Industry news

Research published earlier this year showed that 52 per cent of IT directors’ spend with outsourcing suppliers is focused on reducing the cost of IT, rather than achieving business benefits. This is despite the fact that only 21 per cent of IT directors and their teams cite cost reduction as the most important way in which an outsourcing partner can contribute to the business’ success. The same research indicates that the most important initiatives of the client’s business are revenue generation and growth.

There are several likely reasons for this disconnect, but the lesson for outsourcers is clear: understanding the whole gamut of business challenges faced by their customers and prospects is what is going to allow them to win and retain business. Being able to demonstrate with complete clarity how the outsourcing relationship contributes to the strategy via the operational achievement of specific business outcomes will make an outsourcer a critical strategic partner.

It’s no revelation to say that new trends are reshaping industries at an almost frightening pace. With them comes the need for organisations to make adjustments to their business operations in short order to keep up – or preferably even to anticipate them, and remain ahead of the curve. Lean and adaptive is more than ever the name of the game. Such highly challenging circumstances bring senior managers under the spotlight more than ever before, and the pressure to drive growth and deliver strong results across an increasing range of both internal and external stakeholders has never been higher. Effective implementation is increasingly being seen as the new combat arena because, while exciting strategies, powerful products or state-of-the-art technology can put an organisation on the map, only coherent and consistent execution can assure success. Indeed, we know it matters because, depending on the research, 50–90 per cent of new organisational strategies fail, regardless of how sound the proposal is.

But flawless execution requires a comprehensive understanding of all the moving operational parts of a business’ entire ecosystem. Outsourcers that are unable to provide a detailed view into their workings are therefore a potentially worrying partner for the C-suite. The CEO’s “gut feeling” – once given an astonishing amount of respect – is increasingly being challenged by stakeholders who want to see evidence that they’re backing the right horse if they’re going to stay on board.

Whether they choose to see this call for greater transparency in the assumptions behind strategies as a complication, or as an opportunity to create greater freedom to innovate, CEOs in increasing numbers and across all industries are asking themselves how they can demonstrate the soundness of both their strategies and their operational prowess. Any part of the business that remains a black box, including the partners that make up the wider organisational federation, should be prepared for severe scrutiny: change is coming.

But the problem with execution is that it is difficult. A recent survey of more than 400 global CEOs found that executional excellence was the number one challenge facing corporate leaders. The challenge of supporting this for outsourcers has not been made any easier by the trend towards companies eschewing single, large outsourcing contracts and instead opting for a more agile approach focused on smaller, flexible contracts. More suppliers means it’s harder to get a clear view of what’s happening across the business in a joined-up way – for both the client and the outsourcing partners. Because of this, outsourcing suppliers need to understand inside and out what their clients need to deliver and exactly how the service they provide to those clients impacts upon that. Moreover, all of this needs to be explained to and understood by a large number of stakeholders across all levels. It requires a common language for agreeing and describing what they are doing and, more importantly, providing clear evidence that they are delivering what really matters – the business outcomes. It might not be easy, but it represents an opportunity to change the very dynamic of the outsourcer-client relationship from a fundamentally two-dimensional management of pure service performance to a three-dimensional view that concentrates on the execution of business strategy.

This extra dimension, and its sharp focus on business outcomes, allows both parties in the partnership a much greater amount of flexibility to react to changing market circumstances. After all, no plan can anticipate every eventuality, so it's important to be agile when implementing strategies. The entire execution team needs access to real-time information that will help them come up with smart, creative solutions that keep the strategy on track. It's no use persevering with a strategy that will fail in a couple of years' time, after all of the resources and time that have gone into executing it. Having fulfilled service level agreements (SLAs) will be meaningless if those SLAs are no longer relevant – even, unfair as it might be, if those SLAs were never changed.

The worrying reality is that most strategies at the organisational level take years to come to fruition, and certainly months or longer before key performance indicators (KPIs) will suggest things are going in the right direction. For the CEO and her stakeholders, monthly and quarterly earnings (and maybe things like data centre uptime percentages) are used as a proxy for knowledge of the strategy’s execution. How much more powerful would it be to understand exactly what every operational action the business or its partners make supports (or detracts from) the strategy in real time?

