Industry news

Cast your minds back a few years and think about which geographical locations were considered service providing power houses. India, UK and the US were the big three, collectively making up a huge chunk of the global services market. Fast forward to present times and the service landscape could not be more different.

Countries previously only realistically able to trade within the agricultural, apparel or manufacturing markets are now finding themselves on a level playing field with the big service boys. So which destinations are causing the change in landscape? In true Columbus-esque fashion sourcingfocus.com sets sail to navigate the ‘New World’ of BPO.

The BPO market has slowed down, as Alistair Maughan, partner at legal firm Morrison and Foerster points out, “ The BPO market has been much quieter than the ITO market recently. IT outsourcing gives immediate payback where as BPO has a longer ROI time and requires more investment.”

Despite a slow market, there are still a variety of upcoming locations hungry for a piece of that BPO pie.

First stop, Asia. This continent has been the epicenter for outsourcing. India, is of course the region that instantly springs to mind when people think of call centers, IT support or back office processes. In fact, for a while it seemed that so much of the outsourcing market was heading to India, it was hard to see anyone else really making headway in that space. However, times have changed.

Clive Longbottom, Service Director for Business Processes Facilitation at Quocirca, has highlighted a lot of to and fro in the Asian BPO market, “The Philippines has become really massive again for BPO. It was essentially dead as American companies pulled out of Manila because prices rose and quality went down. Organisations moved their operations to India, however as that market matured the same happened; prices went high and quality came down, so the Philippines became an attractive destination again.”

It’s not just the Philippines that has been making headway in the offshore market. Some of India’s closest neighborus have been quietly readying themselves for a push into specific service sectors. Mr Longbottom highlights Sri Lanka as being one of the key destinations to keep an eye on for finance and accounting services. Boasting the largest amount of CIMA qualified graduates outside the UK, as well as stringent data protection laws, the Asian ‘tear drop’ is set to be a key player in a niche market.

Looking closer to home, Eastern Europe is fast becoming a key destination for companies looking to keep closer tabs on their outsourced processes. Mr Maughan, highlights Romania and the Czech Republic as key areas, “Romania and the Czech Republic have done particularly well within the outsourcing world. Romania in particular offers a very attractive pan European solution, with good language capabilities.”

However, as Mr Longbottom points out, some of the previously socialist countries, which have recently converted to capitalist ways, are finding themselves in hot water. The recession has meant that capitalist converts have found themselves without the necessary cash to invest in infrastructure vital to BPO success.

The recession has also forced some destinations to adjust their place on the value ladder. Ireland was a location that quickly hoisted itself out from offering lower level services and positioned itself as a nearshore destination for high level BPO and IT. Knowledge process outsourcing and product development were the markets which Emerald Isle service providers felt were right for them.

These areas of outsourcing traditionally come with a high price tag and high price tags are traditionally something which companies refuse to work with during difficult financial times. So we may see Irish providers slip down the value chain, lower their prices and return to their roots.

Although there is a positive burst of activity from previously inactive destinations (Kenya, Malta and ,less prominently, Turkey) we are finding the same big vendors leading the field in the majority of these new locations. In fact, in a bid to stay competitive, vendors such as TCS, IBM and Infosys are setting up shop in these emerging destinations and taking the cream of the crop from the labour pool. As Mr Maughan highlights, a Romanian IT graduate would be crazy not to start his career with IBM in favor of working for a startup.

So, despite an exciting new landscape to explore, end users are essentially dealing with the same bunch of people. The difference is that now a potential outsourcer can make a demand for processes to stay within a certain geographical region around the globe, regardless of whether they are dealing with a big Indian or American vendor.

There are those who have managed to carve a name for themselves within this competitive market. KenCall, a Kenyan based service provider was particularly praised by Mr Longbottom as being a ‘shining beacon’ in the Kenyan BPO market. There is potential for start ups to gain a foot hold in the industry, they just need to establish a niche, employ best practice and ensure high quality for a reasonable price – no easy task.

All in all, we have got an exciting, competitive landscape within BPO. End users should always look to follow good practice when choosing a location and supplier. The old rules apply: don’t base your judgment solely on cost, get references and make sure you know what process you are outsourcing and which location/supplier is the best at delivering that process.

S-OIL Corporation (S-OIL), the third largest oil company in South Korea, hopes to yield significant savings through its IT outsourcing agreement with IBM. As a result of the contract S-OIL will reduce its investment in IT infrastructure and in-house maintenance services.

The agreement will see IBM supporting S-OIL in the key business areas including application operation and management, server, storage and network operation services, user support services, and disaster recovery services.

No financial details were released.

NEWS FLASH – companies are outsourcing their IT processes because they don’t posses the technical skills in-house. This is not something the Round-Up has woken up this morning and decided. It is actually the result of a report titled "State of the Outsourcing Industry in Mid-2009: Activity to Resume with a More Cautious and Global Focus" conducted by the AMR Research Inc.

