Industry news

Ravi Shankar Prasad, India’s communications minister, has announced that the government plans to set up new BPO firms in small towns, bringing 48,000 new jobs to those living outside of India’s cities.

“My idea is to have BPOs in Bhagalpur, Muzaffarnagar, Gorakhpur, Deoria, Saharanpur, Idukki, Aurangabad and places like Dhenkanal… The BPO centres will be allocated according to the population of each state as per the last census,” Prasad told the Hindustan Times.

Asides from bringing much-needed jobs to those living in remote locations, this new initiative is expected to improve the country’s literacy rate and slow down rates of urban migration, which are currently prompted by the lack of job opportunities.

The government’s plans have been welcomed by the majority of India’s BPOs. Praveen Kumar, global CEO and director of ISON Group, commented: “We are happy such a policy is being planned, we would like to explore such opportunities.”

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The London Borough of Hammersmith and Fulham is close to tender for a shared content management system (CMS) on the Drupal platform.

Due to take place via the G-Cloud framework and in partnership with tri-borough partners Kensington & Chelsea and Westminster councils, this project will cost the council approximately £414,000.

Their current CMS is not responsive to mobile phones or tablets, hence why they’ve opted for this new project. It will also allow them to move to a single web ICT support team across all three separate councils.

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Firstsource, the global provider of customised business process management (BPM) services, has announced that it will be creating 300 full-time jobs at the Firstsource Solutions centre in Cardiff Bay.

The new roles are as sales and customer experience advisors, handling both inbound and outbound telephone calls on behalf of Sky.

Kathryn Chivers, vice president of sales at Firstsource Solutions, said: “We already employ over 800 staff at our Cardiff centre, which was recently recognised as the leader in its field at the Welsh industry awards.

“This is a great opportunity to work for an organisation committed to providing an engaging workplace with excellent benefits, regular training and many development opportunities for a chance to grow within the business.”

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Read part 1 of 'Is the Future Bright for Outsourcing?

I would like to illustrate this with an example, again, from National Rail Enquiries.

Whilst we have been multi-sourcing for quite a while we have generally left hosting with the application provider. The diagram below (Figure 12.1) could be the National Rail Enquiries website.

The first box could be the website user interface where the application supplier also hosts this part of the website. The second could be the journey planner where the hosting is in with the website user interface. The third could be the design company with the fourth being the static data (information on stations, train companies etc.) that is hosted by the application supplier.

The fifth box could be the real-time predictions system where hosting is also with the application supplier, and so on. Some services, such as design, do not require separate hosting but if the service requires hosting it goes with the application contract.

Figure 12.1 Multi-Sourcing Model

Figure 12.2 National Rail Enquiries Demand Issue

However the hosting being split across suppliers like this is not ideal.

The people running the applications are not necessarily experts in hosting and having several hosting operations is inherently inefficient with excess capacity in each area and not having the ability to gain volume synergies.

However for National Rail Enquiries we had a specific issue with demand that made this arrangement even more unsatisfactory.

Figure 12.2 shows journey plans each day for National Rail Enquiries over a three-year period. It is just journey plans so doesn’t show the impact on the real-time and other systems. As you can see there is a general upwards trend with a daily volatility that gives a high and low with about 500,000 journey plans being the spread.

However you will also notice some major spikes both up and down. The downs are the Christmas period, where people tend to take leave – and also passenger trains do not run on Christmas day.

The spikes upwards are easily explainable but a little harder to predict.

Take for example the spike up to 4 million from a run rate of just under 1.5 million in November 2010. This was caused by heavy snow, on a weekday, in the South East in England. Many people commute into London every day for work (around 750,000) and the train is the most common mode of transport.

When people wake up in the South East on a work day and see the world has turned white many of them will contact National Rail Enquiries. This may be by phone, web, mobile web, app, SMS, social media etc. but it all comes into the same systems. The same thing can happen with storms as was seen with the October 2013 storms in the south of the UK that severely disrupted rail travel. National Rail Enquiries had 3.5 million visits on 28 October 2013

(the day after the overnight storm brought a large number of trees down onto railway lines), 6.3 million journey plans (off the chart on the scale above) and 18 million requests for real-time information.

However it isn’t just weather. The UK rail system is very safe but they do have accidents and they do have major delays, however rarely. These can occur at any time and have the same effect as snow but are even less predictable.

