Industry news

The IT research and development (R&D) offshoring market in India is set to achieve a 23 per cent compound annual growth rate, reaching $21.4bn by 2012, according to a study by consulting firm Zinnov.

Zinnov CEO Pari Natarajan said, despite this growth in the R&D offshoring market in India there is a dearth of required talent pool, it was reported in the Offshoring Times.

Salaries constitute around 70-75 per cent of an R&D company operations and this was also impacting their productivity, said Natarajan.

A trend is growing in the US to bring call centre operations back into the country, having offshored the customer service operations to India.

Atlanta-based natural gas distributor AGL Resources is the latest to bring its call centre – which was operated by Wipro – back to the US, in a move which will create 75 new jobs locally.

It follows a succession of similar moves this year, from companies including Delta Airlines, United Airlines and auto maker Chrysler Group reported earlier in the year, it has been revealed.

This could raise a flag for Indian business process outsourcing (BPO) firms, according to publication tradingmarkets.com and follows the economic crisis and subsequent calls for companies to move operations and jobs back home.

"Given the current state of the US economy, now is the right time to invest in our country and create new jobs," said Hank Linginfelter, executive vice-president, utility operations, at AGL Resources.

Navistar and A.P. Moller-Maersk have both signed multi-year outsourcing contracts with IBM.

Navistar has signed a seven-year deal with the IT giant to provide the truck and motor home manufacturer with a range of IT services including data centre relocation, server and storage management, and database management services.

In the same week IBM, who already provide IT services for container ship operator A.P. Moller-Maersk, has had its contract with them extended until 2014.

Under these contracts, technology giant, IBM will provide both companies with a business model converting common IT processes to standardised components. These components can then be implemented across geographic and organisational boundaries.

Navistar CIO Don Sharp is optimistic about the advantages outsourcing IT solutions will bring to the company: “With facilities on five continents and continued global growth, it is imperative for Navistar to transform its IT infrastructure.”

Gone are the days of outsourcing and offshoring business processes and IT functions being a simple matter of choosing between a select few providers. The emergence of so many new providers with different skill sets, along with numerous potential offshore, nearshore and even homeshore locations has created a new complex global delivery paradigm known as multisourcing. But just what is multisourcing and what are the reasons behind its growth?

Multisourcing is simply the disciplined provisioning and blending of business services, most of the time IT related, in order to find the optimal set of both internal and external service providers. As a strategy, multisourcing treats every functional area as a portfolio of specific activities, some of which are then outsourced to third party providers while in house employees continue to perform other activities. Likewise, so-called multishoring or the use of multiple offshore, nearshore or homeshore locations can easily be considered an offshoot or, very much, a key component of any multisourcing strategy.

Benefits of multisourcing

Multisourcing offers an organisation superior flexibility and greater adaptability when choosing outsourcing solutions. In addition, multisourcing allows an organisation to objectively compare their internal shared services arms with external third party vendors. Thus, a larger resource pool is tapped and competition is initiated between providers to deliver the highest service quality for the best possible price.

Furthermore, with the traditional outsourcing approach of utilising one service vendor, there is always the risk that quality will deteriorate over time. Given the high costs associated with switching vendors and the subsequent loss of institutional knowledge after any switch, significant risks are associated with having all of your processes and projects tied up with one vendor. In the same manner, having one vendor who sends all of your work to one or two offshore locations may be considered unstable and pose significant risks to an organisation.

Potential risks and pitfalls

Although in theory, a multisourcing strategy offers less risk and fewer pitfalls than the traditional outsourcing model of using one provider, it is not a perfect solution. In fact, there are still potential pitfalls and added costs associated with a multisourcing approach. For starters, there is always the possibility that both the organisation and the vendor will under-invest in the assets necessary for the strategy to work or in the relationship aspects of the arrangement. After all, neither the client nor the outsourcing vendor is completely dependent upon each other.

Using multiple vendors may limit their capacity to use their economies of scale to achieve significant cost savings for organisations. Furthermore, there are inevitably larger management overhead costs associated with managing and monitoring multiple vendors. In addition, managerial turnover on the client side can, in fact, make it more difficult to switch vendors or to shift work between vendors.

