Industry news

The growth of the Indian economy has slowed somewhat over the last year to 5.8 percent compared to 8.6 percent for fiscal year 08. But amid the global turmoil, maintaining even this level of growth is still highly impressive. This especially in an economy heavily rooted in the provision of outsourced services. But, while the country may owe something of its continued growth to recession-led outsourcing deals, the industry is unquestionably changing. No part of the industry is evolving half as rapidly as in the provision of contact centre and BPO services.

“In the past two years wages have gone up by an estimated 75 percent,” commented Clive Longbottom, a respected analyst and outsourcing commentator from Quocirca.

The effect of this rapid economic growth and increasing prosperity in the region is of course, having a big effect on the outsourcing industry. The contact centre and BPO space is heavily price driven so the effect on these offerings is even more profound. The recent State of the Industry Report from Brown and Wilson, estimated that 94 percent of respondents planned to outsource BPO to the cheapest vendor in 2009-10, likewise in contact centres the figure was 72 percent. But with developments in the region, it does not appear that India will be meeting these demands, at least not in an onshore capacity.

The services that India provides are clearly changing in response to both economic and client-driven factors. Most industry commentators state the country has now reached a third generation of BPO outsourcing services.

“In the third generation the wheels really fell-off. Companies like Dell and others all started advertising about their UK-only contact centres. Indian providers are experiencing approximately 80 percent churn in employment. The problem is chasing labour arbitrage,” commented Longbottom.

It seems the sums simply no longer add-up selling the country’s services on price alone. India’s ability to offer straightforward, low cost, good quality call centre services, has significantly diminished and this is driving some clear changes.

“The US were initially using Manila a lot but then moved to India because it was cheaper. Now they are moving back,” said Longbottom.

Indeed, the trend of Indian suppliers starting to outsource is a pertinent example. Locations like the Philippines, Eastern Europe and Africa are all being looked at by some of the larger players as a way of still offering low cost call services. The expansion of the largest Indian contact centre providers in order to provide a ‘global footprint’ is compounding the trend. 24/7 Customer, an ‘Indian-born’ vendor is a good example. The company has expanded to almost all the outsourcing ‘hot spots’.

“We don’t view ourselves as an Indian-centric company,” commented, PV Kannan, CEO of 24/7 Customer.

24/7’s strategy appears to have been to tap the local markets for their individual skills and serve the most appropriate markets from these destinations.

”Our single largest location is the Philippines for customer care and Latin America for medium services,” said Kannan.

So low-level contact centre services appear to be going elsewhere. Then what is India doing with itself nowadays if not the so frequently lampooned contact centre of the 90s? Due to the economic current in the country and the increasingly technical services required by customers, Indian outsourcers are rapidly climbing the value chain into higher-end services.

“I haven’t had one conversation in the UK in the last six months where the subject of social media hasn’t come up,” commented Kannan.

The proliferation of social media communication channels is predicted to be a big thing in the contact centre industry. And Indian players are taking advantage of their mature business models to start making headway with these technologies.

“We are mining through customer sentiment and feeding this back to clients then helping consumers with their problems. We are planning to launch a free tool so customers can find out what people are saying before they work with us,” said Kannan.

But these services can presumably be offered anywhere in the world with good written client-language communications. A degree is not required for chatting over Twitter. As a result Indian providers are continuing to chase the higher-level technical support and BPO services too. Contrary to what conventional wisdom would suggest, some contact centres are also looking at eliminating calls before they are even made.

“UK companies are ahead of the US in looking at where they can avoid and eliminate calls. We have launched a group called iLabs to work out why people call and what’s going to happen before it occurs. This way we can cut the overall number of calls and enhance customer satisfaction,” commented Kannan.

But this Indian evolution appears to be ongoing. The economic growth in India has been rapid so the changes will take some time to feed through. Ocean’s connect, a contact centre provider in India and the UK, told sourcingfocus.com that the labour pool for straightforward contact centre services is not completely defunct.

