Industry news

The age of uSwitch took many companies by surprise. The fact that customers can simply ‘up-sticks’ and buy services from a competitor virtually instantaneously, still confounds many companies. An industry hit badly by this customer-led revolution is the utilities sector. Some providers have begun to offer increasingly attractive deals, hoping to tie customers in for long profitable contracts. The mobile phone industry, by its nature saturated, has responded to the switching culture with instant ‘gifts’ for taking out seemingly never ending contracts. Orange, for example, has recently introduced the 36 month contract tying customers to £10 a month for three whole years. Yet amid the price wars and contract battles, companies are in danger of neglecting a key component of the equation – keeping customers happy.

As the UK approaches the end (possibly!) of the recession, it would do well to consider this point. A widely reported survey from market research firm One Poll, released this year, found that six out of ten people had switched companies because of a poor level of customer service. Also, in a 16-country survey, Genesys Lab found that poor customer service costs $338.5 billion per year in lost business. It is clear that short-term promotions and long-term contracts are not the solution.

At the centre of all customer relationships is the ability of an organisation to communicate promptly, rapidly and usefully with customers. The ability to please a customer in the first instance, placate where things have gone wrong and provide support for technical problems are all part of a company’s commitment to each new customer. The recession has caused companies to lose focus as they go for the quick new business wins, and attempt to gain business at any cost. For example, can you ever remember there being so many sales and reductions on the highstreet before Christmas?

Of course there are other factors at play, for example, the continued move to internet retailing. These factors serve to confuse the most important issue - if companies want to properly adapt to the age of uSwitch and online shopping, they need to reassess how they look after their customers. Only by providing a consistent and outstanding customer service from end to end, can companies ever provide the added-value necessary to stop customers ending up ‘down the road. And this means polishing everything from the shop floor to the call centre.

IBM has announced plans to expand its Indian BPO business, having significantly cut its US and European workforce in 2009. It has been reported that the company will increase its Indian capacity by at least 5,000 people this year.

The IT giant currently operates outsourcing facilities in a number of Indian cities, including Mumbai, Kolkata, Pune, Hyderabad and Gurgaon, and indicates that any expansion will likely take place in existing locations. The company hopes to capitalise on an anticipated rise in demand for BPO services during the coming year, it said in a statement.

Selby Mascarenhas, IBM Poland’s senior advisory consultant, commented, "We plan to focus more in the services sector by opening more BPO centres in India."

Virgin Atlantic has signed a five-year agreement with SITA services to provide IT support for the airline. Under the five-year agreement, SITA services will provide Virgin with more than 100 sites worldwide in addition to taking over 40 contracts from previous suppliers.

The airline IT specialist will also supply international and domestic IP virtual private networks, voice-managed local area networks, cabling, core network support as well as vendor and service management.

According to the airline’s director of finance and business services, Tim Livett, the agreement is intended to improve service delivery while generating “significant economies of scale".

The deal, which forms an important part of Virgin Atlantic’s IT cost reduction strategy, is expected to be completed by this summer. “[Virgin] will have the added benefits of simplified supplier management, faster deployment, improved reporting and reduced incident resolution times. All hugely valuable in addition to the monetary savings” said the firm’s head of IT services, Matthew Billings.

Walgreens, America’s largest pharmacy chain, has signed a ten year finance and accounting outsourcing (FAO) contract with India’s Genpact.

As part of the contract, Walgreens will move its accounting processes and staff to Genpact, a move that will involve the transfer of at least 500 jobs.

The Genpact-Walgreens agreement will impact accounting staff at its offices in Deerfield, Illinois and surrounding areas, including Danville and nine smaller accounting locations across the US, reported the Offshoring Times.

Wade Miquelon, Walgreens executive vice-president and CFO, commented: ‘The deal will help us improve cost productivity and facilitate our growth strategy, while maintaining an agile and service-focused organisation’.

Laundry and kitchen equipment supplier, Miele Professional has appointed voice specialist GasboxDMG to provide a two-year lead generation campaign.

Under the agreement, GasboxDMG will deliver highly focused lead generation activity in addition to inbound customer service support, marketing response handling and contact management. The agreement is hoped to further support Miele’s sales and growth in the market.

Lead generation for the Miele Professional dealer network will be further enhanced by the use of GasboxDMG’s integrated email tool, delivering the ability to engage with prospects using personalised and relevant content.

