Industry news

One of the leading customer satisfaction survey in the managed services sector, the Black Book 2009 State of the Outsourcing Industry report released today, reveals six significant paradigm shifts impacting global suppliers and buyers for the latter half of this year and into 2010.

The key findings are:

• Indian outsourcers have regained strong buyer confidence by demonstrating tangible transparency, accountability and ethical management practices to eighty-one percent of US companies buying services offshore;

• Technology budgets will be fully restored or expanded over next twelve months, corroborated by sixty-eight percent of outsourcing buyers;

• Buyers predict fastest spending growth in progressive outsourcing organisations that consistently demonstrated client empathy through the downturn. As the economy improves, sixty percent of clients anticipate shifting from less agile outsourcers that were unmovable through recession-related renegotiation issues;

• BPO projects that deliver speedy return-on-investments are highest in demand. 180-day ROI's, typical in Procurement Outsourcing, Accounts Receivable, Accounting and Financial transaction processing, will be creating the greatest growth in new contracting through 2010;

• Cloud Computing & Software-as-a-Service explodes IT outsourcing growth guidance. Remote Infrastructure Management and bundled applications development/maintenance initiatives which have been on hold by ninety-one percent of CIOs will receive the most immediate funding; and

• The multi-shore trend expands as more outsourcers diversify in lower cost locations. Although clients have yet to score any Chinese outsourcing firms in the highest Black Book ranks of overperformers, China's Neusoft, entered the 2009 group. Two South American providers, CPM Braxis and Neoris, maintained top survey rankings, and one Russia-based firm, EPAM, was highly nominated.

"Outsourcing's cost argument still outweighs political issues in this survival economy," said Scott Wilson, author of "The Black Book of Outsourcing", and principal of Brown-Wilson Group, a Datamonitor company. "Despite the pending policy changes in U.S. corporate tax code, high US and UK unemployment rates, and the recent offshore scandal at Satyam, the core drivers of outsourcing have remained intact," added Wilson commenting this year's results.

The annual "State of Outsourcing Industry Report" contains Black Book's Top 50 "Best Managed" Global Outsourcing Vendors, the unbiased, client experience rankings from 24,000 validated survey participants. The poll marks its seventh consecutive year of collecting data on the industry.

2009's Top Fifty Best Managed Outsourcers in rank order are: HCL, Oracle, Xerox, Infosys, Accenture, IBM Global, Ciber, Capgemini, Genpact, Hewlett Packard EDS, CSC, Cognizant , Intelligroup, IGATE, Patni, Perot Systems, Spherion, TechTeam, Acxiom, NIIT Technologies, Wipro, CPM Braxis, ACS, Sitel, CH2M Hill, Tata Consultancy Services, Syntel , Steria, Mastek, Clutch Group, Unisys, WNS, XChanging, Integreon, Pangea3, Neusoft, Innodata Isogen, EPAM, The Smart Cube, BNY Mellon, Teleperformance, Hewitt, Consero, Broadridge, NorthgateArinso, Neoris, Microland, Logica, Vengroff, Williams & Associates, and XEN Global.

The "State of the Outsourcing Industry Report", ongoing research and top domain results are available year-round at http://TheBlackBookOfOutsourcing.com.

Last week, I was mulling over the question of where in the world the next big outsourcing hotspot might be. This week, I think I've got some answers - but only insofar as knowing which locations might look a tad dodgy from the prospective customer's point of view.

The insight comes from the 2009 Black Book of Outsourcing, produced by the Brown-Wilson Group (recently acquired by market research company Datamonitor). It helpfully lists the top 25 riskiest locations for outsourcing in the world, based on factors such as terrorism, crime rates and political tensions.

Of these, the top 10 are as follows:

1. Bogota, Colombia


2. Bangkok, Thailand

3. Johannesburg, South Africa

4. Kuala Lumpur, Malaysia

5. Kingston, Jamaica

6. Delhi/Noida/Gurgaon (NCR), India

7. Manila, Philippines

8. Rio do Janeiro, Brazil

9. Mumbai, India

10. Jerusalem, Israel

"The realities of an unsafe world have fully overrun into outsourcing decisions," say Black Book of Outsourcing co-authors Doug Brown and Scott Wilson. "Less inclusive offshore location rankings, based on cheaper but skilled labor pools and tax incentives, are not sufficient to make a qualified destination decision. Not only has the number of known offshore sites have grown significantly over the years, but the severity and complexity of their vulnerabilities has skyrocketed." Organisations that don't take these vulnerabilities into account, they add, open themselves to the possibility that "terrorist attacks, typhoons, crime and corruption" will disrupt vital corporate operations.

