Industry news

Britain’s outsourcing industry is now almost as big as the financial services sector, generating more than £200 billion a year, according to new research by Oxford economics released today. The industry accounts for 8 per cent of the UK’s total economic output.

The report, commissioned by the Business Services Association, encompasses services including information technology and data services, which is the largest contributor to Britain's annual output. This line of business currently employs 340,000 people and makes a net contribution to the economy of £24.7 billion.

The outsourcing industry is also a huge contributor to the Governments coffers, paying £35 billion a year in taxes – equal to 12 per cent of the total take from business and personal taxes. The outsourcing sector is now the second-biggest employer, behind retailing, accounting for 3.1 million jobs, equivalent to 10 per cent of the British workforce.

Bindi Bhullar, director of global IT services provider HCL Technologies, said:

“Successful outsourcing projects have previously been seen so as the elephant in the room. Until now, there has been a reluctance to openly discuss the core benefits outsourcing brings to the UK economy. t is great to finally see credible research highlighting the significance of IT and IT-related BPO into context. The industry has clearly come a long way since the Y2K projects of the 1990s. This report shows how IT outsourcing has fully developed into a mature market.

“Thanks to this maturity, organisations now have access to new talent, advanced technologies that can deliver additional benefits, and most notably, faster time to market for new applications and upgrades alike.”

The research comes as welcome news to the outsourcing industry, which has been in the spotlight recently as a result of the governments drive to cut costs and reshape public services.

HP Enterprise Services has been chosen for a single-award firm-fixed-price, indefinite delivery/indefinite quantity contract worth up to $2.5 billion over a four-year base period with two three-year option periods by the National Aeronautics and Space Administration (NASA).

HP will provide end-user desktop services and devices that will increase NASA’s efficiency and allow its employees to more easily collaborate in a secure computing environment.

As a part of NASA’s Agency Consolidated End-User Service (ACES) Program, HP will modernize NASA’s entire end-user infrastructure by delivering a full range of personal computing services and devices to more than 60,000 users. The modernization is expected to deliver significant productivity gains and cost savings to NASA.

“NASA personnel use IT to support NASA’s core business, scientific, research and computational activities,” said Michael Sweigart, procurement officer, Shared Services Center, NASA. “HP will provide, manage, secure and maintain these essential IT services for the agency.”

Under the ACES contract, HP will provide a variety of Computing Seat, Tier 2/3 Service Desk Support and Collaboration Services to more cost-effectively manage NASA’s end-user infrastructure at all NASA sites across the United States. Computing seat and cellular seat services are designed with security and collaboration capabilities to help the NASA team safely share information.

“The ACES contract will help evolve NASA’s IT environment to a centralized, adaptable IT infrastructure to enable economies of scale, agency-wide visibility and improved management and security,” said Dennis Stolkey, senior vice president and general manager, U.S. Public Sector, HP Enterprise Services. “HP will build on our deep industry, infrastructure and end-user services expertise to support this significant work for the agency that is pioneering the future in space exploration, scientific discovery and aeronautics research.”

The contract will be managed at the NASA Shared Services Center in Stennis, Miss., and will serve all NASA centers and facilities.

Shareholders approve Capita's acquisition of health and government divisions of Tribal Group.

Tribal shareholders have approved the acquisition, by the Capita Group Plc of the health and government divisions of Tribal Group Plc and the acquisition has now completed.

The cash consideration of £15.8 million on a cash-free, debt free basis for the acquisition includes a deferred consideration of up to £2.5 million. The acquisition adds key new capabilities to Capita's health and consulting businesses, details of which were included in Capita's announcement of 11 April 2011.

PricewaterhouseCoopers affiliates agreed to pay $25.5 million (15.3 million pounds) to former Satyam Computer Services Ltd investors to settle U.S. litigation over the audit of the Indian outsourcing company.

The settlement came four weeks after PwC agreed to pay a record $7.5 million U.S. penalty over its auditing work for Satyam.

In papers filed late Friday in the U.S. District Court in Manhattan, lawyers for the investors wrote that the accord followed mediation and was an "excellent result" for their clients.

