Industry news

Outsourcing and business process automation have been used by many organisations as separate entities over the last decade to help improve the efficiency of their IT. Many companies have successfully used third-party suppliers to deliver processes such as IT support and call centers, across all verticals, in an effort to focus attention on core business initiatives that add value to customers and shareholders. One of the primary benefits of business process automation includes removing non-value-add human interventions to make certain business operations faster.

However, today the problem for organisations is that the wave of quality and cost benefits from outsourcing and business process automation has largely dried up. Simply put, they have banked the savings from large outsourcing contracts over the last ten to fifteen years and there are few new incremental savings to be found. The reality is that these largest contracts are now a thing of the past, because more and more service providers are looking to implement clearer service level agreements (SLAs) to try to minimise risk for the customer.

No matter what type of product they make or service they provide, all organisations face many burdens today, such as rising health care costs, soaring energy prices and fluctuating raw material supplies. However, when the path to profitability reaches a stumbling block, managers seem to think they must make a critical decision: either go left and invest in business automation technology, or go right and outsource production.

While each strategy has obvious pros and cons that should be carefully considered, many companies don’t look far enough ahead before walking down the wrong path too quickly. Moreover, it is my personal view that the two practices do not have to be mutually exclusive.

As the pressure to cut cost remains in these uncertain economic times, I believe that leading edge companies should be looking to embrace process automation technologies and outsourcing together in conjunction with each other. By moving forward with the globalised provision of outsourced services together with experience in process automation from certain cloud enablers, there is the potential to achieve the cost savings seen in the initial wave of outsourcing nearly a decade ago.

It is easy to see why suitable business processes automation and IT outsourcing tend to have common features. For example, both can exist on shared or virtualised infrastructure, which can be shared evenly with other parties without compromise. In addition, the service source and delivery is location independent. Good examples for business automated and outsourced services will tend to have the capability for a uniform service, regardless of location or role of the end user. Desktop support is a classic example of this. Furthermore, a successful business automation and outsourcing service should both follow standard processes such as software testing, HR, security, payroll, and have consolidation as a design feature via server farms.

However, in order for both practices to work successfully, a combined business process automation and outsourcing strategy needs to be considered as an opportunity rather than a threat by the end user IT team. While outsourcing can be perceived as reducing the prominence of the in-house IT functions at an organisation, a combination of the two, when properly applied, will add to its importance. This is because a combined approach will place the end user and his or her team at the center of efforts to automate business processes. This should drive increased shareholder value in the coming years.

The customer also needs to clearly identify who his most trusted partners are for efforts towards a combined automation and outsourcing strategy. This will require an active collaboration between customers and suppliers who will both yield benefits for the efficiencies and innovation that business automation will bring. Unfortunately, some suppliers simply choose to go against subscribing to the idea of a combined business automation and outsourcing strategy in an effort to protect their own profits.

These suppliers will remain tied to the classical outsourced model and will inevitably be driven into offering more and more commoditised services at lower prices and lower margins. These will not be the chosen partners of innovative companies that wish to move their business critical applications into the cloud over the next few years.

In summary, the foundations of a combined process automation and outsourcing service are long established in sectors such as manufacturing. For example, carmakers have shared platforms to deliver multiple model ranges and competitive glassmakers have built factories together. The good news is that these principles are now being brought to the IT enabled services. Organisations are only just beginning to identify processes that can be simultaneously automated and outsourced as part of a single business transaction.

NOA End-User Benchmarking Workshop

Wednesday 9th February 2011

It is generally agreed that a common source of failure of outsourcing agreements is that the arrangement put into place does not work for all parties involved. Benchmarking data can be used to manage and improve provider performance not just at the start of a contract but throughout the duration of the collaboration.

The NOA’s End-User Benchmarking Workshop was held with the aim of discussing best practices, lessons learned and how to mitigate risks in the ever-changing IT outsourcing market.

Chris Smith, Vice President, UK and Ireland Benchmark Analytics, Gartner chaired the workshop and focused on three key benchmarking issues.

• How should benchmark data be used to improve provider performance?