Conversely, the top ten safest locations for outsourcing, according to Brown and Wilson, are:

1. Singapore

2. Dublin, Ireland

3. Santiago, Chile

4. Krakow/Warsaw, Poland

5. Toronto/Montreal, Canada

6. Prague/Brno, Czech Rep.

7. Budapest, Hungary

8. Monterrey, Mexico

9. Beijing, China

10. Cairo, Egypt

As we all know, the BFSI sector has been extremely turbulent over the past year. Vast mergers and acquisitions, government bailouts and collapses have all resulted in the industry looking at how best to deliver quality while increasing efficiency.

As a result, many organisations are considering outsourcing certain processes within their business. Everest’s recent Market Vista report shows that the BFSI sector had the greatest amount of outsourcing activity in Q1 2009. The majority of the activity has been smaller outsourcing transactions as organisations look to invest in deals that produce quick results and improve bottom lines.

Within the financial community, the back office tends to be the first place an organisation considers for streamlining and outsourcing. Costly IT infrastructure can also be a prime place to begin an efficiency strategy. However, outsourcing is not a fix all answer to cutting costs and improving profits. Companies with reduced profit margins should be wary of jumping straight into an outsourcing deal before weighing up all the options. Some organisations can benefit from outsourcing processes however, others may find that a change in internal strategy may be a far better option; it is utterly dependent on each organisation’s needs and overall strategy.

Of course, outsourcing conjures up significant unease amongst the public. Organisations looking to outsource in a downturn have to be wary of public and media backlash. The BFSI sector is particularly prone to feeling the wrath of the public, especially as their confidence in the BFSI sector is at an all time low.

Banking institutions and other financial organisations may have had a significant injection of government/public money. This will be used as cannon fodder by the media and the public if such an organisation decides to outsource or even offshore work. Banks now have even more responsibility to run effectively, be efficient and drive quality.

It is important to get across the fact that government money was not injected into banks in order for them to bring all their work back home, if that was the case we would find even more organisations heading for closure. The money was lent to fuel cash flow, kick start the economy and increase liquidity. It is now imperative that the banks take responsibility for this money by ensuring that they are delivering the best services in the most cost efficient way, without jeopardising quality. This may mean that a bank needs to outsource or offshore to achieve these objectives.

We are in a global market and outsourcing will undoubtedly increase across all sectors and those that have been significantly affected by the recession will look to use the strategy more. As long as the outsourcing of processes is done well, all economies should benefit. Sceptics and anti-outsourcing evangelists must realise that organisations have to run as efficiently as possible if the economy is to see a significant improvement.

The English High Court is expected soon to issue a ruling on a complex and long-running dispute arising out of an IT services contract between BSkyB and EDS. It is rare for such disputes to reach the Courts and this decision could set an important precedent since, amongst other things, it will test the circumstances in which: (a) a service provider can be held to account for its pre-contract sales pitches; and (b) service providers can rely on, or customers overturn, contractual limitation of liability clauses. This article looks ahead to the possible outcomes of the case and anticipates some of the consequences it might have for the UK IT and outsourcing services industry.

Observers have been waiting for the Court’s ruling since the trial ended in October 2008. However, the dispute originated as far back as 2000 when EDS won a £48 million contract to provide BSkyB with a new customer relationship management system. Unfortunately, the project soon ran into trouble and, in 2002, BSkyB brought a claim against EDS alleging that, during the tender stage, EDS had misrepresented its ability to deliver the project. BSkyB said that, were it not for those misrepresentations, BSkyB would not have awarded the contract to EDS. EDS countered by arguing that BSkyB had no clear idea of what it wanted from the project and had continually altered its requirements, resulting in delays and other problems.