Satyam's founder and former chairman Ramalinga Raju had in January 2009 revealed that what was once India's fourth-largest outsourcing company had fraudulently inflated revenue, income and cash balances by more than $1 billion over five years.

The fraud is sometimes known as "India's Enron," referring to the U.S. energy company that collapsed in 2001.

Tech Mahindra sets up BPO operations in Philippines

Tech Mahindra, India’s fifth largest software exporter and part of the US$ 11.1 Billion Mahindra Group, announced its plans to set up BPO operations in Philippines. The company recently signed a multi-million dollar deal, as one of the preferred BPO partners for strategic outsourcing with a leading full-service telecommunications company in the Philippines. The deal is spread over a period of 3 years.

Tech Mahindra will provide the client with contact center support for sales and back office, customer care and technical support for their wireless postpaid, landline and broadband customers. The end-customer mix will include both retail as well as high-end business customers of the client. Tech Mahindra has set up the contact centre at Manila to enable and deliver these services to the client and has already recruited over 600 associates locally.

The past year also saw Tech Mahindra foray into the African geography and the company has opened centers in seven African countries to serve clients in the region. The operations have already been commenced in Nigeria, Zambia, Malawi, Ghana and Gabon, while Congo DRC and Congo B are expected to start operations within the next few months.

Mr. Sujit Baksi, President - Corporate Affairs & BPO, Tech Mahindra, said, “Philippines is not only a key market for us, but also a strategic location from where we plan to service our global clients. We look forward to strengthening our presence in Philippines through our engagement with one of the leading players in the Philippines telecom industry and will actively support our client’s innovative plans to address the mobile telephony and broadband services market. Similarly, Africa is also one of our key growth markets and we have opened centers in seven countries to serve our clients in the region. We are excited to bring our best practices in customer service, which would accelerate growth for our clients in this region. Backed with global telecom experience and streamlined processes, Tech Mahindra will help clients enhance end-customer experience.”

ExlService Holdings, Inc. a leading provider of transformation and outsourcing services, has announced that it has signed a definitive agreement to acquire Outsource Partners International, a leading global provider of finance & accounting outsourcing services. With this acquisition, EXL establishes itself as one of the leading third-party service providers in global F&A outsourcing.

Rohit Kapoor, President and CEO of EXL, stated, “I am extremely excited about EXL’s acquisition of OPI. OPI is one of the largest pure-play providers of complex F&A outsourcing in the market today. OPI has over 3,700 professionals globally, approximately 80 clients, and an extremely talented management team. By combining EXL’s F&A outsourcing and transformation capabilities with OPI’s end-to-end F&A outsourcing capabilities and proprietary platforms, we will assemble a comprehensive set of F&A solutions. These solutions will be of tremendous relevance to the CFO’s organization.

"The acquisition furthers EXL’s strategic objective of leveraging technology and proprietary intellectual property in our solution offerings. We will also firmly establish our onshore outsourcing presence in the U.S. while enhancing our European and Asian delivery footprint. OPI’s and EXL’s cultures are aligned and customer centric. Our respective high-touch relationship management models are highly complementary and by combining forces we will be able to provide our clients with a broader range of transformation and outsourcing solutions. I am extremely pleased to welcome the entire OPI team to the EXL family, and we look forward to an exciting and successful future.”

As the recession begins to fade, companies have a renewed interest in developing innovative strategies to increase revenue, enhance working capital and retain their most valuable assets - clients. The days of aggressive labor arbitrage and transaction cost reduction are a thing of the past, replaced with intelligent cost management practices, optimized business process management and the utilization of advanced analytic tools to drive the business forward. The new lever being pulled today is achieving breakthrough business value and performance by aligning people, process and technology in unique ways.

Most viable organizations realize they have highly efficient processes that streamline efforts and significantly reduce costs. Though most have cracked the efficiency code, they are unaware that there is an effectiveness goal that can drive even greater business value.

While each function or department in an organization optimizes their part for efficiency, there are key inflection points where potential leakage can occur and hamper the overall effectiveness of the processes and ultimately business performance. In addition, most companies don’t have a sense of how good or bad their processes are and how much value is being leaked.

