Industry news

I have already used these pages to spell out the advantages and disadvantages of multi-sourcing in light of changes to the way contracts were being sourced, following the decline in ‘mega-deals’ and the government’s £100 million contract cap.

It seems that the piece I wrote last August was, if I do say so myself, eerily prescient, as in the time that’s passed since then we’ve seen significant changes to the way many organisations have approached outsourcing contracts, with multi-sourcing one of the key drivers.

In that time, we’ve seen suppliers making significant strides towards jumping onto the multi-sourcing bandwagon. But how prepared are the end-users?

Multi-sourcing is, of course, the process of outsourcing to multiple service providers instead of one, and there seems little doubt that suppliers have looked to prepare themselves for what many forecast as a significant drive towards this model.

Perhaps one of the key factors behind this has been the government’s decision to open up the procurement process and move their focus away from larger, more established (and expensive) providers.

Clearly, the public sector feels, as do those in the private sector, that by using a number of suppliers instead of A larger contract with one supplier they can benefit from the niche, specialised services on offer and gain cost efficiencies.

I don’t think it’s any coincidence that we’re seeing a significant number of aggressive acquisitions from larger organisations which are keen to expand their offerings and global footprint in a number of different markets.

In recent times we’ve seen acquisitions from Capita (which purchased Bristol-based Call Centre Technology), Serco (which has acquired Indian Global Services provider Intelenet) and CSC (which has agreed to acquire iSOFT), each of which seems aimed at increasing the client base of the respective organisations, and also allowing them to diversify their offerings.

However, if the recent spate of acquisitions really is going to result in a new wave of multi-sourced contracts to replace mega-deals, then perhaps it’s worth asking whether or not end-users are armed with the right level of knowledge to make sure these deals are successful?

After all, managing a number of smaller, niche suppliers can be a very different undertaking to managing one. Indeed, it can be a real juggling act to ensure that each of your suppliers is meeting your expectations, and requires entirely different management skills.

Deciding to use a system of multi-sourcing is one thing - but do end users have the right skill set to achieve the right results?

In the last week, we’ve seen outsourcing hitting the headlines again, as the Public and Commercial Services (PCS) union refused to rule out strike action over Hewlett-Packard’s (HP) plans to offshore 200jobs to India.

The jobs in question are largely responsible for providing IT support to the Department for Work and Pensions, with talks over offshoring evidently at an ‘advanced’ stage. So what does this tell us? Can we expect a deluge of offshored public sector contracts? If so, is the general scepticism around offshoring justified?

Of course, the DWP is not the only place we’ve seen the question of public sector offshoring raised in recent weeks. We’ve also seen Birmingham City Council announce that up to 100 council ICT jobs are scheduled to be transferred to India through Capita, while the £600m BPO deal at the Personal Accounts Delivery Authority to outsource the administration of the National Employee Savings Trust (NEST) scheme may see as much as 60% of the work going abroad.

I suppose the first thing to say is that offshoring is nothing new, and we’ve seen plenty of examples of public sector and local government authorities offshoring successfully in the past.

Last July, the Prime Minister even visited India with a firm promise that: "In terms of being open to [offshoring]... you will find Britain one of the most open and progressive countries.” So why has news of several recent public sector offshoring deals caused such a stir?

Clearly, there’s a fear that British jobs will be lost - despite the fact that HP has already given assurances that affected employees who are based at sites in Newcastle, Lytham St Annes and Sheffield will be relocated to other positions within the organisation.

It seems that for many, the greatest worry is that in the race to make savings, we could see the burden of increased unemployment passed onto the taxpayer, as more and more low-paid jobs are sent abroad for the sake of making savings.

In my view, however, offshoring has a role to play - although it’s clear that it must be part of a bigger overall strategy. It’s no use relocating services to India or Sri Lanka on a short-term basis just to make a quick saving on costs.

Organisations must examine their own core competencies and understand where they have a skills gap, and decide whether or not an offshore provider has both the right level of competency and the correct cultural fit to make a contract work in the long term. This is something that organisations might want to review even if they have offshored, because markets change both here and overseas.

I know this is a common refrain from me on these pages, but any contract entered into on the basis of cost alone is far less likely to succeed than one which has been carefully structured, and fits in as part of a broader, overall strategy.

This is something that the unions who are protesting against these moves could try to understand - because if it benefits the way services are provided in the long run, then perhaps offshoring isn’t the great evil it’s being made out to be?

If you’d like to hear more about offshoring, the NOA will be running an Offshoring Day in September.