Up to this point, the argument between the parties was serious but not unusual, as parties in the IT industry will often clash when a project goes off the rails. However, the stakes were raised significantly when BSkyB set its damages claim at just over £700 million (around US$1 billion – an amount far in excess of the maximum exposure that EDS might have contemplated on entering the contract). While the contract capped EDS’s liability at a much lower level, BSkyB alleged that the misrepresentations made by EDS were deceitful (as EDS had made the representations knowing they were false or at least being reckless as to their truth) and, as a result, the contractual liability cap did not apply.

The type of pre-contract representations that BSkyB has alleged were deceitful may sound familiar to those who are accustomed to service providers using what some may view as “sales talk”. For example, BSkyB has pointed to:

• a representation that EDS had the “resources and ability to deliver the system and services you require”. BSkyB has alleged that this was deceitful as EDS knew that it did not have available personnel with the relevant skills, knowledge or experience for the proposed solution

• a representation that the three key products that EDS intended to use in its solution represented “proven leading edge technology”. BSkyB has alleged that this was deceitful as EDS had not previously used the products together and had not carried out a proof of concept or technical feasibility study; and

• a representation that EDS would “meet the financial and budgetary targets that you have set”. BSkyB has alleged that this was deceitful as EDS had not carried out a proper estimate of costs and in later internal correspondence EDS staff indicated that they would quote a low price to win business and then increase costs afterwards.

For balance, it should be made clear that EDS has vigorously denied BSkyB’s allegations. EDS has argued that BSkyB claims misstate the representations actually made by EDS, that the actual representations were not false and that there was no deceit by EDS. EDS also asserts has also asserted that BSkyB has exaggerated the cost savings and other benefits on which it has based its claim for damages.

The size of BSkyB’s claim relative to the initial value of the contract has made headlines, but the principles to be decided in the case will have the most far-reaching impact on the IT and outsourcing services industry. In particular, if the Court upholds BSkyB’s allegations of deceit, it may have the following effects on the industry:

• Service providers may need to become more circumspect in order to avoid the risk of misleading their customers. Sales teams will need to ensure that they do not make hasty or ill-considered promises that could sow the seeds of a future deceit claim.

• There may be an increase in claims alleging deceit against service providers (which to date have been difficult to prove and rarely successful), not least because such claims may allow customers to by-pass liability caps that would otherwise limit the amount of damages they can claim for.

• If BSkyB can recover anything close to the £700-plus million it has claimed, customers may be encouraged to push the boundaries in their claims by seeking to recover damages for financial losses (such as loss of cost savings and loss of profits) that are usually excluded by liability caps. In response, service providers may become more reluctant to take on difficult or complex projects, where the risk of failure (and, therefore, exposure to damages) is higher than normal.

On the other hand, if the Court finds that there was no deceit by EDS, then BSkyB’s case may be fundamentally undermined. In this event, customers not wanting to be caught in the same position may start to exercise more diligence when conducting tenders, including by asking their service providers to provide firm evidence to support statements made in tender responses. As such, service providers may need to work harder to justify their sales claims.

While the Court’s judgment is eagerly awaited, it is unlikely to be the last word on this case. Having already invested so much into the case (not least an estimated £70 million in legal fees), unless the first instance judgement puts the parties in a position where there is real scope for compromise in a settlement deal, it is almost inevitable that one, or even both, of the parties will appeal the decision when it is finally handed down.

The recent budget raised a great deal of eyebrows across the public sector community. Alistair Darling’s efficiency targets for government organisations have been met with mixed reactions from both the private and public sector. The UK chancellor announced £15 billion of efficiency savings to be made over the next three years. For organisations such as the NHS, MOD and HMRC, notorious for haemorrhaging money, this announcement will have significantly increased the weight on managerial shoulders.

The public sector holds significant power within the outsourcing community. Service providers see public sector contracts as the Holy Grail in terms of monetary value as well as enhancing credentials. These efficiency targets may have a significant impact on how the public sector outsource as well as the amount of processes they look to dish out to third party providers. However, there could be more sinister repercussions for the outsourcing industry to endure. sourcingfocus.com spoke with a variety of industry experts to find out just what these efficiency savings will mean for the public sector and their outsourcing strategies.