Knowing greater business value can be attained through both efficient and effective business process management is the first step toward optimized business results. Understanding the complete process end-to-end, and all of the critical connection points, creates levers for increased effectiveness. This, coupled with the availability of critical data and benchmarking against similar processes cross industry, crystallizes the road to true business effectiveness.

A solid and detailed plan, that leverages efficiency and drives effectiveness, one that is tailored to the client and implemented in a modular fashion delivers significant business results. In 2009, Genpact launched a structured and scientific methodology for managing end-to-end business processes called Smart Enterprise Processes [SEPSM] which delivers two to five times the impact on improved cash flow, increased margins, revenue growth and other targeted financial and operating metrics. We support our clients in their quest toward true effectiveness using process as an underutilized lever.

If the census was an example of how the amount of data stored doesn’t equate to the value gained , then it is the best and worst one you could find.

The government without doubt knows more about us than it ever did.

The e-government portal knows more about me than my wife does; car tax renewal and even if my car has valid insurance, all my tax information, child benefits, child tax credits - you name it, it knows about me - my family, my car, my home, my children, my electronic passport, and more than I probably wish to know they know.

We know this is true because of the amount of money the government spent on IT projects in the last 10 years – billions of pounds of investment to collect trillions of bits of information.

And 10 years since they started they still ask me to fill out a form, or type it online, asking me about the all the stuff they already know. So they have used up thousands of hard disks, and then they fill up another few thousand with my census data, doubling the data providing no more real knowledge it seems to me.

Now, the argument goes ‘but census data is a moment in time – a one off, because of population changes, migrations, emigrations, changes in religion, changes in family structures, you name it, it has changed, therefore the old data isn’t accurate or real-time enough to make future decisions’.

Well, and don’t take this personally central government, a lame excuse for not using the data you have well enough.

If government was a ‘supply chain’ and instead of delivering services to citizens it was delivering products on shelves to consumers, you’d have to think that they couldn’t figure out how many tins of beans the country might want to eat in a year.

Perhaps the real problem is that the government’s eagerness to ‘collect’ data on us, to fine us for not paying our car tax or filling in our tax return late or forgetting our MOT by a week has destroyed its ability to use the data they have in a smarter more efficient way.

They have lots of data collection and it seems to me very little data analysis.

If Tesco can send me vouchers to tempt me into buying things they already know I might buy then surely the government can do the same. What retailers have done for years is leverage tools to analyse the data they have to sell more to their customers.

And one rule of retailing is – if it doesn’t sell another tin of beans then don’t spend any money it. So, retailers don’t have any more data than they need, what they do is analyse it analyse it and analyse it again.

Perhaps if the government treated us like consumers of government services instead of citizens then they might realise that the data they have is a pot of gold, and would start a programme of storing less and knowing more. Perhaps our new time of fiscal constraint will force a less profligate attitude to storing ever more data on us all, and perhaps 2011 will be the year I fill in my last census form. Somehow I doubt it – and I hope not - after all, it’s the only time I get to be a fully signed up Jedi Knight!

Many companies still believe that they are ‘too small’ to consider outsourcing their IT infrastructure – so let’s get that myth out of the way first of all. Infrastructure outsourcing is not just for large companies. In fact, the provision and management of IT infrastructure can help small-to-medium sized enterprises (SMEs) reduce costs, gain greater control and increase the flexibility of their IT operations.

All of these factors lead us straight to myth number one: the cost benefits of outsourcing are only attainable for large companies. It’s easy to see where this particular myth comes from: details about the latest multi-million pound IT contracts are often covered by the media, where as smaller deals typically are not.

However, if you’re an established SME company with between one and a few hundred employees, outsourcing actually makes a lot of sense – either with the provision of the infrastructure itself and/or the management of it. Cloud computing, in particular, is changing the landscape of infrastructure provision. Instead of having to purchase, set-up and maintain hardware and software in house, the cloud model will allow you to access your IT infrastructure (and/or software) as a service. As a result, upfront costs can be reduced significantly, and you’ll also benefit from the provider’s continual investment in improving/upgrading the infrastructure.