HR and Talent Management Steering Committee

Wednesday 29th June 2011

This event, chaired by Yvonne Williams, NOA Board Member, discussed best practice in HRO and paved the way for a NOA best practice guide for HRO.

Yvonne introduced the event and commented: “Ideally the role of this steering committee is to produce a best practice guide for HRO. HRO has changed a lot over the last few years and the market has matured tremendously.

“HRO is a very people focussed practice. Getting it right is extremely important as bad news travels a lot quicker than good news. Getting it wrong can be disastrous for many organisations.”

Paul O’Hare, Partner, Kemp Little, presented on the legal aspects of outsourcing HR and discussed current trends in the sector among with variations in contracts.

Paul said: “Most of the trends in this presentation are not unique to HRO, such as multi-sourcing, but they are definitely prevalent in the area. However in HRO there seems to be push towards quality and service rather than cost which is usually the primary driver in other outsourcing agreements.”

Outcome based pricing models linked to objectives are becoming more common throughout HRO and many other areas of outsourcing

Current Trends in HRO Contracts

- Shorter deal terms

- More diversified sourcing strategies (driven by multi-sourcing and distinction between transactional and consultative HR functions) and delivery models

- Drive towards standardisations (adoption of SaaS and cloud-based solutions)

- Changes to pricing models / pricing terms

- Increase in number of terminations and exits

Jim Brannan, CEO, Bcerta, said: “Someone managing many outsourcing agreements should not have to manage completely differing and inconsistent strategic practices. There has to be some level of consistency throughout and element of standardisation.”

Strategic workforce planning and analysis should come before recruitment, assessment and selection however in practice it is often the other way around. There is often a drive towards organisations looking ahead at their exit strategies.

David Williams, Partner, Kemp Little, said: “People are beginning to try and change exit agreements, they want to know where they will stand. It is something that can be negotiated and we have seen many positive examples of this renegotiation.”

Paul Hare agreed and said: “It is extremely important to plan your exit strategy in advance and understand the charges for getting out of a contract earlier. Many organisations do not realise the charges that can be accumulated for getting out of a contract earlier.”

Termination and exit

90% of retenders awarded to incumbent (TPI Report Q1 2010)

Key Points

- Inadequate termination rights

1. Especially for repeated service level failures

2. Importance of clear termination for convenience rights (with any exit changes pre-agreed)

3. Realistic exit periods – with ability to extend

- Poor exit planning

1. Robust contract terms – but often a failure to observe them

2. Contract incentives re testing and updating

- No agreed parameters on exit costs

- Dangers of ‘black box’ outsourcing

Paul discussed the evolution of HRO Contracts and the drive towards standardisation and adoption of SaaS / cloud-based HR solutions

Key Points

- Especially common for transactional HR services

1. Payroll / benefits administration, employee records etc

- Typified by increased adoption of SaaS and cloud-based solutions in HR sourcing contracts

- Drivers / Facilitators

1. Reduction in costs and lower (implementation) risk)

2. Increased prevalence / reliance of technology and improved internet / networking capability

- Implications for HRO contracts

1. Confidentiality, integrity and availability of HR data – risk allocation implications

2. Understanding – and documenting – ‘target operating model’

HR contracts: Pricing trends

Key Points

- Financing of deals (transition costs etc)

1. Impact on deal term, termination fees, ability to benchmark

- More flexible price bands – to deal with major reductions in the workforce

- Impact of ‘change control’ on customer business case

- COLA and ForEx risk – Offshore / rightshore deals

- Trend towards more ‘accountable’ pricing models

1. Move from input-based models towards output – and outcome- based pricing models

Yvonne concluded the seminar and said: “The global aspects of HRO are a big challenge. The foreign exchange risk is high as you are dealing with a variety of people and communication and service levels are of great importance. A HRO best practice guide would be invaluable for the sector and address many of the challenges that can arise.”

Steering Committee Actions:

• Paul O’Hare to share the slides to be shared to everyone and suggestions for guidelines to be email to Stephanie. HRO Specific

• July Session 1: Two end-user organisations to provide insight (BP and Lloyds) good experiences and bad experiences

• August Session 2: Two supplier firms to provide insight

• September Session 3: Advisory / Legal to provide insight (care studies)

• October: Production of the HRO best practice guide

• November: Launch at the NOA Summit and Awards

Best Practice Framework

- Look at what can be outsourced

- Look at the risk assessment for the services

- Bad experiences / good experiences

- Delivery of risk assessment

1. Methods of delivery (offshoring, multisourcing)

- Executive summary of HRO

- Title to be decided.