“We are pleased to announce that Miele has re-signed the contract with GasboxDMG for the next two years. GasboxDMG continue to provide us with the latest technologies and the highest standards of leads in terms of both quantity and quality”, Les Marshall, commercial director at Miele Professional said.

xoserve, the company which manages the commercial links between gas suppliers, transporters, and all 22 million UK gas customers, has signed a contract with Capgemini UK plc to manage an IT replacement programme.

xoserve distributes data which enables Britain’s gas companies to bill one another as gas moves through the UK supply chain. It also manages one of the largest customer databases in the UK, with two terabytes of data relating to the 22 million domestic, commercial and industrial gas supply points in Britain.

Steve Adcock, Head of Project Delivery at xoserve, commented: “With Capgemini’s help we are now able to implement a modern, cost-effective information capability, with new IT practices and systems, and better utilisation of data. As a result we are set to gain improved flexibility to enable us to meet future challenges.”

Capgemini worked with xoserve to carry out a comprehensive assessment of its information requirements and existing capabilities, producing a detailed strategic plan for its future systems.

Bosch Communication Centre is set to open a new contact centre in Manila to expand the language capabilities of its customer services. The centre will take on an initial 200 employees.

Bosh hopes that its new language capacity will enable it to increase its customer base. Additional languages offered by the centre will include Chinese, Korean and Japanese options. The languages will be provided in addition to the existing services offered to English speaking markets in both Europe and America.

Initially the new centre will provide support to the IT helpdesk project within the Asia-Pacific region. There are already teams in Berlin, Buenos Aires and Timisoara, Romania, working for the same project having a forth team will ensure worldwide multi-language support for technical questions.

2010 has started off with a bang as the National Outsourcing Association has released its annual predictions. Apparently, amongst others, things to watch out for are a surge in public sector outsourcing, shrinking multisourcing deals (mini-multisourcing) and a boom in business process outsourcing. That said, the festive season has brought a mixed bag of sourcing news.

The start of the week saw a report released showing one in seven manufacturing companies have brought its offshore operations back to the UK in the past two years. So it seems the NOA’s predictions have not come into fruition yet. It is only the eighth of January after all.

The study was conducted by EEF and revealed that manufacturers were moving production back to the UK due to concerns about poor quality and higher freight costs.

The NHS was not left unscathed over the festive period either. It has been criticized for spending around £1m on outsourcing to consultants, according to Express.co.uk. I think it is fare to say that the NHS is not new to bad publicity. Rest assured they will take it on the chin.

India has also had a rough start to the year with major players like Tata Consultancy Services (TCS), Infosys and Wipro losing contracts to nearshore rivals, including Ness Technologies of Israel, CPM Braxis of Brazil and Mexico-headquartered Softtek.

Emerging destinations are becoming increasingly attractive for top outsourcing customers as companies seek to work with local, specialised vendors instead of sending all projects to offshore locations like India.

It seems that the Round Up is full of doom and gloom on its return. However, the NOA have predicted good things for the year ahead and I have a sneaky suspicion they know what they are talking about.

by Howard Teale, general manager, Indicia Training

It’s fair to say that the number of people out of work in the UK - at 2.47 million - is at the highest level in 14 years. And more than one in three 16-24 year-olds, about 366,000, have been out of work for over six months. That’s the highest number of long-term unemployed young for 15 years. If things don’t start to improve, we could be facing losing another generation from the workforce, similar to what happened in the 1980s.

So what can be done to reverse this year-on-year rise in unemployment that the UK is currently experiencing? First of all, we must look at the skills people have to succeed in the workplace. And it’s here that a huge irony becomes immediately apparent. The UK’s young people are more skilled in IT than ever before - their use of social networking platforms, computer games, file-sharing and multi-media applications leaves most people over the age of 35 baffled. But they can’t operate most office systems. It would appear to me that their appetite for computer-based knowledge is being unexploited by our education system.

At Indicia Training we have seen the number of basic IT courses being booked by UK firms rise dramatically over the past few years. Courses on how to use Microsoft packages – the most commonly used computer programmes in business – have risen by 55% over the past year. And there is a simple reason as to why - more than half of all jobs in the UK are office based, and need these skills. Feedback from clients suggests that unfortunately, our young people are leaving school or college without these skills.

As such, private sector businesses are increasingly having to pay for the shortfall in these crucial skills by turning to private providers for training in basic business competency.

For many private sector firms, these skills mean a matter of commercial life and death. Take Scotland for example. Having done their bit to bring out the talent than undoubtedly exists in these intelligent and lively young people, the business manager wearily reads the words of the Scottish Government’s report Skills for Scotland: A Lifelong Skills Strategy “from cradle to grave.” One of the key areas was “a response to the needs of the economy and the demand of employers.” So far we have yet to see these plans put into practice.