Alastair Maughan, a partner at legal firm Morrison and Foerster, believes that there is not much more left to be outsourced within the public sector, “Departments such as DWP are already pretty heavily outsourced. However, government departments [or local governments] may start to outsource processes that involve direct work with citizens, such as help desk services.”

The suggestion that the public sector may not have much left to outsource points to the likelihood of government organisation looking to renegotiate contracts in order to get more service for a lesser price, something which Mr Maughan agrees is a distinct possibility, “Public sector bodies will be looking to renegotiate existing contracts. The sheer negotiating power the public sector has will mean that if one supplier does not accept a contract another will. It is a buyers market,” he added.

Suppliers may have to prepare themselves for a cut back in prices and a more aggressive public sector procurement team. It is understandable that price will be a factor in renegotiations however; excessive bartering may result in a supplier backlash where service quality diminishes because resources are allocated to more profitable projects. Archaic negotiation teams, beware.

Staying on the subject of procurement, Richard Gibson, Account Director for public sector and charities at buyingTeam, believes that the public sector might not be doing enough, “The efficiency targets are modest and ambitious at the same time. They are modest because the public sector could be doing a lot more to drive efficiency and they are ambitious because past performance suggests little chance for success.”

Indeed, the public sector has a distinct precedence of failure when it comes to sourcing the right suppliers for the best price. However, all parties that sourcingfocus spoke to believed that the public sector has matured in some areas. The NHS for one has significantly improved their outsourcing and procurement processes.

One area where the NHS has appeared to forge ahead in has been shared services. David Turner, Director at Agresso, believes that this is marked for growth in light of these efficiency targets, however it is not a problem free strategy, “Shared services is also an option however the issue there is the giving up of control. There is a huge amount of internal politics associated with shared services.”

Indeed local governments are notorious for continuous bickering when trying to implement a shared services strategy. The notion of losing control does not sit will with council managers. However, efficiency targets will force previously unsupportive local authorities to address the issue of shared services.

“There is a much stronger political will to push these strategies through. The Gershon report in 2004 merely suggested that savings could be made in some areas. Now there is a greater willingness from central government to push organisations to engage in efficiency strategies,” added Mr Turner.

A big push from central government will certainly help drive efficiency savings amongst all organisations. Outsourcing is synonymous with streamlining processes and producing savings, the government will almost certainly support strategies that involve outsourcing to vendors on shore as well as shared services schemes.

However, Mr Maughan believes that the only way to really reduce cost quickly is to offshore, a taboo that the government will be certainly wary of. The public has been very hostile towards offshoring recently and it will take a bold public sector organisation to consider an offshore supplier, Mr Maughan points out that data security would be the main deterrent, we all know how much publicity lost laptops get. The question is, when efficiency targets of this nature have been announced, how can the public sector ignore instant cost savings of around 15 percent simply because of possibly misguided public opinion? It will be interesting to see whether this is explored further.

The outsourcing industry will get a mixed bag with these efficiency announcements. On the one hand suppliers and consultants may have more work coming through, especially in the area of procurement, BPO and shared services. On the other hand we may find procurement teams nailing suppliers to the floor on price, something which no vendor will be too pleased with. Either way the public sector will have to meet its targets, failure would just be far too costly for everyone. In a bid to meet the £15 billion target, we may see some work go to our European or possibly Asian neighbours.

The Department of State (DoS) Bureau of Consular Affairs has selected CSC to consolidate four legacy visa systems into one unified processing system.

The contract will run for five years and has a total value of $36 million.

Under the terms of the agreement, CSC will replace existing visa processing software with a new fully integrated suite of applications. The modernised system will improve visa operations both domestically and at embassies around the globe, and support immigrant and non-immigrant visa processing.

sourcingfocus.com’s news had a distinct British feel to it this week. The Round-Up has come over all patriotic and decided to highlight the British companies who are taking advantage of the benefits of outsourcing. After all, it is nice to have a breather from India’s over representation in all things outsourcing related. More importantly, we have all heard enough about Britain’s MP’s and their expenses. Let’s praise Brits who are being clever with their money, for a change.