Attendees:

Yvonne Williams - NOA

Emily James – BP

Pau O’Hare – Kemp Little

Mike Gibbs – KPMG

Kathryn Dooks – Kemp Little

Richard Monaghan– Lloyds banking

Vijai Balachandra - Infosys BPO

David Williams – Kemp Little

Jim Brannan – Bcerta

Paul Corrall – sourcingfocus.com

North Bristol NHS Trust is upgrading their telecoms infrastructure using Alcatel-Lucent products. The move comes as part of a project to build a new £500m hospital at Southmead.

North Bristol is the 5th largest healthcare trust in England - 9,000 staff, 1,300 beds and an annual turnover of in the region of £450m.

"When I started at North Bristol NHS Trust about six years ago, there had been years of underinvestment," said Martin Bell, director of assurance, information and technology at the trust. "We now have time to make this hospital a technology-led, information-led facility," he added.

1.8 billion could be saved by social landlords if they outsource housing service and maintenance, says a new piece of research by Credo.

Only 60% of councils, ALMOs and housing association currently outsource housing maintenance and service management.

It is estimated that these organisations currently save 1.1 billion per year through outsourcing.

The research shows that if outsourcing uptake was increased to 95%, there is potential for the savings outsourcing brings about to £ 2.9 billion.

CA Technologies is set to acquire Interactive TKO (ITKO), a privately-held provider of service simulation offerings for developing applications in cloud environments, for $330m.

All of ITKOs staff are expected to join CA technologies, following the completion of the acquisition.

CA Technologies exectutive VP of Customer Solutions Group David Dobson said: "ITKO's technology allows customers to anticipate how their applications will perform in alternate environments, significantly reducing risk, and accelerating their time to value."

HSBC has announced it is to cut 700 UK jobs.100 of the roles are being cut are in IT operations and back office functions such as HR, finance and compliance.

The majority of the cuts - 460 roles - will be made from the financial advice team in retail banking and wealth management. The roles represent 1% of HSBCs total UK workforce.

The bank is reorganising in light of the Retail Distribution Review at the end of 2012, which is said to “fundamentally alter” the way that financial institutions provide and are remunerated for financial advice.

Lloyds Banking Group Plc, Britain’s biggest mortgage lender, will cut 15,000 jobs and reduce costs by an additional 1.5 billion pounds ($2.4 billion) as it withdraws from overseas units and increases its U.K. focus. The shares soared the most in more than a year.

The savings will result from cuts to management functions, by centralizing some roles and by withdrawing from more than 15 of its 30 overseas units, the London-based bank said in a statement issued before its presentation to investors in London. HSBC Holdings Plc today said it would cut 700 posts.

“Lloyds must become leaner, more agile and more responsive to our customer needs,”, Chief Executive Officer Antonio Horta- Osorio, 47, said today in a conference call with journalists outlining his first strategic review since he took the job in March

Steria, a leading European IT-enabled business services provider, has announced the extension of its shared services partnership with Cleveland Police Authority which will deliver additional savings in excess of €10 (£9 million).

A number of additional support services will be delivered alongside those undertaken by Steria at the start of the ten-year contract in October 2010. Effective from 1st July 2011, Steria’s remit will include centralising Crime Management units in each of the four Force districts and merging with the control room, as well as civilianising a newly combined Risk and Operational Planning unit that will handle emergency and event planning together with risk assessment and safety. As with all services Steria provides to Cleveland, these additional services will enable officers to devote more time to operational policing, through significantly reduced paperwork.

Peter Race, Chair of Cleveland Police Authority, commented: “When we embarked on the partnership with Steria we set ourselves the key objectives of delivering better services to the public, generating €55 million (£50 million) savings over ten years and maintaining a strong front-line service. The benefits generated by this partnership have helped us weather the pressures so far and this latest development will help us extend the benefits even further.”

The UK has said that it is not interested in restricting outsourcing and would promote overseas investment in India.

"We are not interested in restricting outsourcing and there is no interest from our side to make it difficult for companies who operate here, we want to make it easier for companies to come to the market, set up their business and employ people," First Secretary and Head of UK Trade and Investment (North India) Paul Grey told reporters on the sidelines of a Ficci function in North India.

In recent times, there has been increasing criticism about outsourcing in many developed markets like the US and the UK, especially in the wake of huge job losses due to sluggish economic activities.

Promoting the UK as an investment destination, Grey said, "Indian IT companies are already promoting themselves very effectively, (offering) good quality, low cost (services) which is an excellent combination at the moment because we have our own challenges to reduce spending in the UK."