A supplier that is able to understand the business landscape that enables people, processes, systems, services, and their interconnections to be aligned with business objectives, outcomes, benefits, KPIs and budgets, is going to be invaluable in providing the competitive edge for the purchaser when it comes to achieving critical business outcomes. This is for the simple but unarguable reason that even the very best of strategies is at the mercy of its execution. Outsourcers looking to move up the value chain therefore need to focus on automation and digitisation as the driving force behind their activities. If client and suppliers can access the same information to give them the same view of the status of the business – in real terms, not garbled data reports and non-contextualised SLAs – they will improve processes, drive out cost and, vitally, accelerate innovation and line-of-sight to business value.

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The Scottish Government awards the supplier CGI with a £6.5m contract. This deal includes the provision of support, software and the technical infrastructure for a new electronic ballot counting system.

The new electronic ballot system is to be implemented in time for the next local government elections in 2017 – where 1,200 councillors will be elected across the 32 Scottish councils. This system is expected to reduce the manual counting time of ballot papers – which can take up to four days – to a fraction of the current time.

CGI claims that the new e-counting system will not only reduce the counting time to a matter of hours but will also increase the accuracy and transparency of the counting process.

This system will be tested during the next year and as Maggie Morrison – director of public sector for CGI operations in Scotland – adds; “Our very best teams will work closely with local authority partners to undertake a huge amount of planning, testing and training ahead of the crunch election period”.

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Related: CGI paid £186 million to transform IT services for Edinburgh Council

The research collaboration between A.T.Kearney, the Institute for Supply Management (ISM) and the Charted Institute of Procurement & Supply (CIPS) revealed that top performing procurement teams improved their performance compared to the 2014 report results.

The 2015 Return on Supply Management Assets (ROSMA) performance check study, “Building a Bolder Legacy: The Procurement Mission is Under Way”, surveyed 226 senior financial executives – across the UK, US, France, Germany and Australia – and it was found that the top and the middle-tier performers were delivering from three to seven-and-a-half times the costs of investment.

The top tier performers teams, generated about $1.25 million a year in financial benefits per procurement employee. The outstanding performance of these companies is thought to come from the application of advanced methods to unlock value including through assets productivity gains, clean sheet redesign and complexity reduction.

However, the study found that 50 per cent of financial executives believe that bottom-quartile procurement teams return less than 1.5 times their cost in value. This perspective is validated due to the insufficient financial benefits obtained to cover their activities.

The study recognised as well that the performance of the procurement teams varies widely across all of procurement key value drivers, thus concluding that the procurement sector remains a function plagued with inconsistent performance in delivering strategic activities.

Despite the insufficient financial benefits obtained by 50 per cent of financial executives, the profits obtained by top and middle-tier performers display the huge benefits of having a strong and organised procurement department. Therefore, as David Noble, CEO of the Chartered Institute of Procurement & Supply, defends, “We can strengthen the position of procurement as a critical source of strategic enterprise value...”.

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Related: How to add value and contribute to growth through procurement

The UK government has announced it has exceeded its target to spend at least a quarter of Whitehall’s procurement budget on SMEs.

In the last financial year, central government has allocated 27.1 per cent of its procurement budget to SMEs, amounting to a total of £12.1bn spent and surpassing the 25 per cent promised in the last parliament. The announcement was made by his Rt Hon Matt Hancock MP from the Cabinet Office.

The target has since been raised to 33 per cent of Whitehall’s procurement budget by the end of parliament, which the Cabinet Office is confident will be achieved.

According to Mr Hancock, “Small businesses are the lifeblood of the UK economy”. Hence, the government wants to “turbocharge [our] ambitions for small business and have £1 in every £3 of government spend going to small businesses by 2020.”

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Related: Spending Review 2015: The Key Points

Cirencester Town Council has launched a new procurement policy in order to reduce its £900,000 procurement budget by £10,000 as well as to increase the council income by £10,000 over the next three years.

