Industry news

The Defence Science and Technology Laboratory (DSTL), part of the Ministry of Defence, has awarded a £60m contract to IT services supplier Steria for the provision of ICT services over an eight-year period, which will begin on 1 April 2011.

Steria will be responsible for delivering core IT services for DSTL's corporate networks, including maintaining its IT infrastructure, providing IT helpdesk support, and technical support for ad-hoc departmental projects.

DSTL said Steria met its requirements of flexibility, service delivery, information security requirements and value for money.

John Torrie, Steria UK and India CEO, said, "[We are] committed to delivering significant cost savings over the contract lifetime and supporting DSTL in its drive to improve workplace efficiency and IT asset utilisation."

Source:

http://www.computerweekly.com/Articles/2010/11/15/243938/MoD-lab-awards-16360m-outsourcing-contract-to-Steria.htm

Bulgaria has the potential to become a sort of a "Silicon Valley" of the Black Sea, according to participants in a conference on outsourcing and off-shoring, organized by AmCham, the InvestBulgaria Agency, and Colliers International.

More than 300 international and local delegates attended the first "Realizing the Potential - Bulgaria on the Outsourcing and Off-shoring Map" conference in Sofia, an initiative of the American Chamber of Commerce in Bulgaria (AmCham) and the governmental InvestBulgaria Agency, in cooperation with Colliers International.

"The Conference turned into a truly engaging and successful industry exchange. The one-day event gathered more than 300 international and local delegates - high ranking governmental officials, prominent experts and senior executives, who shared valuable experience and engaged in a forward-looking discussion about Bulgaria's potential as an outsourcing and off-shoring location," AmCham said in a follow-up statement Monday.

Source:

http://www.novinite.com/view_news.php?id=122195

"One of the key objectives of AmCham is to support the government in positioning Bulgaria as an attractive investment destination. The event was an excellent opportunity for international companies to meet and network with Bulgarian companies and to explore the potential of Bulgaria as an outsourcing and off-shoring location", commented Valentin Georgiev, Executive Director, American Chamber of Commerce in Bulgaria.

Keynote speakers and attendants of the event included Traycho Traykov, Minister of Economy, Energy and Tourism; Rossen Plevneliev, Minister of the Regional Development and Public Works; Krassimir Popov, deputy-minister of Labor and Social Policy. Amongst the prominent speakers were senior representatives from McKinsey & Company, AES, Hewlett-Packard, TMF, Johnson Controls, OPI, Adecco, SAP Labs and Colliers International.

According to Borislav Stefanov, head of the InvestBulgaria Agency, Bulgaria has three major advantages as an outsourcing destination: the location and cultural proximity to key markets, its political and macroeconomic stability and the qualified human resources and talent. He believes it is the government's job to make sure that the perception of Bulgaria by investors reflects the benefits that it offers.

"Bulgaria has a great opportunity to become a niche player in Eastern Europe and to be known for specialized skills adding value to business operations and development", said Atanas S. Garov, Managing Director of Colliers International, Bulgaria, as quoted in the AmCham statement.

According to him, services with highest development potential include IT, engineering, research and development (R&D). He noted that employees in the outsourcing and off-shoring industry in Bulgaria which at present are some 10 000-15 000, could potentially reach 100 000 within five years if there are concentrated efforts to attract investors and major service users.

"The incremental growth for outsourcing companies from Eastern Europe within the next 10 years could increase 4 times up to USD 440 B... Bulgaria can become the Silicon Valley of the Black Sea with the united efforts of the business, the government and the academia. In order to become a leading outsourcing/off shoring (O&O) destination by 2020, the country needs targeted demand and talent development/attraction initiatives, such as raising funding from public and private sponsors; improving suitable talent availability; identification of focus areas for the local O&O players; structural changes to the educational system, setting up a Bulgarian expats regain program and assuring a highly reliable, cost-effective enabling infrastructure," believes Detlev Hoch, Senior Partner at McKinsey and Company.

"When choosing an outsouring/off-shoring provider, the financial offer is not always the most important decision factor but also the quality of the services, the infrastructure and communications, and the business environment. Local government's support is also crucial: developing university programs focused on outsourcing, providing incentives to business, sponsoring educational programs and helping local companies define the opportunities to leverage language skills and cost optimization," said in turn Elizabeth Hackenson, Senior Vice President and Chief Information Officer, AES Corporation, USA.