The National Rail Enquiries service can’t be allowed to fall over so we set capacity at a very high level. Fine for the customer as the service is always there and hardly even slows down, but not so good for the service maintaining a high level of capacity all year round when it is hardly ever used.

What we needed was to combine the various hosting arrangements and have a service that flexed with our demand. I am of course talking about cloud hosting so when that service became popular we were very interested to move to it.

However, cloud hosting brings its own issues. The cloud suppliers are currently high in technology delivery and low in support. You need to be able to manage your services on their systems and do you own scaling of capacity. They will supply whatever you need but you need to tell them how much that is.

Because of the complexity of this we introduced a Service, Integration and Applications Management (SIAM) company into the mix. This is shown in the following diagram (Figure 12.3).

Figure 12.3 Multi-Sourcing with Cloud Hosting

Read part 3 of 'Is the Future Bright for Outsourcing?'

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Derek Parlour's book, Successful Outsourcing and Multi-Sourcing, is available to purchase here. Members of the National Outsourcing Association are currently eligible for a significant discount - just use the code G14IZN30 on the Gower Publishing website.

The global outsourcing giant Serco has lost its grasp on yet another contract – this time work sterilising medical equipment at the Fiona Stanley hospital in Perth, Australia.

The health minister for Western Australia stripped this responsibility from Serco after ‘blood and tissue’ was found on equipment that Serco personnel had allegedly already sterilised. Serco will retain the bulk of its £850m, 10-year contract with the hospital, providing non-clinical services. However, there is to be a further review into clinical healthcare at the hospital at a later date.

This news comes after a terrible 2014 for Serco where the company saw numerous contract scandals, including the failure of a £285 million prisoner-transfer contract with the UK government.

In March 2015, Serco CEO Rupert Soames was quoted saying: “There is a real sense that, having confessed our sins and in taking the punishment, we are now ready to start on the path to recovery.” Serco since announced its plans to sell off a number of BPO operations.

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Capita has revealed that its headline dividends have more than halved in the first quarter of 2015, down 52 per cent from £30.9 billion to £14.78 billion.

In 2014, the figures for Capita’s first quarter were greatly enhanced by a £15.9 billion dividend from Vodafone, which accounts for the discrepancy. Capita are also anticipating a £630 million dividend from Barclays, the payment of which is expected sometime in the second quarter.

In fact, once these special dividends are removed, Capita’s quarterly growth rates are up 10.4 per cent year-on-year, hence why the company is unconcerned with its poor headline figures for 2015.

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A report by the Centre for Health and Public Interest (CHPI), an independent think-tank, has revealed that the NHS is struggling to manage and assess the effectiveness of its private sector outsourcing providers.

The report estimates that Local Clinical Commissioning Groups (CCG) spend 16 per cent of their budgets in the private sector, requiring the oversight of almost 15,000 outsourced contracts. The CHPI findings reveal that 60 per cent of CCGs either did not record the number of site inspections undertaken or were simply unable to say. Worryingly, 12 per cent of CCGS disclosed that they had not carried out any inspections at all.

Colin Leys, the report’s co-author, said: “The picture that is emerging is of an NHS poorly equipped to ensure that healthcare services outsourced to for-profit providers will provide safe, high-quality care and good value for money.”

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I have been working in outsourcing for almost 30 years and have seen how the industry has changed in that time. The changes in the past have mainly been about commercial approach, engagement and the structure of the outsourcing model. But over the past few years we have seen the increasing impact of technology on outsourcing and the changes that it brings about are fundamental and far reaching.

Technology impacts on outsourcing in a number of ways but, for me, some of the most important are on how services are delivered, how those services are perceived and the impact this has on the clients approach to outsourcing.

Services can now be delivered in very different ways to how they were 5-10 years ago. IVR and RPO has impacted on the BPO sector. This reduces costs but we need to look beyond the direct impact of these changes. The automation of services cuts the costs by using less people but beyond that it impacts on how end users perceive the service and can impact on how clients want the service delivered. I have seen how increased automation reduces the “service” perception of end users and reduces the service being supplied to a commodity.

This isn’t necessarily a bad thing for the end user but it is a different perception. Also, from the client point of view, the reduction in staff changes the outsourcing decision. Labour costs were a big factor in the decision to outsource to countries such as India. Not the only factor but a big one. With automation reducing the human element of the service this is not as important as before. This alters the commercial dynamic of the services being provided. Are we going to see more on-shoring because of this?