The survey was conducted in May and June with 700 companies and the results broken out by enterprise and midmarket firms. AMR defined midmarket as companies with $750 million to $3 billion in revenue. The report concluded that IT outsourcing trends among midmarket companies in 2009 shows that outsourcing activities will increase over the next six to eight months, particularly in the areas of application development, hosting and IT infrastructure.

Another report that surfaced this week was the 5th annual report by the Duke Offshoring Research Networks. It is a collaborative report between the Conference Board and the Duke University Centre for International Business Education and Research.

The good news is that it returned positive results for offshoring practises this week. According to the report, offshoring strategy for U.S. businesses has more than doubled over the last 3 years. Small to medium enterprises emerged as particularly capable of discovering original locations for offshoring activities and were also noted as more adept in their use of the internet and web based cooperation technologies. So much for President Obama’s crack down on offshoring!

While the report did note employee turnover and the depletion of managerial control as possible risks of offshoring, Tom Heijam, one of the authors of the report, was keen to highlight the general benefits offshoring could provide to companies. He particularly cited “cost savings” and “the meeting of target service levels” as some of the benefits offshoring practises offered. It seems our boys and girls in those offshore destinations are doing their companies proud with meeting service level agreements.

The Round-Up couldn’t finish without the mention of one of the big players this week. Wipro Technologies has won a contract with BJ’s Wholesale Club Inc.

Wipro’s data centre in Nebraska will provide support to the wholesaler who insists the move will not be detrimental to the quality expected by its customers. BJ’s CIO, John Polizzi, was keen to point out the contract will allow BJ’s to adapt to change “without sacrificing quality.”

So to round up the Round-Up; ITO is on the up, offshoring is rising in the U.S. despite Obama’s best efforts and there is no stopping the high rollers from winning those big contracts. Phew, all of that in a week. I wonder what the Round-Up will come across next week…

Southend-on-Sea Borough Council has signed a three year contract with Civica, a software-based solutions company, to implement electronic document management (EDM) and workflow technology. The organisation-wide project is hoped to save £15 million over the next three years.

Perceived benefits of the contract include: reducing administration costs; saving physical storage space; and delivering a tangible return on investment of £1 million by April 2011.

The technology is already in the pilot phase across three departments at Southend-on-Sea that are particularly paperwork-heavy. The pilot will end in September 2009 and if successful, it will be implemented across the organisation in December 2009, to be completed by April 2011. The phased programme will eventually cover 20 service areas and more than 2,500 staff.

Martin Hone, Head of Finance and Resources, Southend-on-Sea Borough Council said: “As an organisation, Southend-on-Sea Borough Council is determined to reduce costs, increase efficiency and deliver an improved service to citizens. We initiated a transformation programme in January 2009 and Civica’s EDM and workflow technology will greatly improve administrative processes, allowing us to provide citizens with a faster service while cutting back paperwork and enhancing flexible working options for our staff.”

T-Mobile UK has signed a five-year contract with Infosys BPO, the business process outsourcing subsidiary of Infosys Technologies, to support several core processes to their finance directorate. These processes include customer finance, commercial finance and accounting (F&A) and procurement operations.

When speaking of the contract Tim Spence, Head of Customer Finance at T-Mobile UK, commented: “We were keen to partner with a company that possessed a good understanding of our requirements and business needs. Infosys BPO has shown deep telecom experience and is widely recognised as a leader in business process outsourcing. We are confident of gaining immense value through our partnership with Infosys BPO."

BJ’s Wholesale Club, Inc. (BJ's), a leading membership warehouse club headquartered in Natick, Massachusetts has signed an IT data centre and applications management services contract with Wipro Technologies.

Under the agreement, Wipro will migrate BJ’s mainframe and open systems environment to its data centre in Omaha, Nebraska, in an attempt to streamline their operations.

“BJ’s is in the business of providing our members value on brand-name groceries, consumer electronics, apparel, household items and seasonal products, and we do that by being as efficient as possible,” said John A. Polizzi, Senior Vice President and CIO of BJ’s Wholesale Club. “Our agreement with Wipro will help ensure that we can continue to meet our members’ desire for value without sacrificing quality while adapting to changes as we grow.”

Offshoring strategy for U.S. companies has more than doubled from 2005 to 2008 according to The Duke Offshoring Research Networks 5th Annual Report.

The report is a collaborative effort between The Conference Board, a global, independent business membership and research association and the Offshoring Research Network at the Duke University Centre for International Business Education and Research. The survey, now in its fifth year, examines all aspects of offshoring. These include drivers, risks, location and delivery models, performance outcomes and future plans, for a wide range of companies and industries in the U.S.

The report also confirms the globalisation of innovation -- the major finding of last year's report -- is continuing at an increased rate in all areas of industry. Speed to market and the domestic shortage of science and engineering talent are two key drivers for offshoring projects.

“Companies that have implemented a corporate-wide offshoring strategy often report significantly better performance in cost savings, meeting target service levels, improving relations with providers and overcoming internal resistance”, said Ton Heijmen, senior advisor, outsourcing/offshoring at The Conference Board, and one of the report's authors.

"Outsourcing innovation in engineering, research and development, product and software development and knowledge processes makes companies, whatever their country of origin, more competitive by increasing speed to market and compensating for domestic talent gaps." Heijmen concluded.

