Industry news

In my previous article, I likened the complex sourcing of external IT services to different supermarket choices. To recap, there are four broad approaches to outsourcing:

1. The home delivery of one-size-fits all approach to outsourcing, which means engaging with a global outsourcer, taking the good with the bad for the sake of convenience

2. The low-cost international supermarket which is essentially engaging with a pure offshore provider for volume, and low cost commoditised, services.

3. The local supermarket approach of selecting best-of-breed products satisfying the majority of your requirements, whilst also retaining the option of shopping elsewhere

4. The corner shop approach with niche single-product providers.

In this second article, I’d like to discuss how to choose a selective sourcing shortlist and some of the key factors to consider before making a selection. The rules are largely the same as any sourcing operation - e.g. value for money, proven track record, reasonable to do business with etc. - with one or two additional criteria. I’ve used ERP as the technology example, but the same principles apply for decisions around other technologies.

o Matching your current – future – and aspirational capabilities?

o You may be considering the corner shop niche service provider who specialises in a particular ERP technology. Will they provide an un-biased view of the future state of ERP marketplace when you want to expand into CRM or Business Intelligence?

o Likewise, you may be considering taking services from the ERP vendor directly. Can they also provide you with services for other vendor’s products as part of your consolidated sourcing strategy? With the introduction of this new provider is there an opportunity to further consolidate the management of your legacy applications into the same agreement and recognise some immediate economies of scale? For example, a single supplier providing a number of services under a common delivery framework can show significant savings over three separate niche “corner shop” providers. It’s worth exploring whether the provider has a proven track record of delivering these others services then maybe so.

o Flexibility of their engagement model to change with your business?

o Is the service engagement model restricted to ERP solutions or does it follow globally acknowledged service management standards? The service framework may work perfectly well for the one solution but will it adapt for others?

o Could they also provide an “aggregation” service to help you consolidate multiple providers under their one service model – thus taking away the cost of you having to do this yourself whilst providing transparency of the overall supply chain?

o Can they retain the intimate knowledge of your business?

o As your business grows, and your business with the selected suppliers also grows, can they retain that intimate knowledge of your business that influenced your decision to choose them in the first place?

o How do they stop themselves from appearing as though they are multiple separate service providers to you?

o Are you important to the provider’s business?

o Striking a balance between being the only client that a provider has (risk for you and for them), and being lost in the noise of a gargantuan service provider organisation is a challenge.

o You may sit nicely in the middle of this range for now but how do you manage the risk of this changing over time? Large providers will often hunt in shallow waters, looking for potential growth clients. oWhat happens if you do not deliver the account growth which they expected? What happens if you select the corner shop and they themselves are unable to grow in line with your business?

The cost, risk and business disruption of moving providers can be significant. Selecting the most appropriate provider for your business is a major challenge and one which should be carefully looked at from all dimensions before making a selection.

Do not just consider the task at hand. Instead, think broader and think about your overall sourcing strategy as a whole. This way, you will spend less time window-shopping and ensure you select the right provider to support your goals, growth strategy and get the best value available.

Outsourcing continues to change in response to market changes, and a still uncertain economy. I expect the following trends to be apparent in outsourcing as we go through the year:

• Cloud concerns will increase – although I expect more companies to start implementing cloud-based solutions into their IT infrastructure, the struggle of complying with data protection laws, and a lack of contractual safeguards, will continue to slow the take-up by larger organisations.

• Mergers will increase – service providers, particularly the technology service providers, are likely to continue to find their established markets hard to predict, as customers take longer and longer to make decisions about their outsourcing strategy. I expect these pressures to lead to more consolidation in the market, and I would not be surprised to see 2 or 3 major deals announced over the next 12 months. In particular, I expect to see further consolidation among the second and third tier Indian vendors.

• Less established countries to increase their profile – Countries like Brazil and China, and possibly South Africa, Sri Lanka and Vietnam, are going to be seriously considered by companies looking to outsource beyond the traditional destinations such as India. The profile of these countries, and availability of skilled talent, has been steadily increasing and Brazil in particular is now looking to become a major player within Latin America. The introduction of data protection laws across Latin America over the last 12-18 months will also give comfort to organisations who might otherwise have been concerned about a lack of security and protection for the processing of sensitive data. Similarly, service providers are starting to shift their data centres to these regions to take advantage of these growing markets.

• Smaller deals will dominate. The trend for some time has been for customers to require shorter deals with easy routes of escape if required. Risk mitigation is the theme for most customers, and that requires a service provider to accept a shorter term, and “get out” clauses that enable the customer to exit the deal if market conditions change, or there is a change in strategy. This is, however, leading to a less strategic and more procurement-oriented mindset around outsourcing – which carries with it a risk that there will be less innovation and little in the way of transformation from service providers who have no incentive to be creative.