This process includes a new procurement and marketing policy, which aims to achieve both cuts in expenditure and increase income through the adjustment of different service areas – such as Corporate, Office, Community and Estates.

The new policy enforces the implementation of a new framework, which aims to minimise expenditure and secure added value. Therefore, the new procurement policy pulls together officers and the council members, which have now to review every spending superior to £25,000 as well as to ensure that every council service is capable of generating profit in order to build on income.

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Related: Spending Review 2015: The Key Points

The National Audit Office (NAO) has published a report on the Digital Skills Gap in Government. The report presents the main findings of a survey querying digital and technology (DaT) leaders across government agencies about their views on the current state of digital skills in government.

The NAO believes that the recent wave of austerity – which has cut civil service headcount by nearly one-fifth in five years – has intensified the need for digitally-enabled transformation of government services. According to the independent auditing body, only through the latter will the government be able to continue cutting costs without compromising the quality of public services.

The survey has found that there is a “widespread acknowledgement” of the existence of a digital skills gap in Whitehall.

The survey also found that the majority of DaT leaders think that current initiatives to improve skills are effective. However, they believe that there is still room for improvement, particularly by focusing on embedding digital within the overall business strategy and building digital capability accordingly.

On the issue of DaT leadership within government, the survey found there is still a small number of DaT leaders in government agencies, with around 70% of organizations employing 10 or fewer DaT leaders. Those in leadership positions had few years of experience in the post.

Finally, respondents identified a variety of constraints to public sector skills development. At the top of the list are concerns about external market conditions (78%), limited supply (67%) and procurement constraints (58%). All of which are thought to impact negatively on efforts to recruit, retain and develop staff or acquire temporary resources with the needed digital skills.

Financial position and budgets, cultural issues, career paths and competing priorities have largest negative impacts on developing existing staff; market conditions, pay and recruiting processes have largest negative impacts on recruitment and retention; procurement processes have largest negative impact on obtaining external resources.

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Related: Spending Review 2015: The Key Points

Serco’s shares have crashed by more than 11 per cent this morning after the outsourcing giant announced profit will nearly halve next year.

The concurrent announcement of a slight improvement in forecast for this year’s profit from £90m to £95m was not enough to boost investors’ confidence in the company, which is expected to nearly halve profits in 2016 to £50m.

The company’s shares fell to 104p.

The fall is attributed to the recent redirection of Serco’s business focus further away from the private sector and towards government contracts, which has prompted the company to sell Intelenet, its Indian call centre and back-office personnel division, this year.

The company has also recently lost a number of important contracts, including a deal to maintain navy patrol boats for the Australian government.

Serco is still recovering from a difficult period, during which the company was briefly banned from participating in central government tender offers after being accused of overcharging taxpayer-funded government deals.

Rupert Soames, the company’s new CEO, has dismissed fears that the company will never be able to recover from the recent blows to its reputation, maintaining that the “story was losing its potency as we’ve all moved on”. However, Mr Soames warned that there was still much work ahead “to rebuild our new business pipeline” after the devastating losses suffered in the last years.

Mr Soames believes contracts with Serco’s two biggest customers, the Ministry of Justice and the Ministry of Defence, will help the company recover.

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Related: Serco exits Australian Navy deal five years before completion.

G4S, the security services giant has been booted out of the FTSE 100 and demoted to the FTSE 250 for the first time since 2007. The company’s shares have fallen by almost a quarter in the last eight months in the run up to the announcement on Wednesday.

G4S is still recovering from the financial pains inflicted during Nick Buckles’, EX-CEO of the company. During Mr Buckles’ reign, which lasted for more than a decade until 2013, the company spent a minimum of £50m a year on debt-fuelled acquisitions.

G4S has also been involved in a series of high-profile scandals in the last decade, most notably the gross understaffing of security personnel for the 2012 London Olympics and the overcharging of an electronic tagging contract with the UK government in 2013.

In 2013, Ashley Almanza stepped in to substitute Mr Buckles, vowing to turn around the discredited business. Mr Almanza has brought fiscal discipline back to the company mainly through the offloading of lossmaking contracts but also by cutting costs, particularly on vehicles, fuel, computers, phones and offices.

