Industry news

Ever on the pulse of the breaking news and trends within the outsourcing industry, the sourcingfocus.com Round-Up has emerged this week from the eternally engaging Financial Times (FT). According to an FT article, the IT outsourcing landscape is due for a radical re-shuffle. It seems that we could be due to enter a new phase, with vendors such as Google, Microsoft and Amazon offering uncomplicated services on a per-person per-month, or even per-transaction, basis. Jonathan Cooper-Bagnall, head of PA Consulting, was quoted in the paper maintaining that, in the past “outsourcing contracts were inflexible, with fixed baselines.” He went on to assert that “the next wave of contracts will go beyond that to include virtual services, such as Google Apps or e-mail.”

So I guess outsourcing giants such as Infosys and Wipro will need to adapt to keep up with the emerging American outsourcing market. Let’s hope they are up to the challenge.

Another area of interest in the IT outsourcing sphere has come in the unlikely form of Scotland. There has been a move by a number of organisations to position Scotland as a rival to Eastern Europe as the UK’s primary near-shore outsourcing destination and even take business from the established Asian players. Organisations including the Trade Association for Technology in Scotland, the Scottish Development International and the Chartered Institute for Bankers in Scotland recently met to discuss how English firms can be encouraged to outsource processes such as software development to Scotland, rather than locations such as India.

Can they do it? One wonders if the Highlands can ever truly compete with Hyderabad where IT is concerned. Watch this space and we’ll keep you updated on the progress.

So, what other big news has hit sourcingfocus.com’s virtual printing press this week? Well, Unisys has been awarded a five-year multi-million dollar extension to its IT outsourcing contract with Landis+Gyr. The services provided by Unisys under the contract extension include; round-the-clock system management and SAP operations, virtualisation and consolidation of IT technologies and international service desk outsourcing.

However, it is a bitter sweet win for the US technology firm, as Monday saw them announce that they were cutting 1,300 jobs as part of a series of cost-savings moves aimed at saving over 225 million dollars a year.

The US Army also caught sourcingfocus.com’s radar this week for far less controversial reasons than those covered in the national press recently. They have awarded CSC a $226m task order. Under the terms of the task order, CSC will provide a broad range of support services, including project and technical management; research, design and development; systems engineering; and training. CSC will support a range of projects at various locations worldwide, such as the United States, Iraq, Afghanistan, Kuwait, Germany and Korea.

And finally more news from our neighbours across the pond; Starbucks has signed a CRM contract with Convergys Corporation. The deal is a two-year extension of an existing contract. To the bewilderment of the sourcingfocus.com team and many readers no boubt, the release, from Convergys claimed that it was due to their rapid growth that their internal contact center could no longer provide cost-effective and efficient facilities to its stores in North America. One just has to wonder if this is the same company whose reported profits have fallen 7.6 percent in the second quarter – a conundrum indeed.

And that perplexing note brings us to the end of this week’s Round-Up. we will keep our collective ears to the ground on Scotland’s progress with its campaign to reign as the UK’s near-shore IT outsourcing destination. I don’t know about you, but I fancy their chances…

The National Outsourcing Association has officially launched this year’s annual NOA Awards (NOAAs). The doors are now open for all outsourcing professionals to submit their entries. New for this year’s awards is a dedicated microsite where sourcingfocus.com readers can find all the information they need to enter.

Now in its sixth year, the NOAAs are firmly established as the main highlight of the outsourcing industry calendar. The NOAAs aim to showcase the best and brightest achievements in outsourcing, celebrating best practice and recognising the efforts of companies and individuals who have demonstrated excellence in their fields.

This year’s awards will be held at the Park Plaza Riverbank, London, boasting spectacular views over the City’s most striking landmarks such as the London Eye, Houses of Parliament and Big Ben. The ceremony will also be hosted by a top celebrity.

The ceremony will be held on the evening of Thursday 15th October 2009. Companies have until the 10th of July to submit their entries.

At the launch of sourcingfocus.com in 2007 I was confronted by a – I thought at the time – rather over-zealous outsourcer. Such was his enthusiasm in all things outsourcing that he appeared hell-bent on showing me that anything and everything can and should be outsourced. He even tried to outsource me. Two years later, the portal is going well and growing rapidly. And I still have my job – I have not been outsourced…yet.

