Industry news

The Indian BPO services market grew by 7.3 percent year-on-year in 2009 due primarily to the global recession and resulting price and volume pressures. The market is on track to reach $1.2 billion by 2011 and $1.8 billion by 2013, according to Gartner.

“In the short term, market trends such as changing demographics and affluence levels, consumption of value-based services, increasing focus on service quality and the continued momentum of mergers and acquisitions (M&As) bear watching, as their impact is certain to influence shifts in buyer needs and behaviour,” said T.J. Singh, research director at Gartner.

Three quarters of UK organisations are disappointed with the quality of work provided by offshore outsourcers, according research from Valueshore Spain, a group of IT consultancies. However 78 per cent of organisations said they still base their outsourcing decisions on cost rather than quality.

Though cost was still the main deciding factor in outsourcing deals, 94 per cent of respondents admitted they were increasing the likelihood of their IT projects failing to meet their requirements by focusing on cost alone.

“There needs to be a fundamental change in the way that many businesses think about offshore outsourcing,” said Daniel Naoum, co-founder of Valueshore Spain. “Taking a cost-only approach can have a detrimental effect on the quality of work received. Businesses also need to open their eyes towards the ‘hidden’ costs. The cheapest option doesn’t always provide to the biggest overall savings, as quality concerns can often result in more management time being required and increased travel and troubleshooting costs.”

Torbay Council has signed a £130m outsourcing contract with May Gurney for an initial period of ten years. The company will provide a range of outsourced council services including maintenance and waste management.

The contract has a possible extension of a further 15 years and will be delivered through a new Joint Venture Company (JVC) between Torbay Council and May Gurney.

Services provided will include: waste and recycling collections; the maintenance of highways, grounds, parks, car parks, buildings and the Council's vehicle fleet; street and beach cleansing; and out of hours call centre support

This was a week of ones to watch – the first of which was the global procurement outsourcing (PO) market, which was reported on Wednesday to have grown rapidly in 2009 with new contract signings and extensions increasing 30 and 90 per cent respectively, according to Everest.

The market is now expected to grow in excess of 20 per cent this year and reach nearly US$1.3 billion in annual contract value.

Meanwhile, a handful of potentially winning offshore destinations have reared their heads this week thanks to a new study from Gartner, which indicated that several credible alternatives to India and China are slowly but surely emerging.

Countries such as Malaysia, the Philippines and Vietnam have continued to strengthen their position, while Indonesia has also entered the top ten for the first time, according to the research.

In other news, a host of deals amongst major companies were announced this week, with technology and outsourcing giants Microsoft, Firstsource, AT&T, and Tech Machindra all securing and announcing contracts.

And finally, in this week of emerging and increasing trends, it appears an entirely new type of outsourcing is on the rise – dinner-making skills. The time has arrived for those whose culinary expertise starts and ends with beans on toast to impress their friends and family with gourmet meals that Delia Smith herself would be proud of.

The current pioneer of this type of sourcing is meal preparations company D’Lish, which makes a number of main courses for customers to take home to their freezer for later use. The day of DDO (dinner dish outsourcing) is upon us, perhaps?

Insurance firm AXA is unlikely to outsource any more jobs this year, group HR director Sonia Wolsey-Cooper said in an interview with the Financial Times.

The revelation follows the company’s deal last year to outsource administration of much of its life and pensions business to Capita.

Wolsey Cooper told Recruiter: “Our contract with Capita is a 15-year contract and all work and employees transferred from AXA to Capita in 2009.

“As such, there will not be further outsourcing activity during 2010.

“There is a clear strategic advantage for AXA in outsourcing the administration. As the number of policies in this area of our business declines, due to the life and pensions products no longer being actively marketed to new customers, it becomes less cost effective for AXA to invest in new technology to improve our service to these customers,” she concluded.

The 2010 budget has been dismissed by many as a phantom budget – a political step that saved the major announcements for during or after the election campaign. But there are some elements of the budget statement that should be of interest to the sourcing community; some presenting opportunities.

For example, National Insurance contributions are being raised by 1% for anyone earning over £20,000 annually. This small amount may not be that material overall, but does it sweeten the pill for those already considering offshoring to consider it more strongly, or even actually take the plunge?

The government has also pledged an aspiration to pay a minimum of 80% of all undisputed invoices within five days, in an effort to improve cash flow conditions for small and medium sized enterprises. Those who work in finance and accounting services will know how hard this will be to achieve in practice. To achieve this level of performance, Civil Service accounts departments would need to be operating at a level comparable with the best external service providers. Given that many do not possess the technology, scanning and workflow assets required to achieve this, it’s a worthy, but probably unachievable idea, without investment or considering using procure to pay outsourcing solutions.