"While it’s true that we no longer see queues stretching around the block of our Pune [Maharashtra] facility, as we did five or six years ago, our recruitment drives there are still yielding plenty of great candidates. Increasingly, as other industries there, such as IT, shed jobs, we're seeing highly qualified candidates coming from those industries to work as agents. They can do that because the job is still aspirational -- one can progress from answering phones to becoming a team leader to running the operation. This doesn't happen if you work in the call centre at Barclays."

Those larger Indian players that are not growing their global delivery footprints could face some stiff competition however. As usual, there is any number of promising young locations itching to grab a piece of the call centre pie, China being a long-term prospect.

“China has 350 million people learning English at the moment. When they come through a few years down the line, even if one percent goes into outsourcing, there is massive potential. Even as a communist state, there is a lot going on in China at the moment and we can’t write them off. The ability for them to really compete could still be three to four years away though,” commented Longbottom.

While the Philippines continues to resurge as India’s low-cost back-up, other smaller destinations still have some kinks to iron out according to Longbottom. Africa has prospects such as Egypt and India’s close neighbour too, Sri Lanka.

“Egypt has long term potential but the main problem with Africa has always been infrastructure. Sri Lanka has some political things to address after the conflict for example, questions of their handling of the affair and how to look after the large Tamil population. But the Tamil Tigers aren’t top of mind for outsourcers. India has survived Mumbai and people outsourcing don’t really seem to care.

The subject of service over location is an emerging theme as providers attempt to move focus to what is being delivered rather than where it is being delivered from. It seems logical that the increasing geographic footprint of the largest outsourcers will aid this service over location focus and the customer service shift is also changing things.

“Social media is making people focus more on the product because it really doesn’t matter where it comes from,” commented Kannan.

Indeed, Kannan goes one step further expressing his view that the subject of offshore/nearshore/onshore and so on, could soon disappear altogether.

“In five years, the whole concept of offshore will simply be irrelevant,” said Kannan.

In a globalised world, why shouldn’t the future of outsourcing be location-irrelevant? Who are end-users to make their outsourcing arrangements based on perceptions of geography-specific skill sets? It seems reasonable that these distinctions could dissolve as time goes on. But only time will tell whether end-users are really prepared to cast aside their location biases.

Big birthdays are few and far between for most outsourcing companies. The reason being that most of them are still so young. To reach just your tenth birthday by 2009 is a truly momentous feat in the outsourcing industry. Not for one outsourcing company however. Though lesser known than many of today’s outsourcing behemoths, LPM Outsourcing could be looked at almost as a father of the UK outsourcing industry having just celebrated a whopping 21 years in April. LPM, a UK-based outsourcer, started doing outsourcing even before the word was commonplace. Sourcingfocus.com got an invite to its birthday party and decided to find out a little more about LPM and the secret behind its longevity.

Philip Davies, the LPM MD, stood out from the crowd in a private room above the popular celeb hangout, Ivy Restaurant. A six foot plus, articulate businessman and avid cyclist amid a room of diminutive financial-types is of course bound to make an impact. The financial types were there representing some of the company’s longstanding customers spanning from Cisco Capital to The Strategic Rail authority and a recent new client in the British Transport Police.

The industry in which LPM operates is the outsourcing of leading and asset financing. What this basically boils down to is the management of the back office finance and premises management of companies around the world. This could be anything from the management of receivables for a large retail organisation to looking after the lease portfolio of a public sector organisation. But LPM’s services are not limited to larger companies, the offerings could also be of interest to the budding start-up or entrepreneur who cannot create or access the economies of scale that a dedicated outsourcer can.

“Many customers come to launch a new venture but lack the experience to set up their own business. Either that or they don’t want to be involved in the back office,” said Mr Davies.

That is all very well, but in the current climate, catering for new start-ups is unlikely to be a booming business. The ability for entrepreneurs to convince financial backers to invest in their ventures has decreased substantially as a result of the credit crunch. Those who have money are holding on to it. But this does not appear to worry LPM as they also maintain close relationships with many larger companies.

“At the moment, the recession is good for our business. I don’t like saying it but it’s true,” said Mr Davies.

