Industry news

Xerox has undergone an impressive transformation over the past several decades. During its 77 years of business, the company has expanded from a manufacturer of printing equipment into a corporate leader spanning a number of industries. What’s more, in terms of strategy, attitude and culture, Xerox has become the epitome of what it means to be a great outsourcer.

Time and time again, Xerox has demonstrated that it’s not scared of change when it’s necessary for business. In 2009, the company acquired Affiliated Computer Services for $6.4 billion. It was a bold move that made the intentions of Xerox executives clear – they had taken their first step towards becoming a business processing powerhouse. More recently, in December 2014, Xerox announced its intention to sell its IT outsourcing, originally acquired through the purchase of ACS, for $1.05 billion.

Why did Xerox do this? Because the organisation is keen on growth, but simultaneously understands the need to focus on core activities. Xerox operates under the mantra: ‘focus on what you do best and outsource the rest’ - a highly effective business model.

What’s more, this commitment to focus has allowed Xerox to make exciting progress in the field of business processing: on 5th February, Xerox announced its new Mobility Analytics Platform which will process and visualise commuter data. This software will facilitate smart data-based decisions, improving services in the transport sector. And that’s just one of their new business processing innovations.

Recently, the president of Xerox Services Robert Zapfel spoke on the subject of automated processes potentially replacing agents in the near future, which has been concerning buyers and sellers of outsourcing alike. His answer was pragmatic: ‘at the core, when you’re in the services industry, you have to cannibalise yourself. If you don’t, someone else will cannibalise you.’ It’s vital to streamline your own business and ensure it operates at optimum efficiency. If you don’t, someone else will do so before long, and at that point your business will lose out as a result.

Xerox’s president, Andrew Morrison, had a more concise message: ‘culture eats strategy for breakfast.’ Every company involved in outsourcing must pay heed to these words. Strategy is nothing without the correct company culture backing it – this goes for both your own organisation and those that you outsource to.

So what’s the point of this piece, from an outsourcing perspective? Xerox is getting it right. The company is both pioneer and paragon – leading positive change in outsourcing, and acting as a prime example to all those who seek value from their outsourcing contracts. The following graphic describes our take on what Xerox currently stands for:

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According to the Independent, business process outsourcing (BPO) and business process management (BPM) giant Capita is facing an investigation from the UK cabinet over claims that it used a major government contract to short-change smaller supplier companies.

This outsourcing news became apparent on Tuesday, after a group of 12 suppliers took a complaint to the Cabinet Office and demanded an investigation into Capita. Three years ago, Capita signed a £250m contract to provide all civil service training as a model of how to open up the public sector to smaller businesses.

Those smaller businesses have now revealed that Capita took a minimum 20 per cent cut of the value of all contracts to administer that civil service training scheme.

Francis Maude, the Minister for the Cabinet Office and Paymaster General, said in the House of Commons: 'We've learnt a lot of lessons from this contract... It should not be working like this. I'm aware of the concerns and we're investigating them very rapidly to get remedial action. It is not acceptable.'

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Read this next: Capita win £5 billion health service contract

Over the next few years, widespread internet connectivity is expected across India as a result of the government's 'Digital India' initiative.

However, since the initiative was announced, it has become apparent that the country may not have a sufficient number of workers available who are fit to propel India forward into a new age of IT outsourcing.

The National Association of Software and Service Companies (NASSCOM) has warned that despite growth, the future of information technology outsourcing (ITO) in India requires a new set of skilled workers in new services such as digital technology, mobile apps and cloud computing, just before their flagship India Leadership Forum in Mumbai.

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Read this next: Outsourcing ‘Monitoring Drug Safety’ to India Works

Outsourcing research compiled by business process outsourcing (BPO) provider arvato and industry analyst NelsonHall has revealed that, of the £6.65 billion worth of outsourcing deals signed across the UK last year, only 8 per cent went offshore.

Debra Maxwell, Managing Director of arvato UK, said: ‘Outsourcing has mistakenly become synonymous with offshoring, yet our research demonstrates that UK delivery is continuing to play a fundamental role in the industry as customer requirements become more sophisticated.

‘This sophistication is perhaps most easily recognised in the field of customer services. Traditionally typified by voice and email communication, in 2014 it became the norm for these functions to be integrated with more sophisticated digital services like web chat and social media management.’

It’s also worth noting that the financial services industry was responsible for £1.1 billion of these outsourcing deals, and that energy and utilities contracts have grown by 187 per cent to £1.072 billion – the largest growth seen across all of the sectors.

However, most impressive of all was the fact that over half (55.5%) of outsourcing contracts struck in the UK in 2014 were first time deals. Our country is already a world leader in outsourcing - over 10.5 per cent of the UK’s workforce is employed by the industry – so this extreme rate of growth is particularly encouraging.