Finally, with talks of significant spending cuts and moves of thousands of civil service jobs from London, an increase in public sector sourcing is inevitable. The £11Bn of efficiency gains announced this week is only the start. Of those private sector companies that have reported health and growth in the last few months, the majority have undertaken considerable internal shake-ups and restructuring, resulting in cost savings, more variable cost bases and more effective operating models. This will continue to be a tactic that the UK government will look to emulate, opening up greater public sector sourcing opportunities across a variety of functions. It is just the shape and nature of the sourcing that is to be determined, and this will become clear over the next two years or so.

In this climate, public sector departments and their service providers should remember old lessons; not to deploy new outsourced arrangements too quickly. Care should be taken to fully understand the true intent for the contract and ensure that this is baked into the sourcing process, contract and ultimately way that the service is operated. This intent is likely to include technology innovations, which need to be carefully planned and introduced. The oft-mentioned sacrifice of long term effectiveness for the sake of short term cost-cutting is of real concern right now. As is the duplication of effort between departments, where the same problems are being tackled in different ways.

Perhaps we could take a leaf from the Danish book. Their government has taken a direct approach to sourcing, albeit in a much smaller country. The government manages all IT hosting and delivery via central contracts, leaving the intricacies of the application of technology to the individual departments – although in its infancy, the approach appears to have merits. Perhaps the UK government should set similar strong direction about how sourcing should be undertaken, preventing departments from using unnecessarily divergent approaches.

Often in the outsourcing sector, one person’s innovation is another’s best practice, while those driving it can risk simply rehashing old ideas with a slightly new angle and calling this innovation. But true innovation should be more than just the production of ideas – it must produce real and tangible benefits to the organization involved.

According to the experts, innovation in outsourcing can be defined as the production and implementation of ideas and methods from supplier to client that are completely new, or as using existing ideas that are nevertheless brand new to the specific client involved, so as to provide significant value to the end-user and its customers. This means that existing ideas or methods of adding value or providing better service can indeed be used, but they must be entirely new within that particular relationship.

Both supplier and end-user must engage in the process of finding innovative methods, and both parties must be willing to take risks and invest in the outcome. They must make innovation part of the companies’ and contract’s core DNA. Full collaboration and joint responsibility from the start is key, as projects often need equal effort, attention and even funding.

But how important is innovation?

The need for innovation within the outsourcing sector has never been more important. Recession often means that long-term outsourcing deals, and finding a way to innovate that leads to cost-savings, is high on the agenda. Innovation in financial areas then, is clearly of significant importance and has forced suppliers and end-users to get on the case.

But for all the encouraging ideas and examples that exist in the outsourcing sector on innovation and how to make it work, there is still a long way to go. Often, agreeing on a strategy for innovative methods can be difficult in itself at the beginning of a partnership, and it is widely accepted that the definition of innovation and the ways it can be implemented in a specific company is not an area that everyone agrees on at the start of a relationship.

The sector is coming up against challenges in fully driving innovation, and one of the biggest hurdles, from a supplier perspective, is a the feeling of risk-aversion that often comes from end-users. Clients often want to know when, where and how an outsourcing innovation has been tested before by the supplier and whether or not it worked - a mindset which only serves to quash innovation. Furthermore, the increasing short termist nature of deals (or expectation of short term ROI) could drive out innovation.

To overcome this fear, end-users need to be prepared to take the plunge with innovations which may not necessarily be tried and tested; by their very nature, they involve taking a leap of faith and necessitate a level of trust in their relationship with the outsource supplier. To facilitate this process of mutual trust, it may be necessary to set the foundation for future innovations with some basic, manageable objectives for the end-user involved, leaving the riskier strategies until further into the sourcing partnership.

Companies also need to be mindful that some ideas will fail along the way – but taking the risk to innovate is certainly worthwhile.

In today's global marketplace, competition dictates that businesses do more with less — keeping costs low and quality of service high while generating and sustaining growth and profitability. For many businesses, improving back-office processes such as finance and accounting (F&A) is an effective way to cut costs and improve service while redirecting vital resources to business-building core capabilities. However, often executives have little time or sufficient expertise to fully analyze their F&A operations.

While most organisations use F&A processes to free up additional resources, there are often many added efficiencies they could also gain that until now, they have been missing out on. For example, assessing current processes and identifying opportunities for improvements, along with establishing standard operating procedures and performance metrics, have the potential to add significant business value.

Often, a service provider can offer a disciplined and dogmatic approach to F&A services based on industry best practices. It is important that they change this approach so they can implement technology tools and security solutions to enhance system functionality. Concentrating on people, processes, and technologies can offer synergies that help optimise F&A programs and best align them to overall business goals. So, what are the key benefits for companies looking to implement these three processes?

People: Listen and learn

It is my view that the best approach to providing IT and business processing services is to first listen to customers’ specific concerns, unique situations, and business objectives. Often the unspoken items, such as an organisation’s culture, adaptability, preparedness for change, or recent acquisitions or divestures are critical to understanding immediate business needs. All of these factors must be incorporated into a comprehensive strategy to achieve success and harmony when undertaking organisational initiatives. I believe that understanding these ‘people values’ are especially important when building a business case to outsource services.