"In order to be a country of preference for the outsourcing and off-shoring industry, Bulgaria needs to invest not only in infrastructure, quality of service and education but also to encourage innovative business projects and entrepreneurial skills, as well as ensure that there is a strong government commitment to this cause," believes Sasha Bezuhanova, Director, Public Sector CEE, Hewlett Packard.

For the last ten to twenty years, outsourcing to India has long dominated the outsourcing landscape. But that appears to be changing with recent emerging players raising their heads to take advantage of the outsourcing game.

Although there are some good options for outsourcing to Latin America, Eastern Europe and Russia, Mexico and other Asian counterparts like Vietnam and the Philippines, China is touted take the lead in the next few years as the leading outsourcing country. Despite worries that the Philippines might become the biggest business process outsourcer in a decade or so, China is closing in on the gap within the industry.

The clear advantage that China brings to the table is the six billion people or more that populate the mainland. With more and more engineers graduating from Chinese universities, there is scope for more work to come their way.

One criticism that points to China is that despite the fact that the country boasts its Internet skills among its population, the English speaking capacity is significantly lower than those of workers found in countries where Internet skills are far less. This discrepancy will cost China but only to a certain extent because everything is so cheap in China.

Talking about cheap, companies will want to consult several vendors before deciding to hire one in China. Cheaper does not necessarily mean better. Just as the euphemism, ‘You get what you paid for,’ is an apt description of quality all around the world, the same is true in China. There will be several points where point of contacts of outsourcing firms will have to define and spell out clearly what kind of product or service is desirable for the company.

China has traditionally been good at process development when it comes to manufacturing and that tradition continues to grow. We buy everything from TV sets to cell phones from China. They have a way of bringing the basics to life and for a price that is fraction of its rivals – patent infringement aside, of course.

Just a few years ago, there were controversies over Chinese products coming into the U.S. that was tainted, for example seafood that salmonella in it. Another big scare was lead found in paint in children’s toys manufactured in China by Mattel. And there was a domestic scare about the ubiquitous ‘Chinese pork bun’ being made out of inedible materials.

All this goes to show that if you’re going to outsource to China, you will have to engage in frequent monitoring of products and also engage in constant communication with vendors so that standards are misinterpreted. If that can be achieved, China outsourcing offers value for the money.

Source:

http://www.sys-con.com/node/1611776

The Government has already "exceeded" its £800m savings target for this year by squeezing its main suppliers for cash rebates, Francis Maude, the Cabinet Minister has said.

With public sector contractors Serco and Capita due to update investors this week on trading and negotiations with 34 "second-tier" government suppliers taking place this month, the eventual savings could be much higher.

Mr Maude said the £800m figure had been a best guess when he began the cost-cutting process in July. "We did not actually know exactly how much we would get out of renegotiating contracts. We had an ambition and we've slightly exceeded it," he told The Sunday Telegraph in an interview.

He was speaking before Serco announced on Friday that it had agreed central government contract "scope changes and cost efficiencies". The company will update investors today when it posts a trading statement but has already said the changes were "not material" to its earnings.

Nineteen suppliers were hauled in to the Cabinet Office in July and since then G4S, Cable & Wireless Worldwide, Logica, Cap Gemini, HP, Oracle, BT, Accenture, Siemens IT Solutions and Services, Steria and Atos Origin have publicly said they have agreed deals.

Source: http://www.telegraph.co.uk/finance/newsbysector/supportservices/8132753/Francis-Maude-Government-has-exceeded-800m-savings-target-for-suppliers.html

US President Barack Obama, who has been openly critical of offshoring to India, seems to have changed his tune during his state visit to the country.

What seems to have changed his mind is the signing of some major trade deals, worth about $15 billion, as an “important step in elevating India to one of the US’ top trade partners. The US president said that the deals with India will create 50,000 jobs back home. The purchase of US Cargo planes by India alone will create 22,000 jobs in America, he added.

Obama said both the US and India were “operating on stereotypes that have outlived their usefulness”, adding “Whenever I’m asked about Indians taking away our jobs, I want to say, you know what? They’ve just created 50,000 jobs.

"US companies are creating jobs with tech in US and Indian businesses will take those technologies to expand growth and jobs in India and US," said Obama. “We agreed to keep working to reduce trade barriers and protectionism.”

“As far as India is concerned, India is not in the business of stealing jobs from the US,” said Indian Prime Minister Manmohan Singh. “The outsourcing industry, I believe, has helped to improve the productive capacity and productivity of American industries.”