• Should you plan benchmarking activity or wait until there is a cause?

• What should you measure to ensure a good deal going forward?

Chris commented: “Providers can see benchmarking as a threat but it can help with the overall transparency and understanding of outsourcing charges. Benchmarking clauses are really about contract optimisation not primarily cost savings.

“When applying benchmarking in a deal, it is good practice to jointly agree to a benchmarking process to promote cooperation and openness. Decide on an independent third party, conduct an initial benchmark and routinely schedule benchmarks which can be used to adjust deals as needed.”

Benchmarking Benefits

• Encourages discussion and alignment of your deal in context

• Provides a measure for continuous improvement

• Drives provider behavior to reduce charges

• Tests the validity of fees for specified services

• Evaluates relative performance within a peer group

• Creates leverage for price adjustments

• Quantifies the appropriate price/service delivery balance

Clauses

Gartner IT Key Metrics Data 2010 showed that 39% of end-users use a third party benchmarking firm to satisfy their contractual benchmarking clauses while 24% have no clauses at all.

It was emphasised that specific areas need to be benchmarked at the beginning of a contract and any intentions to benchmark any discrete service area or all of the service areas in the contract.

Be clear, in the contract, of the date of execution for the benchmark, such as 12-18 months after the contract start date and if a delay occurs, contractually document the delay and new start date. Do not let a slipped date be the catalyst to not benchmark.

It is always best practice to benchmark before outsourcing which provides a starting point to set forth a clear reference between current state and future measureable benefits from outsourcing.

Stipulate Benchmarking Methodology and Provider Selection Criteria

Define the benchmarking methodology, different third-party Benchmarkers perform benchmarks and comparisons differently.

Often, one methodology and/or third-party Benchmarker is preferred by clients or service provider. Disagreements about who will perform the benchmark can lead to derailment of the benchmark.

Define How Peers Will Be Selected and Compared

Peer group selection should be left to the third-party benchmarker; however, the characteristics need to be negotiated and defined in the outsourcing contract and realistic benchmarking comparisons must be defined. Peer comparisons, such as top 10% of group, top 25% and average of peer group, must be defined in the contract.

Define How Benchmarks Will be Staffed, Managed and Funded

The service provider should include all costs to support the benchmark activities (that is, resources to gather data and manage the service provider portion of the process, and review meetings), into their cost models for the outsourcing deal.

If benchmarks are established and defined in the contract, the service provider will have a clear understanding of the level of work and expectations. Benchmarks can be funded in different ways such as payment by the service provider, payment by the client and payment split 50/50.

Stipulate, in the contract, who will fund the benchmark; otherwise the question will quickly arise and can delay or halt the benchmarking exercise, as well as create ill-will between the parties.

Define How Benchmarking Results Will be Used in the Deal

Benchmarking results can be a powerful tool in determining whether the price and value of the deal are in line with market-based pricing and value expectations, but you must stipulate in the contract how the analysis will be used. For example, a contractual trigger to adjust prices during a certain time period along with service-level changes. The contract must also state what will be done with the outcome of the benchmark results.

Conclusion

The workshop concluded with a question and answer session which focused around Gartner’s own four key benchmarking questions:

1) Vision and Alignment - Can both parties meet their strategic & operational goals, and respond to business and technology changes?

2) Price & Service Levels - Do the Scopes-of-Work, delivered service & price meet the business requirements and are they reasonable?

3) Customer Satisfaction - Are the business unit users and managers satisfied?

4) Contract & Relationship - Does the management of the contract and relationship meet the needs of both parties?