Despite these potential risks, a successful multisourcing strategy can significantly reduce all of the risks associated with traditional outsourcing and have the added benefit of increasing operational efficiency.

Implementing a multisourcing strategy

Once an organisation has reached the appropriate maturity level and is ready for a multisourcing strategy, planning for, and implementing, a well planned strategy will be the critical key to success. The multisourcing strategy is a general outsourcing framework, consists of:

• Organisational Readiness

• Vendor Selection

• Contract Negotiation

• Project Planning

• Transition Management

• Metrics Tracking

Each of these phases has its own collective set of goals and challenges that will be critical to the overall success of any multisourcing strategy. In summary, successfully implementing a multisourcing strategy will still depend upon the maturity level and capabilities of the organisation seeking to pursue it and how well the implementation process is planned and then implemented and monitored. A successful implementation will not only save organisations money but it will also reduce the traditional risks associated with outsourcing and improve overall operational efficiency.

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.

Australian telecoms company Optus has signed a three-year agreement with HP Enterprises in a bid to improve the performance and quality of its support services and customer functions.

HP will provide applications management for a number of key applications including certain customer billing, data warehouse and other core systems.

“By streamlining our applications environment, we expect to achieve significant service level and operational improvements across our IT portfolio, which will result in a better experience overall for our customers,” said Lawrie Turner, chief information officer, Optus.

“Optus needs an agile applications environment to innovate and meet the changing needs of its customers,” said David Caspari, managing director, Australia and New Zealand, HP Enterprise Services.

Holland-based telecoms operator E-Plus has paired up with outsourcing service provider Comarch to provide technology services.

The Dutch mobile phone company will receive next-generation planning support from its new outsourcing partner, in the five year deal, set to begin officially in February 2010.

The service provider will deliver planning and configuration management and migrate existing data to the new platform.

The E-Plus Group is a division of KPN Mobile International, the mobile phone arm of Dutch telecommunications group KPN.

Qcom has been appointed to offer sales support to wireless device manufacturer Psion Teklogix in the UK in a three-year outsourcing contract

The technical outsource service provider will deliver a range of network infrastructure services for Psion, including site surveys and installations, configuration and staging, trouble-shooting services and on-site support.

Paul Westmoreland, managing director of Psion Teklogix, said: “Qcom is non-competing and has the bandwidth to support us. The team is professional, and offers both a great service and flexible approach.”

Qcom’s managing director, Neil Anderson, said: “Outsourcing wireless network infrastructure pre- and post-sales support allows manufacturers like Psion Teklogix to focus on their core businesses.”

Psion Teklogix’s customer base includes airports, government departments, the automotive industry, warehouse and distribution, and the retail industry.

The Renault Group has signed a three year outsourcing contract with Capgemini which will see the service provider take responsibility for managing the car manufacturer’s application lifecycle.

More than 180 Capgemini professionals will be involved in the project, including technical support, and applications development specialists.

The capacity for innovation the outsourcing service provider shows would serve to meet Renault’s needs, said its deputy CIO François Gitton.

"To meet the constantly evolving needs of users, a good knowledge of their industry is essential. This enables good alignment between the service provided, current projects and priorities. Capgemini has the functional and industry capabilities required,” added Gitton.

"This contract is a great opportunity to build a strong partnership with Renault. Our commitment can be seen in both the length of the project and in our ambition to assist the group in its future challenges,” added Alain Donzeaud, member of the Capgemini Group’s Executive Committee.

British outsourcing group Capita is embroiled in a row over claims that it overcharged schools for providing IT services. School software provider Bromcom said in a statement it had complained to the Office of Fair Trading (OFT) over Capita's Children's Services for overcharging by £75 million.

According to a Reuters report, Bromcom said it had made the complaint over what it called anti-competitive practices, including tying and bundling together software products which should be sold separately and charging inflated annual software maintenance charges to schools. It said it believed schools had overpaid over the past 12 years.

In a statement, Capita commented, "Capita Children's Services has already, through its solicitors, robustly rebutted the unfounded allegations made by Bromcom and we have had no contact from the OFT whatsoever with respect to this matter.

"We have served the education market for a number of years and grown our business through supplying innovative products to meet the changing needs of the market, maintaining good client relationships and working successfully with other suppliers."