Standards of literacy and numeracy in Scottish schools have been stagnant for nearly two decades - 25% of 17-25 year olds are illiterate - and many academics fear the new curriculum is unlikely to resolve the issue. If basic literacy and numeracy skills aren’t increasing, how can young people be expected to grasp the skills needed to survive in business?

And it seems the Government has realised they’ve got it wrong. Education Secretary Fiona Hyslop has recently been demoted, to be replaced by Culture Minister Mike Russell. Hyslop has come under fire for months now over everything from class sizes, teacher numbers to the new curriculum. In his reshuffle, First Minister Alex Salmond stated that education needed a “fresh look” – an admission that his Government got it wrong?

So why are companies happy to fork out so much on training? I believe that research from the Federation of Small Businesses, which shows companies that invest in training are two and a half times more likely to survive the recession, has spurred a lot of firms into taking action. And with the UK economy on track to come out of recession by the end of this year, according to a variety of business monitors, it will be these firms, the ones that have invested in training, who will be the ones that begin to see the benefits. They will emerge stronger than before and will be better placed than their competitors to capitalise on the available opportunities.

As the business community settles into its post-festive comedown, it is customary to look to the future and guess at the brighter things to come. Visions of 2010 have been hitting the sourcingfocus.com newsdesk thick and fast and we have picked out the best of them including the much anticipated views of the National Outsourcing Association (NOA) board and membership.

Out of all areas the public sector has come through most forcefully in predictions, with the industry expecting some painful changes going forward. The NOA’s membership and board predict a big rise in public sector sourcing arrangements in an attempt to claw back the government’s huge budget deficit.

Phil Dawson, Managing Director, MDS Technologies, comments “As public sector cutbacks start to bite, government, local authorities and the private sector will all be challenged to increasingly make very real savings. Cutbacks of around ten to 15 per cent will become realistic targets, with nominal savings of up to five per cent being regarded, in many quarters, as insufficient.”

However, the sector’s ability to cut costs by traditional means, such as staff cuts, appears limited having already scaled back during 2009. If combined with the increasingly pragmatic-looking Tory government there could be nowhere left to turn, meaning that sourcing and shared service arrangements are two of a shrinking list of options. Growth in public sector outsourcing is one prediction already being proved correct, with Lancashire County Council’s recent £1.9bn shared service project announcement.

NOA Offshoring Director, Mark Kobayashi-Hillary, commented, “The sector will need to explore more shared services and outsourcing options after the General Election than some currently believe. Efficiencies mooted in the Read OEP simply won’t be enough compared to the amount of government borrowing going on. The sector will be forced to explore extensive changes and new operating models rather than just efficiency drives if they want to escape from this increasingly large black hole.”

Another area high on the agenda this year is green and how business can adapt and innovate to combat global warming. Though Copenhagen was not as successful as many had hoped, the conference has certainly put green back on the media and business agenda. There are also some promising noises coming from the business world, for example an increasing adoption of green procurement requirements for new contracts. However, this year is expected to see environmental impact embedded further and deeper into sourcing than before. The NOA has launched a Green Steering Committee in a drive to guide the industry in ‘green sourcing’.

In a statement the association commented, “Environmental concerns will come back to bite those who thought they had been forgotten in the recession. Some parts of CRC [the Carbon Reduction Commitment] will become law and suppliers will need to understand it and be aware of how it impacts the supply chain.”

It is also thought that 2010 will see more innovation in green services and products that impact an organisation’s credentials. Legislation such as the CRC, though it has some interesting side-effects in sourcing, comes with new BPO opportunities. FirstCarbon for example, a subset of ADEC launched last year, has been quick on the uptake. The company has seen the opportunity to use its BPO processing capacity to carry out ‘carbon accounting’. As companies race to work out, and reduce, their overall carbon footprints, such services look set to become increasingly popular.

More positivity comes with signs of a possible economic recovery in the UK early this year. If this renewed optimism is believed, it will mean good things for outsourcing. Vendors should be especially happy, says the NOA, as their clients stop asking for reductions and ‘look towards expansion of capacity to support renewed growth.’

Farhan Mirza, principal at A.T. Kearney, comments, “Cost-cutting and contract renegotiation will continue early into 2010. But businesses will also start to refocus on growth, and IT will need to quickly shift gears again. With reduced internal capability following the headcount cuts in 2009, businesses will increasingly look to their outsourced services provider to support them in this area.”