• Data Protection will become an increasing concern. The laws in Europe around data protection are set to change over the next couple of years, and fines for data breaches will be significantly higher. Data processors (ie: service providers) will also have regulatory responsibilities for the first time, forcing the industry to potentially adopt higher standards of security. Deals being signed will therefore need to anticipate some of these changes, and give more focus to this area, or face being renegotiated once the laws come into force.

• Legal Process Outsourcing to increase dramatically. One area of outsourcing likely to increase significantly over the next 12 months is LPO. Law firms are actively trying to minimise costs in all areas – and saving money through outsourcing is now becoming standard practice. Expect to see more service providers try to enter into this market, and for firms to continue to explore the outsourcing of legal services to offshore destinations such as India and South Africa.

ISG has won a £100m deal to build and fit out a new data centre for Santander in the East Midlands.

The project encompasses the construction of two identical buildings, each with an individual gross floor area of over 161,000 sq ft that will be delivered concurrently.

David Lawther, ISG chief executive, said: “We are delighted to announce this contract win. We have been focusing our efforts on the data centre market, bringing together a highly skilled technical team. We expect further growth in this area as we focus on our multinational clients and on their increasingly demanding technical requirements."

Logica, a leading business and technology service company, has announced that it has been selected by BAE Systems, the global defence and security company, to provide multi-process HR Outsourcing Services for its employees in the UK.

Logica will design, build and run a transformed HR service for BAE Systems that directly supports the future requirements of its business. This service will be based on Logica's Dynamic HRO offering and harnesses Oracle's PeopleSoft Human Capital Management and Oracle E-Business Suite Payroll to maximise performance improvements. Additionally, by adopting Logica's innovative approaches to supplier ecosystem collaboration, advanced analytics and business benefit realisation, BAE Systems will accelerate the development of its enhanced strategic HR capability.

Haydn Clulow, HR Director, Transformation, BAE Systems said, "We recognise that our business needs both agility and flexibility if it is to respond successfully to our changing market landscape. We are pleased to have Logica on board and see them as a key partner in our drive to build the people management capability that will enable our future success."

The Government Procurement Service has advertised for suppliers to join a wide-ranging £4bn ICT framework.

The framework will be open to public sector organisations for two years, according to a notice in the Official Journal of the European Union and will be open to include central government departments and their arm's length bodies and agencies, non-departmental public bodies, NHS organisations and local councils.

St. Helens and Knowsley teaching hospitals have entered into a 1.3 million agreement with EMC Symmetrix to revamp its storage infrastructure.

The deal takes 14,000 users into the cloud, providing them with rapid access to patient data such as X-Rays, medical records and clinical scans.

Viktor Vekselberg, one of Russia’s richest men, is spearheading an initiative to create a Russian rival to Silicone Valley or the UK’s own Tech City.

Skolkovo Research and Business Park, expected to cost 6bn, will be used to create an innovation cluster of a university, a research park and a city housing 35,000. It will be Russia’s first PPP (private public partnership) concerning education and enterprise. Construction has already started; the first students are expected in 2014.

Multi-billionaire Vekselberg will bring a delegation of executives to the UK next week, in the hope of attracting more international companies and institutions to join the project.

A total of seven police forces have inked contracts for Project Athena, a framework agreement for IT systems to enable data sharing between the police. A further five forces are in the process of deliberation. The seven forces - Essex, Bedfordshire, Norfolk, Cambridgeshire, Hertfordshire, Kent and Suffolk – will pay a total of £32 million.

Athena supersedes local police systems that manage data on offenders, suspects, victims and incidents, with a single IT system that details police investigations, intelligence and defendants across all member forces.

Fujitsu Canada has acquired business and information technology (IT) consulting offering and service provider TMC.

Fujitsu Canada president André Pouliot stated that acquiring TMC enhances Fujitsu Canada's offerings and bolsters its presence in Saskatchewan, an area experiencing considerable economic growth. “By combining forces, both organizations will offer a broader line of services and products that will not only meet the needs of the province's customers, but also allow us to support all our customers in Central and Western Canada in terms of managed services, application development and service desks," Pouliot said.

Commodities trader Glencore is in talks to buy mining group Xstrata in an all-share transaction that could create a combined group worth more than 50 billion pounds ($79 billion), shaking up the industry with its biggest deal to date.

Glencore, the world's largest diversified commodities trader, already owns 34 percent of Xstrata and a tie-up between the two -- a deal which would trump Rio Tinto's $38 billion acquisition of Alcan in 2007 -- has long been expected, as Glencore aims to add more mines to its trading clout