Other findings from the report include:

-Of all the offshoring/outsourcing projects initiated in 2007, most were related to product and software development

-The loss of managerial control and employee turnover were cited as the most important risks associated with the globalisation of innovation through offshoring

-Small and midsized companies are increasingly sourcing innovation offshore. Many of these companies find it difficult to compete for highly qualified talent domestically

-Small companies are also more adept at identifying and accessing new geographical talent clusters (i.e., Brazil, Egypt, Sri Lanka, Russia) and other locations outside of China, India and Eastern Europe

-Small companies are sophisticated users of web-based collaboration technologies and prefer specialized small provider

Leading bus operator, Arriva London, has signed a ten-year extension to its IT support contract for the period 2009-2019 with Capgemini UK plc. Under the outsourcing contract Capgemini will support the IT systems which underpin Arriva’s London bus operations, including activities such as crew scheduling, operational staffing, on-bus revenue accounting, performance monitoring and mileage planning.

Arriva London is one of the largest operators of the London buses and handles nearly 330 million passenger journeys a year.

Arriva London says that the contract has enabled it to constantly improve its services to passengers, automate many activities previously carried out manually, keep ahead of new legislative and regulatory requirements, and achieve significant cost savings, including savings in clerical staffing levels.

Jeff Quantrell, Operations Director at Arriva London, commented, “I am delighted that their [Capgemini] cost-saving support is to continue for a further ten years, including of course the Olympic year of 2012.’

Most of us like to think we can drive a hard bargain, both in our personal and professional lives. And when it comes to negotiating a sophisticated, wide-ranging outsourcing contract in a time of widespread corporate cost-cutting, the ability to hammer out a good price could potentially make or break a career.

So I was interested to see the National Outsourcing Association (NOA) warn last week that the falling price of outsourcing contracts could hamper the success of deals in the longer term.

“With the increased pressure on companies to cut costs, many are pushing through higher volume, low-cost contracts over shorter time frames, which more often than not sets the outsourcing contract up to fail," said NOA chairman Martyn Hart. Put simply, he added, it is more important than ever that contracts work for both parties and that best practice be followed from the outset.

Some 18 per cent of outsourcing contacts decreased in length over the last 12 months, the NOA found. But during the same period, 20 per cent of respondents said they have seen the value of outsourcing contracts increase, with just 10 per cent claiming they have fallen.

Should companies in that 10 per cent of deals be worried about the deals they've forged? Maybe. If the suppliers involved are happy with the price they've accepted, then there should be no problem. But if they have been brow-beaten or bullied into agreeing to a deal where profit margins are already wafer-thin, how responsive and flexible are they likely to be when a customer needs to make changes or requires extra service or support?

A better way to look at the negotiation process is to dig down into the fine-grained detail of the proposed contract. No outsourcing contract should come down to one, all-inclusive rate - and any attempt to insist on that with a supplier is likely to stall discussions early on in the proceedings.

In some situations, that might be OK, confirming that a given provider is simply not the right one for your organisation. But given the resources most organisations devote to supplier identification and selection, these failed discussions do come at a cost.

Instead, it makes more sense to list all the aspects of a contract that are open to negotiation and form a position internally on each of them. These could include financial and payment terms; work hours; overtime rates; length of engagement; access to resources; multiple operation benchmarks and guarantees.

Times are hard and many outsourcing customers are looking for a deal, so there's no harm in spending time evaluating what a supplier's real bottom line is. But going below that bottom line could seriously backfire on your organisation. Is it really worth it?

Consumers blame banks for the current economic conditions but this has not adversely affected their loyalty towards banking institutions. Good customer service was still found to be the main reason for strong loyalty in a new report from Convergys Corporation, Recent Trends in Retail Banking.

Some of the key report findings include:

• Customer Service is Key - Nearly half of customers’ loyalty to their primary bank is driven by two service-related factors: bank employees and issue resolution.

• One and Done - Resolving customer issues the first time was cited as the most important factor in the primary bank relationship by 29 percent of respondents. Nearly half of all calls into the contact centre involve an issue or dispute.

• Anytime, Anywhere Access - Retail banking is truly a multi-channel experience as 4 in 10 customers contacted the bank through the web, the phone, and by visiting a branch in the last year.

• Bank Branches Remain Vital - 89% of customers who contacted their bank online in the last 12 months were satisfied with the experience, yet 72% of all banking activity reported occurs in the branch.

• Loyalty Focus - Slightly over half, or 55%, said they would stay with their bank if another bank offered an incentive to switch.

• Up-sell Opportunity - Approximately 40 percent of bank customers would consider new products and services, with financial/estate planning and online brokerage services generating the most interest.

“Banks face turbulent economic times, stiffer competition, and increasing legislation. At the same time, they have to balance cost of service, an increasing focus on customer satisfaction, building loyalty and profitability. In order to do this, banks need to be nimble in supporting their customers regardless of service channel while also providing their customers with the highest level of security and identify theft protection,” said Jim Boyce, President, Global Business Units for Convergys.