Processes: Lots of Data, No Information

Over time, in many organisations, processes are established and inefficiencies settle in. A frequent contributor is out-dated or partially implemented financial systems. Even if 90 to 95 per cent of your tasks are fully functional, the 5 to 10 per cent that do not operate as intended can balloon into oversized problems. These seemingly small inefficiencies drive up the overhead and costs of an organisations accounting services. Even though technology is often a contributing issue, it is likely that inefficiency issues are not solely attributable to an organisations financial application system.

Currently, in our business assessments, a key point frequently noted is the lack of standard operating procedures (SOPs). In addition, many organisations do not establish or measure basic service level metrics. For instance, most firms have invested in an array of Sarbanes-Oxley flowcharts to ensure that financial transactions are properly controlled and recorded. However, most do not adequately focus on efficiency or exception processing. Furthermore, Service Level Agreements (SLAs) between the accounting groups and their business units are often not defined. Establishing meaningful SLA’s is an excellent initial step to identify and agree upon what business managers really want and need to improve their operations and build overall margins.

Technologies: Tools/Data Security

There are many technology tools designed to streamline and improve financial processes. Systematic workflow, electronic invoices, online portals, web-based reporting solutions, and scorecards are just a few common tools that can improve your processes, inside or outside of your applications systems.

Confidentiality of corporate data is a concern in all business environments. Currently at Dell, our data center facilities are subject to frequent SAS70 Type II audits, conducted by a major global accounting firm, to validate that our security procedures are effective and provide the best possible secure environment. Another key practice is that whenever possible we process financial transactions within the secure firewall of your company’s IT environment using your firm’s enterprise financial systems. Those environments are typically even more reliable when you opt to allow the service provider to manage your corporate applications within our highly secure data centers.

Looking ahead

In summary, through detailed analysis and knowledgeable advice, organisations can benefit from their F&A operation's performance and seize opportunities for significant process improvement. This, in turn, enables them to make informed, objective decisions about when to outsource or offshore, and whether an investment in business process management or re-engineering will be worth the cost — before they invest.

I believe that bundled and customisable standalone services that focus on people, processes and technologies can help organisations improve their operations and achieve measurable results, including order-to-cash and procure-to-pay processing, document management services, and Web-enabled process management tools.

Unison members and supporters in central Edinburgh have come together to launch a campaign, entitled ‘Our City’s not for sale’, in protest of the city council’s ‘alternative business models’, it has been reported.

Attempts to reduce costs in areas such as customer service, catering, cleaning and grounds maintenance are the driving force behind council plans to use joint ventures and strategic partnerships, according to The Guardian in Edinburgh.

John Stevenson, President of Edinburgh's UNISON branch told The Guardian the move could cost the council more money, not less: "The only way that you can get cheaper services by farming them out is cheaper wages and poorer service conditions" he said.

"And your tax, instead of paying for services, is paying for a private company’s profits."

India and China are still top in Asia-Pacific IT and BPO, but sizeable investments have seen various countries emerge as credible alternatives, according to a new Gartner study.

In the new report Gartner analysed the capabilities and potential of various countries as offshore services locations in the region.

“Countries such as Malaysia, the Philippines and Vietnam have continued to strengthen their position against leading alternatives, while Indonesia has entered the top ten for the first time,” said Jim Longwood, research vice president at Gartner.

“Some of these countries have invested considerably and leveraged increased demand for lower-cost services. The global financial crisis forced many organisations to place a greater emphasis on cost optimisation,” he adds.

The ten leading countries in Asia Pacific included the undisputed leader India, with China remaining the greatest challenger in terms of potential scale. The other countries include a mix of mature environments that offer limited cost benefits such as Australia and New Zealand and emerging nations with their respective challenges but attractive costs such as Malaysia, Indonesia, the Philippines, Thailand and Vietnam.

According to Gartner the last 12 months has seen significant activity in many countries to consolidate or grow their positions as leading offshore locations. Although India continues to grow in terms of IT services being exported, its relative share of the overall worldwide total has declined as a result.

India is also starting to face some challenges including wage inflation, local attrition rates, geopolitical issues and financial irregularities, which are opening opportunities for other countries that are also improving their capabilities to target local service demands of more-mature regional Asian clients.

“In view of India’s dominance, many countries trying to tap into this market are reassessing their strategy and looking at niche markets like call centres, logistics and other back-office functions where they might have a physical proximity advantage over mature countries like Australia, Hong Kong and Singapore,” said Mr Longwood.

Readers can read more findings from the report at "Gartner's 10 Leading Locations for Offshore Services in the Asia Pacific and Japan Region for 2010”