Companies across the board are looking to outsourcing to cut costs and augment their businesses and many outsourcing providers are supposedly benefiting from this. However, the opportunities Philip was referring focus mainly on what could be seen as the scraps of the recession. LPM does a large amount of business in the portfolio run-out space, where they must ‘fire sale’ failed businesses’ asset portfolios making as much money as possible from the process. .

“Banks are withdrawing from asset financing, removing focus on new businesses and asking what can we do with distressed portfolios,” he said.

The process of a run out basically involved picking up the remnants of the company and seeing what it can be sold off for. Doing this can be a testing affair, especially working with the remaining management staff to gather information.

“You’re basically collecting information from people who you know have lost their jobs. You think, well the management has messed up, but you also have empathy for the humans who are left with other people’s problems,” he said.

It is certainly a macabre business, but someone has to do it. So how did LPM come into existence?

“When we started we were quite pioneering, the market wasn’t really known and it was a new idea to outsource. We started Five Arrows Leasing Group but wanted to focus on our new business so developed LPM as a separate business. We outsourced our back office to them but it worked so well that we bought the company,” commented Mr Davies.

For its longevity, you could say LPM has a bit of a head start on some of the other outsourcers about today. Starting out in 1988 initially benefitted from the first recession just a few years into its existence.

“In the early 90s many companies wanted saviours to come in, sort out the books and collect all the cash they can from distressed portfolios. Leasing and finance organisaions failing at this time let LPM become well-known,” commented Mr Davies.

In the midst of the second recession to engulf UK business during LPM’s long existence, what thoughts does Philip have on its future and the outsourcing industry in general?

“Our target market is going to change as time goes on. During the recession, insolvency practice is going to be a big area and there will be new opportunities from shareholders leaving markets,” he said. “Things will changes though from the more dismal recession-based customers back to more positive run-outs, new start-ups and probably the public sector too,” he added.

The recession as a whole was also seen as an opportunity not a threat for all outsourcing companies with one caveat.

“The economic pressures of cutting costs will ultimately benefit outsourcing in the short and long term. But providers need to be clever in focusing their marketing strategies in order to reap the rewards.”

It seems if other outsourcers want to survive the recession and reach their own longevity milestones they should take heed. Success in a recession is not a given – it takes insight, luck and clever thinking to really come out on top.

Many organisations see supplier relationship management (SRM) as a process focused on monitoring the performance of their suppliers, rather than as a collaborative, two-way, value-adding relationship, according to a study released today by State of Flux.

The global survey of 223 procurement, supply chain and supplier relationship management executives found that almost two-thirds (62 percent) admitted that they did not have an accepted definition of SRM in their companies. When asked about the topics most commonly discussed at review meetings with key suppliers, performance and service issues topped the list, followed by cost reduction opportunities. Business strategy and plans, new supplier products/services and value delivered came lower down the list, while customer performance – how easy the buying organisation was to deal with – came last.

“Many organisations have confused supplier performance management (SPM) with supplier relationship management (SRM),” said Alan Day, Managing Director of State of Flux. “SPM is about getting what you have been promised in a contract, whereas SRM is about collaboratively driving value as part of a two-way relationship.”

“Whilst good SPM yields both bottom-line savings and top-line competitive advantages that most organisations cannot afford to ignore, it is only one aspect of SRM. Engaging proactively with your most strategic suppliers to capture innovation, jointly develop new products and services, improve the efficiency of your operations and speed up your time to market requires a much broader and more relationship based approach.”

Nine out of 10 respondents to the survey said SRM would grow in importance, but a significant number of procurement functions were ill-equipped to manage it effectively. Half admitted they were unable to measure the benefits, despite an intuitive belief that value was created through closer relations. Fifty-seven per cent acknowledged that the time they spent on SRM was insufficient, 47 percent had not trained staff in relationship management skills, and 53 percent did not have designated teams or account managers in place to deal with key suppliers.

“In practice, supplier relationship management tends to be an add-on to the day job of buyers and category managers, rather than a core role. When you compare this with the highly trained, well informed and full-time key account managers on the sales side, there is a danger of a real imbalance in the relationship,” said Day.