Attendees included: Chris Smith – Vice President, UK and Ireland Benchmark Analytics: Gartner, Adrian Turner - European Head Corporate Procurement: Apple Europe Ltd, Stephen Green - Head of Operations: ATOC Ltd, Alasdair Wann - Group Procurement Global Sourcing: BT, Sav Thevendria - Service Manager: Carphone Warehouse, Marelize Verdoes - Vendor Test Manager: Carphone Warehouse, Duncan Falconer - Application Technology Consultant: Carphone Warehouse, Neil Wright - Head of Customer Services: Everything Everywhere, Danny Booth - Group IT & Communications Director: Hyperion, Peter Thurley - Supplier Relationship Manager: Metropolitan Police Service, Francis Kendall - Site Head of Statistical Programming: Roche, Mary Coyne - Head of IT and Indirect Procurement: TUI Travel, Michael Ruddock - Finance Director: Westbourne Terrace Management Services and Paul Corrall, Editor: Sourcingfocus.com

Intelenet Global Services Pvt Ltd has announced a new facility in Latin America as part of its global focus on providing effective right-sourcing solutions. The new centre, in Guatemala, will serve as a near shore destination for global clients with North American operations and will provide multi-lingual support in English, French and Spanish languages.

“Our expansion into Guatemala is a key step in improving our global footprint and providing comprehensive, integrated solutions to our clients,” said Susir Kumar, Managing Director and CEO, Intelenet.

“Guatemala has emerged as an important BPO destination as the local population has a very good understanding of the American culture and the country has an abundance of English speaking people. It offers a strong blend of multi-lingual skill sets, talent and a favorable business climate, making it an ideal location to service clients in America,” added Mr. Kumar.

Intelenet believe that Guatemala offers key competitive advantages as a first-class outsourcing provider including:

- a modern, robust, fibre optic infrastructure with 99.89% redundancy

- three mobile phone operators with a 90%+ mobile phone market penetration

- 19 local network operators

- lower development costs

- GMT (UTC)-6 time zone

- a highly educated, bilingual and trained labour force with computer languages

Adrian Quayle, board member, the National Outsourcing Association (NOA) has responded to the critical report by the NAO regarding the current use of ICT in the government.

Adrian commented: “The National Outsourcing Association welcomes the proposed approach by the National Audit Office for its Landscape Review of ICT in government. We would also welcome an early dialogue with the National Audit Office Study leader, Dr Sally Howes.

"We would strongly recommend that the NAO review tracks and learns from long term relationships that have genuinely delivered value for money and those that have not."

As part of the NOA's activities in helping business organisations create solid and profitable relationships, Adrian has been working with other industry associations in collaboration with the British Standards Institute (BSI) to publish the first-ever standard on Collaborative Business Relationships – BS 11000.

“We believe that the NAO should seek evidence of the benefits arising from genuinely collaborative business relationships. We would hope that this study would identify how many Senior Responsible Owners in government are trained in, and working to, the industry best practices of collaborative business relationships set out for example, in the new British Standard BS11000.“

Logica, partnering with FleetCor Technologies Inc, a leading independent global provider of specialised payment products and services, has announced that they have won a 10-year, €300 million contract to support Shell’s Commercial Fleet fuel cards programme in Europe and Asia.

Business-to-business fuel cards offer firms that operate fleets of commercial vehicles a convenient, cost-effective and secure way to pay and account for fuel and other on-road services.

Logica has teamed up with FleetCor to deliver the service to Shell. Logica, as the prime contractor to Shell, will join FleetCor to provide the technology platform and underlying business processes to run Shell’s fuel card portfolio. FleetCor’s Global FleetNet (GFN) card processing platform will be used to develop Shell’s customer offering.

Logica will run Shell’s existing system and replace it with a new system built around GFN. The first pilot is due to be completed by April 2012 with the full roll-out completed by end of 2013.

Andy Green, CEO Logica, said, “Winning this contract reinforces our ability to handle complex projects across countries with our clients. Logica’s deep understanding of the oil and gas industry, coupled with its experience in payments and fuel cards in particular, gave us the edge in developing a compelling proposition for Shell.”

The National Audit Office has published a critical report into the government's approach to ICT.

The NAO report outlines five areas of discussion including a lack of business intelligence and the poor quality of cross-department ICT initiatives.

The report has been released as the NAO commented that the government will face challenges after its “radical and rapid changes” made to it's approach to ICT.

Sureyya Cansoy, director of public sector at Intellect, the trade association for the UK’s technology sector said:

“The report is a very useful snapshot of the current landscape and the challenges ahead. We welcome the NAO’s recognition of the important roles that information and technology play in delivering better and more efficient public services, increasing social mobility and driving economic growth.

