For example, Computer Sciences Corporation (CSC) recently joined with The IT Group, Inc, to form Mississippi Space Services (MSS) to provide facility operation services at NASA’s John C. Stennis Space Center in Mississippi. Clearly, joint ventures created on this basis will normally be confined to working for just the original client. However, it is always likely that new products or services could be created during the ongoing development work that will have a ready market in the wider world. If this should happen and the client is agreeable, then presumably a separate joint venture would be formed with the client.
Some outsourcing service providers have created joint ventures without apparently first having a client in mind. For example, in late 1999, LOR Management Services, a Los Angeles-based provider of accounting and applications outsourcing services, announced a joint venture with AIL Technologies Inc, a designer and supplier of electronics, computer hardware, software systems and services. The agreement is intended to join LOR Management’s expertise hosting clients’ process-oriented accounting functions with AIL Technologies’ computer hardware systems implementation and software development expertise. Quite obviously this arrangement has been created to enable the two companies to approach the market with a total IT and BPO service without having to merge their entire operations.
The development of the internet has already been responsible for a dramatic increase in the number of joint ventures being set up and this can only increase. In March 2000 Accenture, as it is now, and Microsoft Corporation announced a new joint venture called Avanade that, subject to regulatory approval, will deliver internet-specific and other enterprise platform services based on the Windows 2000 operating system platform. Under the $1 billion agreement, Microsoft will provide $385 million in cash to support Avanade, as well as solutions, development support and other intellectual capital. Accenture will provide intellectual capital, training, resources, solutions development and other services. Clearly, joint ventures are now being created in a variety of different ways depending upon the demands of the situation.
The subject covered in the next section – ASP outsourcing – is likely to spawn many such ventures.