Source: http://www.publictechnology.net/sector/central-gov/us-offshoring-deal-unveils-obama-u-turn

A £150 million outsourcing deal has been passed by Bournemouth City Council, which will see private company Mouchel take the reins of several services in the city for the next ten years.

Mouchel, which in recent months has had its contracted with Middlesbrough City Council extended by an additional five years, will run Bournemouth’s revenues, benefits, ICT, and facilities management.

In December 2009, the company was also awarded a place on Buying Solutions’ Software Applications Solutions framework agreement, enabling it to vie for contracts across the public sector, including customer management, enterprise resource planning solutions, and information management applications.

The agreement with Mouchel was passed by Bournemouth City Council by 34-12, with Conservative councillors arguing the deal was necessary as the city tries to manage a 40% budget cut over the next ten years.

Mouchel executive director Tony Williams moved to reassure citizens, and claimed service users, "won’t see any changes on December 1. It will be the same staff, doing the same jobs, for the same residents, from the same place.

Source: http://www.publictechnology.net/sector/local-gov/bournemouth-begin-150m-outsourcing-deal-december

Outsourcing and the hidden costs of recruitment

We’ve written before on how many organisations are choosing to outsource their recruitment functions for more strategic reasons than short-term financial gains (read our previous contribution at http://www.sourcingfocus.com/index.php/site/opinionscomments/2519/) , but for the moment, there’s no getting away from the fact that a desire to save costs is still a significant factor.

However, at the risk of stating the staggeringly obvious, you can only save money if you know what you are spending already. And when it comes down to recruitment, our research suggests that very few organisations have an accurate understanding of their cost per hire.

The superficial reasons for this are legion – the daunting prospect of marshalling and analysing agency invoices and the hidden hire squirreled away under some other budget area are just two of the most common ones. But what about all the other factors that arguably ought to come into the calculation? Some organisations will include elements such as advertising, travel costs and even the employment cost of the recruitment team itself, but few will go beyond this which may be somewhat short-sighted.

Our research shows that more than 50% of recruitment costs are indirect and perhaps one of the most obvious aspects of this is the time cost of line managers. With managers conducting an average of 10 interviews for each hire, it’s easy to see how costs can stack up (we calculated that hiring managers’ time accounts for around £2500 per hire). And while business leaders may accept that interviewing is an integral element of a manager’s job, they quickly become conscious of lost earning opportunities where revenue generators are involved. But this particular indirect cost may be just the tip of the iceberg with the ‘nine tenths under the water’ coming from the employment of temporary and contract workers.

Many organisations rely on contractors and contingent workers to support their operations, but a growing number also use them as an alternative to permanent recruitment and this is where costs can really mount up. So why do so many line managers choose the contractor route over permanent?

Our research uncovered two key reasons:

- Headcount approval – hard to achieve for permanent hires, but surprisingly easy for contractors

- Talent availability – managers frequently state that it’s easier to secure a good quality contractor than a good quality permanent employee

Sound reasons perhaps but not particularly cost effective. Let’s assume most contractors charge a 30% premium on their equivalent permanent salary and an agency margin adds another 20%. On average therefore the extra cost of recruiting a contractor over a permanent employee can easily be 50%. And that cost continues throughout the life of the contract. To make matters worse many organisations don’t even have a clear idea of how many temporary workers they are using at any given time. In a recent client project we found the company was employing three times more contractors than it thought it was at a cost of over £60 million. And £20 million of that was accounted for by contractor premium and agency margin – money that could have been saved by better overall control of the hiring process.

Which of course begs the question – can an organisation really afford not to know what its true cost of recruitment is?

Paul Daley is a director at recruitment outsourcing and talent management specialist, Ochre House – www.ochrehouse.com

Craig Wilson, MD of Ciklum UK, states how organisations, battered by cutbacks, are under more pressure than ever to demonstrate value for money from their IT projects. Yet the tide has turned on traditional off-shore services as a means of deriving substantial cost savings from IT development, because the results simply are not standing up to scrutiny.

Over the last few years, analysts have signalled a growing trend towards ‘backsourcing’. Indeed, Gartner Group* reported that 56% of small-sized business, and 42% of mid-sized business contracts are backsourced following contract discontinuance. Here, disillusioned UK businesses and public sector organisations cut their losses and bring their IT development work back in house, because the economies have not proved worth it. The main stumbling block has been a lack of management control - the result of overly rigid development methodologies and the logistical difficulties of trying to work with a team thousands of miles away.

However few organisations in the current climate can afford domestic salaries, as budgets have been set around off-shore cost models.

