Re: Another bunch of mugs swallow the vendor's Koolaid
though I doubt the margin numbers are right upfront (I suspect outsourcers make most of their money in the later years of contracts when IT costs have gone down but clients are too tied in to move. A year one saving of anything big would be a bit scary).
Agreed that the normal BPO/ITO model is based on backloading the returns to the outsourcer, but the way this translates is that the vendor usually promises year 1 savings, and takes a loss in years one and two of the contract. It's a rotten business model, but it works a treat because corporate managers fall for it time after time.
Their IT staff are mostly German and impossible to directly get rid of, whereas IBM are planning to move the work elsewhere.
This is usually a big part of the deal, with the salesmen promising vast, risk free savings from outsourcing and offshoring. The redundancy payments are I guess the big cost Lufthansa quote for the setup costs. Unfortunately, when you take into account the lower productivity of most cheap labour, high turnover in key outsource destinations, and the big fat vendor margin, those savings evaporate.
They are really planning to get rid of a bunch of projects as you hypothesise they'll need to do, but German law won't allow them to get rid of the people,
This is a common fallacy outside Germany, that you can't get rid of people. But its not true. A German company I worked for recently got rid of around 10,000 German employees, and the UK based company I worked for before that rationalised its German business from 3,000+ down to 1,600. It does cost a bit more, and it takes a bit longer than in the UK, but German companies can certainly get rid of people if they want to. The German psyche that says that companies should look after employees is rather stronger protection than German law these days.
IBM have enough reusable systems and processes that they can genuinely do things sufficiently more efficiently to make the desired profit (which seems unlikely at the scale Lufthansa must operate).
That's a favourite from the management consultants who write gushing papers about the benefits of outsourcing. But it makes a typical consultant error, in that it assumes that cost savings for the vendor (from re-use of existing systems or code) translate to savings for the buyer. IT departments of all people should understand that the whole point of code, IP and processes is to reduce the cost for the owner, whilst still charging the user as much as they can afford to pay.
In my experience of looking at such matters, the outsourcers allude to such efficiencies and "best practice" all through the pitch, but don't actually have any such systems or code up their sleeve. The business model works best when the customer has broken or inefficient processes, because the game is a margin one. When you make 40% GM, why on earth would you want to make things run at lower cost for your customer by offering them a brilliant, lean system that reduces cost by (say) 35%, and thus reduces vendor profits by a similar figure? In reality the outourcers want to take on whatever shitty processes the customer has, and then charge the customer through the nose to make a few basic changes that don't materially reduce the operating costs.