This was compounded by the fact that almost half of respondents (47 percent) said they were managing more than 25 supplier relationships, while 8 percent were managing over 200. This meant they had little time to devote to developing relationships or looking for ways to deliver benefits above and beyond incremental cost savings. Only 11 percent believed that existing technology strongly supported SRM.

On a positive note, the survey found that 28 percent of those organisations that were able to measure the value of SRM said it amounted to more than 3 percent of the total annual spend with key suppliers. As well as joint cost savings, the main benefits were reduced supply risks, greater supply chain efficiency and improved quality.

Almost half (47 percent) of respondents also reported that their SRM programmes had sponsorship from C-level or other top executives, rather than senior or middle managers – a key ingredient in ensuring that such initiatives become part of the organisational culture and way of operating.

Some noted, both in their survey comments and in workshops held to discuss the findings, that CEOs, CFOs and other senior executives instinctively understood the value that could be derived from closer relationships with strategic suppliers and were giving it their personal attention. Such was their belief that formal SRM business cases were not always required.

“We found some impressive examples of successful supplier relationship management in action,” said Day. “The fact that more organisations are recognising the value that can be gained from SRM and embracing a different approach to working with key suppliers is encouraging. The challenge now is to turn these pockets of excellence into practices that are replicated more widely.”

London’s Natural History Museum lengthened its facilities management contract with EMCOR Group by a further three years. EMCOR Group has provided mechanical and electrical engineering services across all of the Museum’s sites since 2001.

Under the new agreement, EMCOR’s scope of work extends to include grounds maintenance, managing a helpdesk facility for hard and soft services, management of the cleaning contracts and the provision of a full Computer Aided Design service. The contract includes the main Waterhouse building in South Kensington, which is Grade I listed inside and out, as well as the new Darwin Centre, which opens to visitors in September. The Darwin Centre is the latest addition to the Museum’s portfolio and will provide storage facilities, art laboratories that will be used by leading scientists and public galleries and programmes for visitors.

Robert Lamb, Estates Manager at the Natural History Museum comments: “We were thoroughly impressed with EMCOR’s innovative proposals for the new contract and EMCOR’s approach to service delivery has resulted in a more efficient, cost effective and flexible package.”

According to a new IDC report, the current economic climate is driving companies that have not previously considered outsourcing to reconsider the benefits of offshoring. Driven by the need to reduce costs and optimise headcounts, IDC expects IT outsourcing to gain momentum in the Australian market.

The report titled, Australia Outsourcing Services Market Forecast and Analysis 2009-2013, reveals that the total outsourcing market stood at A$6.4Bn in 2008 and is predicted to grow at a 5 year compound annual growth rate (CAGR) of 4% over the forecast period 2009-2013.

IDC's report reveals that even organisations that have previously shied away from offshore outsourcing are actively evaluating this delivery model to reduce back office costs and gain access to skills while optimising their resources to adapt to the slowdown in the economy.

"The current economic situation is driving more organisations to think seriously about outsourcing as a way to keep costs down, in particular we expect to see a greater interest in managed services. In a time like this, to have differentiated outsourcing strategies and options that address the diverse needs of a cost conscious market, will benefit the market,' said Marina Beale, Senior Market Analyst, IT Services at IDC.

“Overall any cost cutting solution will be high on the agenda for most company CIOs. For example, virtualisation, Cloud computing/SaaS are examples of solutions that offer potential savings related to both capital expenditure as well as operational expenditure. Companies, large and small can potentially benefit from these technologies/delivery models, which would level out the competitive playing field,” Beale added.

Ford, the well known automobile manufacturer, has signed a multi-million pound, five year payroll and time and attendance service deal to Logica. This contract represents an expansion of an existing outsourcing agreement between the two companies.

Under the terms of the agreement, Logica will integrate and modernise Ford’s payroll and time and attendance systems and provide a bureau payroll service for its 13,000 employees across 10 UK locations. The change management project and outsourced service has been initiated to support Ford’s renewed focus on its core automotive business.