"Public service reform should be focused on value, not just on lowest cost. The NAO’s approach supports this and we look forward to working with them to collectively address the challenges they have set out.”

Some GP pathfinders under the Government's rollout of its NHS reforms are planning to outsource almost every area of commissioning support to the private and voluntary sectors, a Medical News survey reveals.

25 GP pathfinders were asked about their upcoming approaches to spearheading the Government's health reforms, and the management support they are recruiting.

Some are following an NHS-only policy in recruiting commissioning support, while others plan to use external support for most areas.Some pathfinders are even setting themselves up as private companies until the formal handover from PCTs.

ADA Technology Services has been awarded an IT managed services contract that will see the Sussex-based specialist run Marlin Financial Services’ entire IT operations over the next four years. The £1.4m contract will support Marlin’s ambitious growth plans and will initially cover 125 users, rising to 200 over the term of the agreement.

Marlin will receive complete IT service support for every employee and benefit from outsourced management of all its IT systems and applications. The move will allow Marlin to focus on operational delivery and achieving targets laid out in its long-term growth strategy.

Key services will include the delivery of a newly hosted infrastructure, which is supported by a remote service desk and supplemented by regular onsite support engineers. ADA will also provide VIP support for the executive team, technical account management services for advanced problem resolution and reporting, and a virtual CIO to define Marlin’s IT strategy. A comprehensive disaster recovery service including a 25-desk emergency suite will cater for relocation if required.

ADA's Managed Services Director, Ash Patel, says: "This is a great project for ADA and one that plays to our strengths. As a mature IT outsourced services specialist that caters specifically for the mid-market, we have developed a thorough understanding of what our clients need from an IT perspective in order to help them grow. As a consequence of Marlin’s decision to outsource its IT function to ADA, we are able to plan and manage their IT costs as the business expands. Marlin now has a pre-allocated price per user that will provide complete control of its IT expenditure over the next four years”.

Diminishing UK public sector contracts contributed to the mixed year-end results announced today by IT services giant Atos Origin.

The group's overall operating margin of €337m was up to 6.7 per cent of revenue in 2010, compared with 5.7 per cent in 2009. But that was on revenues of €5,021m, a decline of 3.5 per cent on last year.

As part of the year-end results announcement, Atos also laid out its plans for integrating SIS.

Business owners urged to help themselves – and each other – by taking part

A new campaign aimed at transforming the fortunes of smaller firms across the UK was launched today by a leading business group.

Get Britain Trading, the brainchild of the Forum of Private Business, aims to raise awareness of the huge contribution small and medium-sized enterprises (SMEs) make to the UK economy.

It also aims to make that contribution even bigger – and help push forward economic recovery – by vastly improving the conditions smaller businesses are forced to operate under.

In order for the campaign to work, the Forum is calling on as many SMEs as possible to get behind it by visiting a specially-created website – www.getbritaintrading.co.uk.

On the site, business owners are invited to sign up to the ‘Get Britain Trading pledge’, which is an expression of support for the campaign and its aims. By taking a few moments to input an email address, business owners will receive a free practical guide filled with expert advice on common small business issues such as bank lending, late payment and cost reduction.

Get Britain Trading calls for number of radical changes to be made in order to allow smaller businesses in the UK to thrive, which in turn will boost employment and prosperity at a time of widespread economic uncertainty.

The Forum is arguing that if action is taken to tackle problems such as excessively complex tax laws, stifling workplace regulations and crippling fuel and utility costs, SMEs will be much more willing to create new jobs and spend money on products and services from other businesses.

Setting in motion this ‘ripple effect’ of increased business confidence and investment is at the centre the new campaign.

Forum of Private Business Chief Executive Phil Orford said: “We want business owners across the UK to help to us help them by backing Get Britain Trading.

“We really believe this campaign can transform the small business landscape in the UK and free SMEs from the shackles of excessive red tape, mind-bogglingly complex tax laws and all the other things which can make running your own business a constant uphill struggle.