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Read this next: ISG research shows 7% growth in EMEA outsourcing market in 2014

In the latest outsourcing news, American outsourcing has a new frontier. Monitoring drug safety has grown into a $2 billion business, and outsourcing these responsibilities to India is becoming increasingly popular with Big Pharma companies in the US.

There are approximately 15,000 Indian citizens working in the industry, compared with the 200-300 involved in 2007. Critics of this particular BPO (business process outsourcing) example are concerned that relatively inexperienced workers are being trusted with jobs for which they’re underqualified. Any mistakes could have a drastic impact on the safety of numerous medical patients back in America.

However, this doesn’t appear to concern the Big Pharma organisations themselves. Companies such as AstraZeneca PLC, Novartis AG, and Bristol-Myers Squibb Co, all of whom outsource their monitoring of drug safety, will face multimillion dollar fines if any mistakes are made, and are even at risk of having their drugs pulled from the market.

So far, there’s been cause for joy rather than concern. Cognizant, a major outsourcing company, has confirmed that over 90% of its Indian pharmacovigilance workers have a bachelor’s degree in either pharmacy or a similarly relevant discipline. What’s more, Accenture PLC – which runs a large drug-monitoring operation in Bangalore – claims that it is meeting reporting deadlines for filing cases far more consistently than its clients did before they started outsourcing.

Perhaps interested parties shouldn’t be so quick to criticise companies the instant they opt to offshore. In this case, what was originally seen largely as an attempt to bring down labour costs has also resulted in quicker business operations with higher rates of efficiency.

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Read this next: IBM reducing its Indian-based Workforce

The multi-brand online retailer has agreed a deal with IBM to move to a hybrid cloud model to support digital and mobile transformation. It hopes it will improve customers online shopping experience and empower its workforce collaborate more easily and improve productivity.

Shop Direct’s brands include Very.co.uk, Littlewoods.com and isme.com. It delivers more than 48 million products a year and clocks up over a million daily visitors across a variety of online and mobile platforms.

Read this next: IBM confirms multi-billion dollar outsourcing deal with ABN AMRO

Infosys BPO have been awarded a contract with Dutch Insurance firm a.s.r to supply back office services for their pensions administration system. The contract due to start on April 1st 2015 will see 87 employees of a.s.r being transferred to Infosys BPO. These changes come as a.s.r want to concentrate on their core services and are looking to work more cost effectively.

Infosys overcharges Apple

Outsourcing giant Capita have been chosen to provide support services to a number of state-funded clinical commissioning groups within the health service. Capita will run IT, back office finance and HR functions, the contract is worth up to £5 billion.

Sheffield Council extend outsourcing contract with Capita

This time last year, pound sterling strength was nothing more than a pipe dream as the UK economy and its currency were still on the road to recovery. However, data showed a surge in business inward investments helped the British economy grow much quicker than expected, effectively boosting the strength of the UK currency. There are, of course, many perks that come with having a strong UK currency. To a great extent, a strengthened pound indicates a well-established and strong UK economy – much better than our G7 peers. It’s also great news for British holidaymakers who are travelling abroad. They’ll find their spending money stretches much further than in recent years.

However, not everyone gains from the strength of the pound. If a company’s accounting system is based in the UK and measured in pounds, any revenue that is in euros (or other currencies) is now less than what it would have been a year ago. The euro to pound exchange rate is exactly 6.7% weaker now than it was this time in January 2014. Furthermore, the implications of the strengthened pound have had a huge impact on the revenue of big businesses. For example, WPP, the British communications giant published a statement claiming that its billings were down by 3% to US$55 billion, but would have increased 5.7% without the effect of exchange rates.

From working with our customers, I’ve found there are four ways to mitigate the effects of the strengthened pound:

1. Buy Cheaper

Procurement professionals should be more proactive in predicting business needs and anticipating them - rather than reacting to requests as they come in. There are several ways to enable you to be more proactive and buy cheaper:

• Monitor currency fluctuations – buy in bulk when the strength of the currency your business operates in is strong;

• Buy from new markets – a successful procurement team helps its business maintain a competitive edge by extending its sourcing reach. Low Cost Country Sourcing is a highly effective way of releasing trapped cash and improving profitability;

• Supplier networks – more and more buyers are using supplier networks to meet other companies in need of the same product/service. By pooling resources together, they can afford to buy in bulk at a discounted price.

2. Encourage Supplier Innovation

A good way to start is to extend your supplier base. Increasing the number of suppliers that you invite to tender can greatly increase the quality of ideas that are brought to the table. Even better, run an eAuction. The eSourcing marketplace is expected to grow by 10% in the next year alone, and enables a collaborative working relationship between buyers and a larger (yet still relevant) selection of suppliers. Nothing increases productivity and creativity more than a little competition!