The payroll service will be implemented by Logica and delivered on the Oracle HCM platform, using Logica’s secure hosting environment RTIS (Real-Time Infrastructure Services). The implementation will be phased with the service scheduled to go live in 2010.

Commenting on the contract win, Patricia Taylor, Director, HR and Payroll BPO Services, Logica, said: “We are delighted to work with Ford; this significant deal reinforces our position as a leading HR and payroll outsourced services provider in the UK. We are certainly seeing a real demand for Oracle pay-as-you-go services. Ford is a substantial customer for Logica and this relationship reflects a true evolving service partnership that will enhance both organisations over the next 5 years.”

Syngenta, a leading Swiss-based producer of crop protection products and seeds, has signed a seven-year contract with. BT will provide a range of telecommunications and IT services aimed at enhancing Syngenta’s business operational efficiency and agility.

The contract builds on BT’s longstanding relationship with Syngenta and covers the refresh of its wide area network (WAN) while providing a managed local network and IP telephony infrastructure coupled with a global fixed and mobile voice service.

Syngenta hopes to realise efficiency gains from this agreement, improvements in service quality and a more flexible basis on which to support global expansion. The company has more than 24,000 employees and operates in over 90 countries around the world.

Nick Barron, head of IS services, Syngenta said: “We have enjoyed a strong partnership with BT over the last eight years and this new contract is the next step in our relationship. The new contract will deliver a flexible, converged infrastructure, within an innovative commercial and services framework that will enable Syngenta to better deliver its business objectives.”

Derbyshire County Council has selected Capgemini UK plc as its transformation partner in a plan that will replace existing IT with new technology beginning next April. Under the £5.6 million contract, Capgemini will replace the Council’s existing IT systems, which are based on older-generation mainframe technology, with the latest SAP enterprise-wide systems designed for local authorities.

The new systems, which will be used by some 8,000 Council employees, are expected to transform the flow of information within and between Council departments, support improved budget and revenue control, enable more informed decision-making, identify procurement savings, and cut time spent by Council staff in processing and accessing data.

David Hickman, Transformation Director at Derbyshire County Council, said: “We are committed to continuous improvement in the way we work, in the services we provide and in making the best use of taxpayers’ money, and the record shows that we have delivered on those commitments year after year. We plan to do even better in the near future and our new IT platform will be key to achieving that aim.”

The majority of the new IT systems, including financials, procurement, HR, payroll and business intelligence, are scheduled to go live in April 2010, with the 25-strong project team of Capgemini IT and business consultants being based at the Council’s headquarters in Matlock until then.

IBM is making up to US$3 billion available to finance IT initiatives in key economic stimulus projects in Europe and Asia-Pacific. The money will be made available through IBM Global Financing, IBM’s lending and leasing business segment. This follows the availability of up to US$2 billion announced by IBM on April 30 to help jump start US economic stimulus programs.

Specifically, the organisation will make available up to US$2 billion in financing in Europe and up to approximately US$1 billion in the Asia-Pacific region

The financing will help organisations move ahead with IT projects in 2009, while awaiting government funding, to build the technological and environmental infrastructure of the 21st century.

John Callies, General Manager of IBM Global Financing, commented, “While the various stimulus packages in different countries were designed to keep their own economies on track, it is as joined economies that we can rise from this global downturn together. In this context, IBM Global Financing is extending its stimulus financing program to countries in Europe and Asia-Pacific to help global recovery.”

AMP Limited, a leading Australian wealth management company, has extended its contract for a further six years with CSC. It extends the two companies’ original engagement, which started in 1993, making it one of the longest running strategic information technology (IT) outsourcing relationships in Australia.

Under the new agreement, CSC will continue to provide AMP with fully outsourced managed infrastructure services for mainframe, midrange, network, desktop and service desk, as well as information and system security.

“CSC and AMP have worked successfully together over the past 16 years, delivering programs that strengthen AMP’s operating platform and improve business efficiencies,” said Lee Barnett, AMP chief information officer. “Extending this contract enables CSC to provide AMP with services that further leverage operational efficiencies year on year.”