The subject of ‘media outsourcing’ is a nebulous concept and one that has been around for longer than most think. Articles of outrage from, presumably domestic journalists can be found online from as far back as 2004. Even back in those rather good economic times some canny or crazy publishers were looking at the opportunities for outsourcing core publishing functions. The outrage was real and valid but chatter about media outsourcing has since died down, precisely at a time when publishers are sacking staff, scraping for every penny they have available.

sourcingfocus.com’s interest in the issue was piqued last week with news that Channel 4 is outsourcing its HR and payroll administration to Logica. Though not a true media outsourcing function, it does at least indicate that the big guys, and those in financial trouble, are looking again to outsourcing as a viable business option. But what of the core functions such as content creation and editing? After the initial furore and five years of silence what has been happening in media outsourcing?

“You can outsource basically anything nowadays,” commented a source that wished to remain anonymous. “Media outsourcing can be a contentious area but there are loads of companies doing it now from basic BPO right up to high-end copywriting,” he said.

The main complaint over media outsourcing came from suggestions that the high-end processes such as editing and writing would all suddenly be shipped offshore resulting in reduced quality content. Perhaps owing to such complaints, the move towards outsourcing these functions has certainly not been a tidal wave in scale. But there is a growing outsourcing undercurrent in this area. In the last few years there have been new content outsourcing deals from Thompson Reuters, Time Warner, Pearson, the New York Times, The Daily Telegraph and even the Financial Times.

All these publishers have outsourced content creation in some capacity deriving various benefits such as cost reduction to the follow-the-sun capacity. For example, The Telegraph has outsourced its weekend supplements to Australia. Despite these deals, complaints over consistency and quality have not resurfaced, indicating that worries over this type of outsourcing may have been unfounded.

In 2004 Forrester predicted that 4,000 British media jobs would be off-shored for this kind of outsourcing over the following 10 years. Many more than this have been lost due to the ongoing recession and turmoil in the media sector and this has fuelled media outsourcing even more. Various domestic ‘content’ outsourcers have been created by this trend by taking on freelance journalists and creating almost ‘on-tap’ news services. Adfero is one that is taking a lead in this area.

“Everything is 24 hour now. Getting news content out there first is taking precedence over the depth of story. So many [organisations] are finding they can outsource and offshore news production and things like press release editing to cut costs whilst also giving them 24-hour news output and letting them focus on more in-depth editorial,” the source said.

But even though content production jobs are some of the most important in publishing, they are not always an organisation’s largest cost. Media organisations are also looking to cut costs in other areas. Cognizant is one company that has benefited from the media sector’s need to both cut costs and enhance operations due to increased competition. Interest in other areas of media outsourcing also appear to have surged as publishing companies attempt to adapt themselves to the digital age. IT outsourcing, the backbone for operating in the digital world, looks set to perform well in this area.

For example, one client of Cognizant’s wanted to create and monitise its online magazine presence. The company built a next-generation platform for the company which was fully able to be monitised whilst enabling them advanced tracking and reporting capabilities on the site back-end, further enhancing the saleability of the site’s offering.

Virtualisation and SaaS is also playing a big part in the growth of media outsourcing. The increasing availability of web-delivered applications and collaboration tools perfectly fits with the working style of many organisations and the 24 hour news culture. The Guardian for example, recently moved to using Google applications in favour of Microsoft. Likewise, few modern newsrooms are to be found without a wiki for organising the vast amounts of information they assimilate on a daily basis.

Industry observers predict that IT outsourcing is entering an entirely new phase, with vendors such as Microsoft, Google and Amazon increasingly dominating by offering cheaper and easier, commodity-based IT services. Gartner expects this market to grow by 43 percent this year to over US $2.7 billion.

While it has not been covered widely, the media outsourcing industry has clearly been growing steadily in the background. Though it is still a relatively niche area, the movement towards smaller outsourcing deals and ‘on tap’ provision of things like IT services seems likely to increase and make outsourcing viable for smaller players. Media companies are going through a period of rapid change and outsourcing looks set to play an increasingly large part in shaping the media company of the future.

It was a proud time for all of Britain when the International Olympic Committee agreed that London would hold the 2012 Olympic Games. I, like many others, felt a great deal of excitement on that day in July 2005 and the London streets were abuzz with anticipatory chatter on what benefits the Olympics will bring to the nation. Today, it appears that this buzz has almost entirely disappeared.