Stephen Rawlinson, an analyst at Whitman Howard, is confident about Mr Almanza’s ability to turn the business around, “My sense is that the management is doing all of the right things but it’s taking longer than investors might hope”.

As Mr Almanza often points out himself, turning the business around will indeed take its time.

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Related: G4S announces outsourcing could save UK police forces £1 billion a year

The East Riding of Yorkshire Council has awarded Civica with a £2.1m contract, involving the delivery of a customer service platform.

Civica will provide the different customers with personal accounts in order to give to every customer a self-service access to digital transactions. Moreover, it is expected this platform to reduce the 2.7m calls received by the service staff each year. This contract is part of a five-year deal of the authority’s business transformation programme that aims to reduce its budget by £188m.

The head of resource strategy at the council, Brigette Giles, says that this new system will “support a much more agile workforce dealing with customers with complex enquiries”. By the summer of 2016, Civica’s platform is expected to be launched to the council’s 330,000 residents. This platform will include different services ranging from environmental services to council tax and business rates.

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Related: Gloucester City Council expands Civica contract after achieving savings of £200,000 a year

Cars, machinery, electronics, chemical products, coffee, food, textiles: any UK business that trades these or other goods within the EU or with “third countries” outside the EU must declare this to HM Revenue and Customs (HMRC) to make sure that any import VAT, duty, excise or levies due on the goods in question, either under UK or European law, are collected.

Which duties and controls apply largely depends on the way the goods are classified. For many global trading companies, this is a tedious and time-consuming task. But incorrect product classification can have serious consequences, and businesses are well advised to incorporate error-minimising measures into their risk management strategy. Despite its complexity and being considered a burden by many, classification harbours the potential to benefit businesses from different angles, and there are various ways to optimise its process today.

Cost savings: reflected sourcing and automated classification

Commodity codes are the key classifier in international trade: they determine import and export restrictions, as well as licensing and documentation requirements. They also determine the customs duties to be paid. This in turn should impact on businesses’ purchasing behaviour, as there is a certain potential for cost savings:

Customs duties and taxes are important factors when it comes to deciding from which countries to source products or materials. Let’s say a product is sourced from China and the buyer would have to pay 6% import duty and 25% anti-dumping duty. If the same product could be sourced from, e.g., Bangladesh, where it would be subject to preferential duty rates and minimal (or no) anti-dumping duties, the choice seems to be a rather simple one.

Of course, for customs authorities to apply such preferential duty rates, companies have to prove that the goods really do originate in Bangladesh, and provide all relevant declarations and codes accordingly. This may sound like a simple and straightforward job, but it’s easy to become entangled in a maze of tariffs, codes, and constantly changing preferential origin regulations.

Customs codes are numerical and consist of several digits, which can be difficult to identify – plus, there always seems to be more than one option. In addition, some assume that assigning products and materials to the relevant customs codes only once is sufficient, but that’s not the case.

Unfortunately, changes to commodity codes, preferential agreements, and export control legislation are rather frequent. That’s why it is crucial to regularly check the material master data and ensure the classification of items is in line with the latest regulatory changes, updates, and requirements.

Classifying products in accordance with the Combined Nomenclature (CN) as well as global trade laws and regulations requires a certain level of expertise. Much depends on getting this complex task right, both in terms of compliance and for a company’s efficient handling of procurement and fulfilment. Manually classifying products requires sifting through a nomenclature of 21 sections, 96 chapters, and over 5,000 subheadings in order to find the right code.

That’s where software-supported classification comes in. The right software will help to accelerate – and largely automate – the classification process, based on the relevant information, e.g. legislation, EU dual-use lists or database links. The software can send alerts when new commodity codes come into effect (which happens at the start of every year), and can reclassify products based on legacy data quickly and reliably. It literally pays to automate this task, as you’ll never miss another classification deadline.

More information is available in AEB’s white paper, which explains product code classification, requirements and impacts. The white paper is available at:

https://www.aeb.com/uk/media/white-paper-classification.php.