It is here that nearshore services have stepped in and interrupted the flow of projects being brought back in-house, offering organisations a viable and attractive alternative to the domestic wage bill. The most compelling propositions combine similar - if not better - cost-efficiencies compared to traditional offshore offerings, with more familiar and flexible working practices and greater management control.

Offshoring - blind leading the blind

According to IAG Consulting*, 68% of ‘waterfall’ (a rigid, sequential software development process, favoured by traditional offshore providers) IT development projects fail. This is because such arrangements are extremely blinkered in their approach. In the ideal scenario, a detailed, functional, step-by-step specification is requested by the outsourcer and, after a cost is agreed, the results are delivered within the agreed timeframe.

However, if there are problems with the steps in the specification, they are typically not flagged to the customer, but instead the process is continued with blindly and an entire project is quickly derailed. By the time the errors are discovered when the final product does not work or the goal simply cannot be reached, it is too late: the work has been done, the time and budget spent.

Even if errors are discovered early, any attempts to redirect the project along the way are likely to translate into delays, the resetting of contractual terms and inflated costs, undermining any anticipated cost and speed benefits of the offshore model.

A closer fit

And so it is unsurprising that the ends of corporate tethers are reached and more and more projects are brought back to the native shores. But while the project stands a greater chance of successful, timely completion when brought home, as greater control and flexibility can be exerted, the costs remain high. Domestic wage bills were after all the reason why the offshoring model was used in the first place.

Eastern European nearshoring destinations are therefore, quite rightly, seeing this reluctant return to in-house activity as a huge opportunity. The low cost and sheer amount of IT-literate talent – since 2005, the volume of the country’s IT market has grown an average of 77 percent per year – and the Europhile culture, combined with all the advantages of outsourcing with none of the detriment, is making the proposition highly attractive.

Craig Wilson, MD of Ciklum UK - www.ciklum.net

* Gartner Group, "User Survey: SMB Business Process Outsourcing," 2004

*IAG Consulting, "Business Analysis Benchmark Study," 2009

Today’s retail IT Director is far more than a ‘techie’, on hand to deal with the black arts of till and website malfunction. Instead, they are arguably the company’s most diligent multi-tasker, forced to focus on their organisation’s core competencies, their consumers’ wants and needs and, most importantly, what will entice these customers to keep coming back for more.

Relieving the IT department of tasks which are not its areas of specialism through outsourcing to a trusted partner not only relieves retail IT Directors of non-essential duties but also provides time to focus on developments which might otherwise have been neglected, such as multi-channel and m-commerce, serving the all-important consumers of the future.

When retailers measure the tactical benefits of using an outsourced IT partner, they should not ignore the value that comes from being able to release their IT Director to focus on growing the business. For an IT Director, outsourcing IT can be life-changing. It releases him or her from the daily management of services to guiding just a few key individuals within an outsourcing partnership. IT Directors should look upon this as the chance to improve their credibility as a business enabler and adopt a new field of vision – that of refining and differentiating the business through systems, services and innovations that both reflect and drive the mechanics of 21st century retail.

IT outsourcing can help fashion a role for the IT director that is more dynamic, more vibrant, where operations are managed effectively by a third-party and allow senior individuals to think of the bigger picture, be creative and more strategic. Where this is already being done successfully, organisations are a marked increase in sales and margin as IT moves from being a support structure to a business driver.

The new retail world is characterised by consumer pull rather than supplier push, and retailers have come to view themselves as service providers, responding to needs rather than necessarily creating them. To get ahead, retailers need to concentrate on the essentials: what they want to sell, to whom and how, and be ruthless in their focus on what sets them apart.

In that context, the mechanics of retail - supply chain and fulfilment, merchandising and delivery - are more important than they have ever been. IT processes are the engine that powers these mechanics. Consumers are becoming more discerning in their purchasing, expecting faultless and consistent delivery and being unforgiving if they are let down. Retailers must respond by creating a service-based culture which resonates with the demands made upon them. And, as more is asked of retailers, so they should ask more of their IT function.

Many retailers already employ outsourced partners (OPs) to manage key functions such as a Help Desk for store-based and office-based staff, a Data Centre environment where hardware and systems are hosted by a third-party, the development of new and updated applications, and project management of new IT infrastructures and systems. However, as a means to control costs, streamline operations and improve their service delivery in a demanding trading climate, more and more retailers will turn to IT outsourcing.

If an OP is chosen carefully, true understanding and hands-on experience of retail can also be provided. So, why dedicate costly inhouse resources to these areas when an expert can offer a better service more consistently by having focussed and skilled resources, and more cost-effectively by sharing the service across a number of retailers?