TPI supports this too and expects to see a rise in the number of large scale contracts awarded both globally and in Europe in the next six to nine months. This, it says, is due to the clearing of a blockage in contracts that has built up since 2008 as decision makers refrained from making decisions on outsourcing.

Whether this change in focus will come to pass is still a moot point, as some industry experts still predict more cost cutting. Leading outsourcing lawyer, Belinda Doshi, comments, "The key trend for this year will be 'how to do more for less'. Customers will continue to drive down costs from their suppliers - and will expect their advisers to be more innovative in finding ways to do this. Expect tighter management of procurement timetables, more gainsharing and use of frameworks to keep suppliers on their toes."

Either way, the march of globalisation also looks set to continue this year as companies look at skills in an increasingly agnostic manner. The Hackett Group expects Global 1000 companies to significantly accelerating their movement of back office jobs to India and other low-cost labor markets.

According to the group, ‘over 350,000 jobs in corporate finance, IT, HR, and procurement will move offshore in 2009 and 2010 alone, bringing the total number of back office jobs in these key areas being done offshore to over 800,000.’ It looks set to be a good year for offshore vendors as they reap the rewards of European and American recession-fuelled cost cutting.

Interestingly, 2010 could see a resurgence in finance outsourcing, as those at the centre of the financial crisis, straighten out their business strategies and look to the future. Many financial organisations, especially banks, pulled back from outsourcing as the recession set in, but this looks set to change.

Duncan Aitchison, partner and president for TPI EMEA, commented, “We are also seeing a renewed interest emerging from the financial services industry, particularly banking. Historically, this area has regularly been one of the biggest spenders on outsourcing and its decline in activity in the last 18 – 24 months has had a significant impact on the overall market.”

A relatively new entrant to the sourcing fray this year is the small to medium enterprise. Recent research by SLASSCOM, the Sri Lankan IT and services development body, found that almost one quarter (22 per cent) of UK SMEs are considering offshoring, while one in ten are very likely to offshore elements of their businesses in 2010.

Madu Ratnayake, General Secretary of SLASSCOM, commented, “Interest in offshoring in the SME sector is both a symptom of the need to cut costs and a recognition that one country doesn’t always have all the skills needed for success. SMEs are coming around to the globalised way of thinking that is now necessary for success. Those SMEs that think globally about skills and staffing are set to be increasingly successful in 2010 and beyond.”

Interestingly the research found IT services to be the most likely thing to be offshored. But offshore IT developers look set for increasing competition from cloud computing as prices continue to fall. Doing things ‘in the cloud’ was the hot topic of 2009 and this looks set to continue. Research from Easynet Connect, a business ISP, found that half of UK SMEs will have moved into the cloud by 2011, up two thirds in the last 15 months.

However, there are still sceptics of how rapidly cloud will be fully adopted. Currently investment in the area by SMEs and larger companies is frequently done in a piecemeal fashion or in rare, company-wide overhauls. The Guardian Media Group’s move to Google is an example of this. Easynet worries that SMEs aren’t doing the right groundwork to ease the cloud transition.

Chris Stening, managing director, Easynet Connect, comments, “As a company which itself has adopted cloud computing, we find it worrying that the vast majority of companies aren’t taking basic measures to prepare themselves for such a significant shift in their business operations, such as creating a formal migration strategy, increasing security, ensuring they have a reliable and good quality internet connection or considering the impacts on their bandwidth and data demands.”

So, though the move to cloud looks set to increase, it may not happen as rapidly as many ‘evangelists’ presume.

In terms of offshoring locations, the NOA expects many lesser names to come to the fore. China, the manufacturing giant, will gain ground as a call centre player, says the association. The body also expects the Philippines, and Russia to increase in prominence on the world stage and Brazil to take a bigger role in global ITO. On the SME front, lower-volume players should come to prominence such as Mauritius, Sri Lanka and emerging African countries. The NOA also expects more location specialisation, for instance focusing on finance or elements of IT delivery, as countries recognise that global outsourcing cannot grow interminably.

Outsourcing 2010 certainly looks to have a lot in store for the industry and it should be an exciting year. It now remains for us to see which of these predictions actually come true. With optimism rising in the private sector, will companies increasingly use outsourcing to seize growth opportunities and re-skill. Or will they continue to squeeze budgets and suppliers? Likewise, will the public sector bite the bullet and start outsourcing with a vengeance? Or will it stubbornly defy reality, cut staff and let standards slip? Whatever happens, it appears outsourcing and offshoring can, and will, be used positively in many areas so one thing’s for sure – 2010 could be a bumper year for sourcing.