The International Olympic Committee (IOC) has extended its contract with Atos Origin to serve as the IT systems integrator for the Olympic Games for an additional four-year period. After Vancouver in 2010 and London in 2012, Atos Origin will provide IT systems for the Sochi Olympic Winter Games in 2014 in Russia and the Olympic Games in 2016, the host country of which will be announced on 2 October 2009.

The agreement represents the largest sports related information technology contract ever awarded, and further entrenches a partnership of more than 20 years between the Olympic Movement and Atos Origin.

The London Underground maintenance company, Tube Lines, has signed a contract with Capgemini UK plc to extend its IT services agreement for another two years. As previous apprehension conceded, it seems the recession has hit the public sector.

Under the new contract, Capgemini will continue to be responsible for the IT systems that assist Tube Lines in its work with London Underground. Tube Lines maintains the trains, tracks and stations for the Jubilee, Northern and Piccadilly lines which together carry almost two million passengers a day. Unlike many, I am not going to take this opportunity to make any snide comments about the efficiency of the London Underground. For once, my lips are sealed.

And finally, Johnston Press, which publishes over 300 newspapers and magazines throughout the UK, has announced plans to outsource the production of certain local glossy magazines to the Press Association news agency.

The Press Association (PA) will deliver its production services from its headquarters in Howden, east Yorkshire. You can’t get any more quintessentially English than the Yorkshire Dales. Cricket, old churches, cream teas and bad weather.

The services provided by PA will include page setting, advertising placement and some editorial content. However, Johnston Press journalists will continue to provide the majority of the editorial content. Phew, so outsourcing has not yet reached the vainglorious realm of the journalist.

I hope you have enjoyed the essence of Britain represented in this weeks Round-Up. We are set for another scorcher of a weekend and sourcingfocus.com looks forward to divulging more outsourcing news next week.

Vikas Kapoor, President and Chief Executive officer of iQor, Inc., a provider of business process outsourcing (BPO) services, cited the Philippine's as the premier country in the world in the fast-growing BPO sector. Kapoor made his remarks as part of an expert panel, "The Forecast for Emerging Markets," at the Milken Global Institute annual conference. Kapoor was invited by Milken to address more than 3,000 leaders from 60 countries working in business, government, philanthropic organizations and more at the Los Angeles conference on April 27.

"In the call centre business, if I compare performance--whether it's cost, quality, people, retention, etc.--the Philippines is far ahead of everyone else," said Kapoor. He went on to credit the Philippines' large population of highly skilled workers, service ethic and strong government support for its superior performance and dramatic growth.

Like his fellow panellists, Kapoor's outlook was generally optimistic and predicted substantial future growth for emerging markets, especially in the Philippines, calling it "the biggest boomer across the world." iQor Philippines has undergone rapid growth since establishing it's first call centre in Manila in 2005. Today, it has three call centres with a total of 2,700 employees. Kapoor says iQor is poised to grow even more to take advantage of the competitive attributes of doing business in the Philippines.

London Underground maintenance company, Tube Lines, has signed a contract with Capgemini UK plc to extend its IT services agreement for another two years.

Under the new contract, Capgemini will continue to be responsible for IT systems that assist Tube Lines in its work with London Underground. Tube Lines maintains the trains, tracks and stations for the Jubilee, Northern and Piccadilly lines which together carry almost two million passengers a day.

The Capgemini service also involves supporting some 2,500 Tube Lines staff at its 70 locations across the capital.

Adrian Davey, Head of IT at Tube Lines, commented, “IT underpins the services we provide and simply has to work well if the current massive investment in London Underground infrastructure is to deliver the major improvements that our customers and passengers expect from it.”

Hertz New Zealand has signed a three-year contract renewal with Unisys New Zealand for IT outsourcing services.

Unisys will continue to provide IT support for business continuity services, communications and network management, and administration systems. In addition, Unisys will provide support for a number of key Hertz applications written using Unisys Enterprise Application Environment (EAE).

“As one of the largest global car rental companies and with 50 locations across New Zealand, as well as a 24-hour online booking system, we need reliable IT to be able to efficiently manage customer bookings and to stay competitive. We have renewed our contract with Unisys because the continued reliable outsourcing service we receive allows us to better serve our customers,” said Murray Hodges, Managing Director, Hertz New Zealand.