Secondly, try an outcome-driven service. This will encourage your supplier to focus on the results it achieves, rather than an input-driven service where a supplier focuses on the service it provides. So, rather than asking your supplier for what you think your business needs - let’s use pens as an example - challenge them to find something to write with as an alternative and see what solutions they can offer you. Put out the idea to the rest of your suppliers to see if they can provide it at an even more affordable price.

3. Change Management

Although this option tends to offer the lowest return on investment, it can still be a more affordable and an effective alternative to realise new savings. To manage a team or department successfully, you have to think about where procurement can change in order to drive greater value. Based on my experience with Xchanging customers, here is my advice:

• Centralise procurement activities and utilise shared services to cut costs and improve output;

• Implement open processes such as RFPs that invite solution ideas as opposed to product specifications;

• Automate your businesses procure-to-pay (P2P) cycle, you can produce quick business benefits for a relatively small investment;

• Implementing a procure-to-pay system.

4. Tail-end Spend: Next Generation Savings

Finally, most large companies realise that they should be putting a system in place to manage their low value spend because Tail-end Spend totals up to a fair amount of money and potentially a large amount of savings. In fact, inclusion of Tail-end Spend in procurement outsourcing increases savings potential by 1.5 times.

Yet it’s rare to find an organisation that has put a system in place to manage low value spend and not enough of them are taking action to manage this area or spend efficiently. Historically, procurement organisations apply the Pareto Principle where the focus is on trying to manage their strategic spend – the 80% of spend that represents around 20% of their suppliers. However, Tail-end Spend Management focuses on the 80% of suppliers that represent 20% of spend and can generate savings between 15% and 17% – the benchmark on procurement savings is around 8%. So what’s stopping you?

Ultimately, the strong sterling will have an effect on revenue if you’re headquartered here in the UK but operate in different countries, but all is not lost. Businesses must challenge their systems, which will ultimately minimise the sting of the strengthened pound. Testing your suppliers and asking what solutions they can offer will push innovation and encourage competition, meaning realised savings can still be found.

As organizations continue to seek more strategic value from their outsourcing engagements, a critical skills gap has emerged. The kinds of skills organizations need internally from their own people to manage the outsourcing projects are distinctly different from those actually available or being developed for more normal operations management. This skills gap could leave the company unable to capture the sustainable business outcomes they are hoping to achieve.

A recent report from outsourcing analyst firm HfS found that organizations need to do a far better job harnessing the power of their people as a means of driving business value beyond cost reduction and “noiseless” delivery. Higher-level goals require higher-level skills. Companies need to focus on improving their talent management processes to hire, develop, engage and retain the right talent to realize the promise of business process outsourcing (BPO). But how?

Here’s a look at three practical steps that both the enterprise and its BPO provider must focus on to address this talent gap.

• Change the mindset—talent requirements change and it does matter. Employers need to provide meaningful work, personal and professional growth, and clear career paths for all workforces – those delivering the outsourced service, those managing receipt of the service and those benefitting from it. It means instilling in employees a sense of pride in their own organization and the other organisations they serve. It also means monitoring, measuring and taking action on employee engagement. At the same time, leaders need to model the right behaviors and help energize their teams as they embrace a new way of working.

• Develop formal training curriculums, particularly for managers. Skills development for outsourcing managers must focus on skill sets beyond those required to oversee basic operations – it turns out this is as important for the client receiving the service and managing the service contract as it is for the service provider. One company in the HfS study, for example, mandated three hours of weekly training in outsourcing governance for its managers. This approach quickly paid off in terms of increasing job satisfaction and advancing the company’s objectives for its major outsourcing engagements. While most organizations’ training functions lack the depth and scale to develop specialist programming in this area, there are quality programs available from third parties. As an example, the International Association of Outsourcing Professionals offers multi-level certification programs for outsourcing executives, managers and associates.

• Revamp skills expectations and competency models for the retained team. Organizations need to move beyond the older talent perspective that was primarily focused on operational skillsets. Some are looking for strategic skills by redefining the job competency models of those individuals managing service providers. One enterprise client cited in the study went so far as to revamp the retained team before it selected a service provider, knowing that a strong team was a key to success. Existing personnel had been experts in the way things had been done for years – not with a view toward tomorrow’s possibilities – so they made some new hires with proven experience in driving innovation pipelines.

The collaborative nature of a BPO relationship has enormous implications for how talent is sourced, developed and engaged. Enterprise leadership needs to have the desire and capability to transform its approach in developing and managing talent – at the same time that BPO providers must step up to the talent challenge. What’s needed is a leadership commitment to make the investments in time, energy and resources that will turn talent into a differentiating factor in the coming age of BPO.

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