In the B2B world technology has also had an impact. Years ago if you needed a website built with large capacity behind it you went to a big SI because they had the specialist expertise and the server capacity to support you. The move to cloud hosting has changed that. If you want a website (or any other service) that needs to be able to handle high volumes you can sign up with a cloud supplier and pay for what you use. If you don’t need the big SI for the hosting then do you need them for the application? As we are seeing the answer is increasingly no. Over the past few years we have seen the rise of the smaller application developers providing services to larger and larger companies as cloud hosting and open source software open the market to them.

Open source reduces the advantage of proprietary software and opens up the market to more competition. For most services you don’t need expensive bespoke applications and huge data centres any more. IT is becoming more of a commodity. We are even seeing this at the small business/consumer end of the IT market. New products such as Office 365 mean you don’t have to shell out for a one off application licence anymore but can have the software on a pay as you go basis.

The increase in automation makes services more of a commodity to end users and the increase in technology is making IT more of a commodity in the B2B world. In both perception and reality this reduces the tie to a particular service and can encourage people, and businesses, to move services more rapidly. So is this a good thing or a bad thing for the industry?

It obviously depends on who you are but on balance I would say this is a good thing. The commoditisation of IT has reduced costs dramatically and has lowered the barriers to entry in certain parts of the industry. Cloud hosting itself may leave a lot of the hosting market to huge organisations such as Amazon and Azure, but the existence of cheap, pay as you go server capacity can only help the smaller application developers. This gives both the smaller companies, and the clients, a great opportunity to develop new relationships and new services but what does this mean for the client?

As we all know governance is key for a successful outsourcing relationship and the need for governance increases with the number of suppliers and the complexity of the relationships. The commoditisation of IT and increasing automation of processes gives the opportunity to use a larger number of smaller, more specialised suppliers rather than single large BPO or Service Integration suppliers. Whilst that should be good for the client it also increases the governance overhead and the level of skill required to manage the relationship.

Going back to the beginning of this piece, where I talked of the changes to the commercial approach and outsourcing structures used, the changes in technology are having the same impact in that if the outsourcing changes then the governance has to follow.

Changes in technology are having far reaching impacts on the outsourcing industry but, as is often the case, if we manage it well we should not be afraid of these changes.

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Information Services Group (ISG) has released its Outsourcing Index for the first quarter of 2015, which has revealed that the global outsourcing market has slowed at the beginning of this year.

The volume of outsourcing business has declined since 2014, along with the value of contracts dropping due to an industry price war. 2014 was a ‘near-record’ year in terms of outsourcing business value, volume and industry growth.

ISG is a leading technology insights, market intelligence and advisory services company – the Outsourcing Index is a quarterly study which measures commercial outsourcing contracts with an annual contract value (ACV) of $5 million or more.

The report found that the global ACV of outsourcing stands at $5.1 billion for this quarter. This is well below the average of $6 billion seen in first quarters since 2006, and 18 per cent less than the first quarter of 2014.

‘The slow pace of the quarter is not a surprise, based on the activity we noted at the year’s end, but we don’t view it as a portent of things to come,’ said John Keppel, partner and president of ISG. ‘Smaller deals continue to flow, and value and volume for the trailing 12 months remains in positive territory.

‘Still, what goes up must come down, especially against the strength of last quarter and the vigorous start the industry had in the first quarter of 2014. Across markets this quarter, we found examples of value increasingly being challenged while volume remained strong as clients sought out great deals in a buyer’s market.”

The ISG has suggested that the lull in Europe could also be due to the UK’s up-coming General Election causing business uncertainty, as well a slight decline of sourcing in France after an all-time peak in 2014.

The Americas represent a ‘lone bright spot’ with ACV up 10 per cent to $2.1 billion – this is the fourth consecutive quarter where the Americas have reached an ACV higher than $2 billion.

For further information, see ISG’s full press release regarding the Outsourcing Index.

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Twelve historical sites based in Lincolnshire, including Lincoln Castle, may be outsourced to the private sector in order to save local government millions of pounds a year in upkeep and maintenance costs.

Lincoln Castle, Gainsborough Old Hall, Museum of Lincolnshire Life, The Collection, The Battle of Britain Memorial Flight Visitor Centre, The Tennyson Research Centre, Aviation Heritage Lincolnshire, Lincolnshire Archives and various windmills in the area are all potential targets.

Council leader Martin Hill has said that he has an ‘open mind’ and that no final decision has been made.

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