There is much to be said for approaching use of an OP as a means of shortcutting the lengthy and complex process of gaining ISO20000 compliance and adhering to the ITIL framework for technical development. ISO and ITIL are the first internationally recognised standards for IT service management. Whilst critical for IT providers, these accreditations are equally valuable to in-house IT departments in retail businesses that support internal staff and external customers, as a route to building ‘best practice’ into the systems that drive the business.

The process of acquiring ISO/ITIL accreditation is demanding and wide-ranging. It will commonly take an organisation many years to construct and consistently adhere to the necessary processes business-wide. Rather than impose the task of achieving adherence upon an internal department, it may be better to use an OP that has already ‘climbed Everest’ and gained ISO 20000 accreditation.

By demonstrating that they operate to the ITIL framework both within their own business and in their client work, an accredited OP can introduce huge gains in project development timescales and quality. The ISO20000 approach of ‘plan, do, check, act’ also helps organisations to learn from their successes as well as from their failures. The result will be services that better meet the requirements of the business and its customers, and at a lower cost.

In the retail race, there is no finishing line. Continuous improvement will be demanded of all retailers as they strive to keep pace with the demands of canny consumers and the rigours of a testing economy. Retailers would be well served by putting the best skills to use in the best way within their businesses. Outsourcing of core services to an ISO/ITIL-accredited partner and releasing IT’s main champion to shape the company’s future are a couple of the hidden benefits of outsourcing IT.

Dan Smith is Managed Services Director at retail-only solutions and services provider, Retail Assist. Email Dan.smith@retail-assist.co.uk or www.retail-assist.co.uk

A recent report (Commentary on Aggregate Complaints Data 2010 H1) released by the FSA has ‘named and shamed’ for the first time those UK banks which have received the highest number of customer complaints during the first six months of 2010. Unsurprisingly, the media jumped on these statistics, and a plethora of lurid headlines has followed. Banker-bashing clearly remains a national sport – and will most likely continue to be for some time – so perhaps we should not be too surprised at this outcome. But if we look closely, there are some interesting facts behind the headline-grabbing numbers in the FSA's report.

Firstly, as an industry, the banking sector actually receives relatively few complaints overall: according to a report produced for Ofcom earlier this year, just 6% of the UK population make a complaint about their financial services provider each year, compared to 12% who complained about energy suppliers, and 23% who complained about suppliers of broadband and telephony services. In an industry as highly-regulated as financial services, that’s not actually a bad effort.

So what does this tell us? Well first of all, it tells us that complaints are a real commercial issue, and that regardless of how management sees complaint management today, there are sound business reasons for putting real time and resource into complaints going forward. There are two views of complaints in the banking sector: those who see complaint management as an unavoidable compliance issue, and those who see it as a chance to gain valuable feedback and learn from it. As such, the way in which lenders react to customers’ complaints and feedback is a key difference in terms of service levels within different organisations.

The secret to complaints handling is understanding what the issues are and what you need to do to improve your business. At its heart, complaints management is a management information (‘MI’) issue. If complaint volumes are going to be taken seriously as a business issue, a robust process for MI reporting is essential. Disparate legacy systems will make seamless complaints handling very difficult, as a unified view of complaints is impossible to achieve.

Strong MI reporting enables a lender to consolidate and analyse customer feedback in order to identify the root causes of customer dissatisfaction. By using MI reports to analyse this data, lenders can quickly and easily classify their customers' issues, feedback and complaints, and can then make informed decisions on identifying customer requirements, enhancing product design and improving service delivery.

At the same time, lenders can also adopt preventative measures that will reduce the chance of a complaint before it occurs. It won’t happen overnight – but if you can establish a single view of complaints, dealing with the root cause of these problems will become much easier.

Despite the best efforts of any lender, however, complaints will always occur, and there will always be more work to be done in this area. Lenders will therefore need to keep reviewing their processes to ensure that they are fair – and working as intended – and will also need to evaluate the consequences of any changes they make.

Software can help with this process, and in fact can also be used to establish and monitor key performance measures that reward staff for treating customers fairly, and also to identify when things go wrong. Showing how complaints affect the bottom line is key to success – showing how costs can be reduced or how the chance of getting a fine has been minimised will be the indicators that management looks for. A small investment upfront in proper complaints management can offset much larger costs further down the line.

Paul Clark, CEO, Charter UK, www.charter-uk.com