The Olympics has almost become a dirty word, conjuring up thoughts of mismanagement of public funds, escalating costs and increasingly unlikely completion targets. There have also been grumblings coming from the outsourcing community, especially when the subject of the Olympic Games IT programme is discussed. sourcingfocus.com investigates what all the fuss is about.

The infrastructure needed for a successful Olympics is vast, the Olympic Delivery Authority (ODA) aims to get every spectator to the events by either bike, foot or public transport and the IT systems needed to effectively implement the event are extensive. These targets pile unprecedented pressure on public bodies to deliver the work needed for 2012 and of course, outsourcing (currently another dirty word) is playing a large part in the Olympic forge.

Focusing on IT, the 2012 games will need to have a system in place robust enough to handle information from 94 venues issuing 200,000 accreditations all across 900 servers. That’s not to mention the 200,000 hours of testing that is planned before the Olympics even take place.

So who is handling all of this? Well surprisingly the IT service provider was chosen back in 2002 when the IOC decided that Atos Origin would provide IT services for future games. This is either a mammoth display of forward thinking from the IOC or an utterly bizarre procurement process for arguably the biggest event in the world.

sourcingfocus.com spoke with Lee Ayling, Managing Director of IT and communications outsourcing at advisory firm, EquaTerra to find out what his opinion was on the procurement of services for the 2012 games.

“The ODA has awarded a set of contracts aligned with the partnership network that has discrete amounts of Benefit In Kind to cover service provision. There is some question as to whether these providers [Atos and BT within the UK] have the capability and performance track record in the UK to deliver the full IT services required as effectively as using niche/best of breed providers for certain activities.”

It appears that Mr Ayling is less than convinced that the procurement process for the Olympic Games is the most effective way of ensuring value for money and service quality. Essentially the London ODA has a big pot of money allocated to service providers selected via a completely separate entity, the IOC. How do the IOC know which service provider will work well for 2012? Surely the homeland development committee would be in a better position to judge?

There is also the question of value. Essentially Atos can charge £1m for a particular service, knowing full well there is money in the pot, where as an independent niche vendor may charge £500,000 for that same service. The problem is that the niche vendor does not have a chance to tender for the business because the service providers have already been chosen and the money already allocated.

However, Michèle Hyron, Chief Integrator for the London 2012 Olympic Games and Paralympic Games does point out that Atos’ prior experience is something that would make them an appealing partner, “Atos Origin has been the worldwide IT Partner for the Olympic Games since 2002 and involved in the Olympic Games since Barcelona in 1992. From each Olympic Games we learn valuable lessons for the next. From our experience, success of each Olympic Games relies and depends on knowledge and experience being transferred from previous Games. It also helps to be more efficient, keep costs down and to lower risk.”

The experience Atos has certainly cannot be ignored, however public spending is under the microscope now more than ever and it is essential that tax payer’s money is spent in the most efficient way. Choosing the right partner for the right job is paramount in a venture as crucial as this.

Of course, we are yet to see Atos’ progress and we are all holding our breath to see whether BT come through with the goods. MPs are due to report on the progress of the London Olympics IT programme in July and sourcingfocus.com will be analysing the report for all our readers. In the mean time, we can feel relatively comfortable that a service provider that has had nearly two decades of Olympic experience is handling our IT. Let’s just hope that we are getting value out of every precious public penny.

The Human Resources Outsourcing Association (HROA) has partnered with TPI, and the Information Services Group Inc. (ISG) to release the 2009 HROA Benchmark. The new report details the current trends and best practices in human resources outsourcing (HRO) and confirms the emergence of industry standards among large-market buyers.

The research examines the use of pricing methodologies, the depth and breadth of outsourced services, and the correlation of service level measurements and target levels with emerging industry standards. The respondents, a cross-industry sample of companies with multi-process HRO agreements in place and at least 15,000 employees, provided detailed information from existing contracts, including invoices, change orders, and statements of work, as well as real-life examples of performance targets and measurements.

Among the report’s findings are:

• Workforce administration, payroll and health & wellness benefits are the most frequently bundled services in a multi-process HRO agreement.

• Compensation is the most frequently included talent management process.