Likewise, you don’t need to have a large IT department in order to reap the benefits of outsourcing the management side of your infrastructure either. We’ve worked with a high-growth SME in the property management and investment sector, which – after outsourcing the management of its infrastructure – reduced its IT head count by 60%. Not only that, but the fixed-price managed service was 57% cheaper than what the company had been spending on staff.

Myth number two amongst SMEs is that outsourcing will lead to a loss of control, since many of the services that used to be performed in-house will now be externalised. Any concern here is really unwarranted: when working with an outsourcer, the ownership is still yours. The main difference is that you can now focus on managing the supplier relationship and performance, instead of being burdened by the day-to-day minutiae involved with running all of these operations yourself.

A greater sense of control can also be gained through a regular review and reporting process (as well as a clear issue escalation process) to make sure that the key business objectives and service performance levels are being met. It’s advised to set a monthly performance/operational review, for example, as well as a bi-annual contractual review and an annual strategic review to ensure that your suppliers are aware of any changes in strategy, and also to cement the relationship between both companies.

Also, it’s worth remembering that outsourcing is not an ‘all or nothing’ arrangement, and we actually recommend that you retain a small number IT staff in house, such as those responsible for end user support. These support staff can give immediate response to issues at the user level, offering the direct interaction which is important to managing internal satisfaction.

Myth number three claims that outsourcing equates to inflexibility, since many SMEs still believe that outsourcing will tie them to a fixed contract with a fixed level of services, thereby leading to less flexibility if (and when) the company’s requirements change.

The fact is the outsourcers’ business is designed to scale up and down and provide a wide range of services to multiple clients. After all, what is your back-office operation is their front office and competitive edge. Experienced outsourcing providers will not only have the economy of scale to offer you cost-effective solutions but also can increase or reduce the service level depend on your business requirement. This is not usually achievable immediately or easily when you have an IT function with fixed headcount. Moreover, the outsourcers will have an extended talent pool or partner network for some specific or niche services you may require.

Simply consider the amount of investment that you’d need to put in up front – and the time it would take to achieve a return on your investment – if you set up and manage your own IT infrastructure in house. It could often be years. And during this period of time, there are still on-going maintenance and support costs and efforts involved. In comparison, by outsourcing the IT infrastructure, you can weigh out these costs over time, and therefore make necessary changes much more easily.

Infrastructure outsourcing is not just for large companies. Our experiences have shown that it has successfully helped many SMEs to reduce costs, gain greater control and increase the flexibility of their IT operation. Through working with a trusted technology partner, you can achieve your core business objectives through an effective and efficient IT function.

The outsourcing of the recruitment process to an external partner gives organisations immediate access to best practice in the market and the skills and experience of dedicated professionals. Which, of course, should mean that the quality of hires made through such an arrangement should be better than those made in any other way. But how do you actually know if the right recruitment decisions are being made? And given the wide range of factors that can affect the performance of an employee once they enter a business, from corporate culture to line manager ability, is it really possible to assess measure quality of hire in any meaningful way?

At the last meeting of the Ochre House Network, an extended think tank made up of over 650 major employers such as GE, Lilly and Microsoft, delegates came to the conclusion that, while measurement can be a daunting challenge it’s by no means and impossible. And these were the concrete suggestions that they came up with:

1) The ratio of candidates selected for interview by line management to the number submitted by the sourcing team

2) The number or percentage of exits per annum on a year by year basis

3) The allocation of bonuses at the end of a recruit’s first year

4) Comparison of capabilities at interview, on hiring, after three months and after one year

5) Asking line managers whether they would re-hire a recruit after three months and after a year

6) Sustained high performance over a three year period – it’s unrealistic to expect high performance within the first six to nine months

7) Monitor whether a recruit is tagged ‘high potential’ within an agreed time period

However, let me voice a few words of caution. Measuring quality of hire is obviously essential to make sure that organisations are building the right talent resources and getting best return on investment. However it’s important that the recruitment process doesn’t get bogged down in too much administration, stopping those at the coal face of talent acquisition doing their jobs properly. And it’s also vital that organisations don’t become obsessed with making the ‘perfect’ hire. What counts is that they get the best possible person available at the right time and in the right place. Aiming for the best is obviously always a good thing, but tempering expectations with realism is what gets the job done at the end of the day.