• Full-scale learning and recruitment process outsourcing were the least common processes outsourced.

This focus on core processes was found to align with the market's move to multi-sourcing versus the one-stop shop provider. Additionally, analysis of typical change order spend by process area and type of change proves instructive to companies looking to evaluate or estimate total outsourcing spend. On average, buyers should budget 10-15 percent of base fees for change order costs; however, this percentage varies by process and other factors such as level of M&A activity.

"The HROA Benchmark study provides valuable data to help organizations understand the intricacies of establishing and managing multi-process relationships," said Debora Card, TPI Associate Partner. "TPI was able to identify trends that are shaping this developing field of outsourcing, including analyzing how HRO buyers are handling some of the thorniest issues in these engagements. We think this report is a must-have for anyone looking to implement or improve HRO in their organization."

The study also demonstrates that best practices for effectively establishing and managing HRO relationships are beginning to emerge in the industry. Among the companies studied, a correlation of greater than 75 percent existed between actual experience and the HROA Recommended Practices for both pricing methodologies and service level methodologies and measurements.

"The HROA Benchmark validates that our Recommended Practices are indeed aligned with the experience of companies with large HRO engagements," said Richard Crespin, the HROA's Global Executive Director. "Outsourcing's value derives from the potential to provide repeatable products and services that are outside the core competency of clients. We are committed to helping develop industry standards that help ensure HRO is delivered efficiently and the needs of the client base are met."

TCS will provide onshore and offshore IT support and transformation services for the Volkswagen Group’s operations throughout the UK and across all its brands.

Nick Gaines, Group IS Director, of Volkswagen Group UK, commented, “We have been deeply impressed by the dedication and collaborative approach taken both by the local and India-based teams. This gives me great confidence in the future relationship between our businesses.”

No financial details were released

Neusoft Corporation, the largest offshore software and service outsourcing provider in China, has continued to buck the downturn posting impressive growth in its latest annual report. The company posted profits of RMB 491 million Yuan (approx £47 million) in 2008, an increase of 18.2 percent on 2007. Its revenue increased 10.3 percent to RMB 3.711 billion Yuan (£360 million).

The company credits its growth to strong performance in its two core areas of business - industry solutions and product engineering solutions. A large proportion of its growth is also attributed to international customers through outsourcing. Neusoft has seen steady growth in Japan, Europe, and US markets and grown outsourcing revenues by 29.6 percent (approx £120 million). Outsourcing now contributes 33.9 percent of the company's total revenue.

Commenting on the results, Mr. Wang Yongfeng, President of Neusoft Corporation, said, "In 2009, the domestic and international markets will be full of uncertainties and challenges. Under such a complex business context, Neusoft has made active business strategies to accelerate the progress of globalisation and international markets expansion, consolidate and enhance our predominant position in Japanese market, and further optimise resource allocation in Europe and U.S. markets. Meanwhile, for the domestic market, responding to opportunities brought by China's 4 trillion Yuan stimulus to boost domestic demand, we will pay close attention and follow-up the IT demands from major industries, actively raise market shares, optimise our business model, and input more in product development and service quality based on the premise of continuing increase of our core competitiveness in industry solutions, to maintain steady growth of businesses in the domestic and international markets."

According to analyst firm, Ovum, there will be an increased uptake of IT services in the Philippines, despite the economic downturn, due to various initiatives taken by the Philippines government. The Ovum report titled ‘IT services market in the Philippines: a fledgling ready to take flight’ outlines that the government initiatives to establish a central credit worthiness system, and its investments in the education sector will increase the IT services demand in the country.

Deepika Chaubey, managing analyst at Ovum and author of this research, commented, “While currently Philippines is a small IT services market in revenue terms, less attractive than other South East Asian countries such as Singapore, Vietnam, or Malaysia, it offers good opportunities for vendors focused on the public sector.”

The Philippines government plans to invest in various initiatives involving technology adoption. It is focusing on the development of a central credit worthiness database which includes establishing a central authority for compiling data from financial institutions.

The government is also investing in the education sector and has initiated many technology-based programmes such as the computerisation of all public schools and the adoption of e-learning in the urban areas. Once all the public schools are computerised, the demand for web-based learning platforms, education management systems, assessment and data services, and networking services should increase.

“The various initiatives by the government will provide significant opportunities to IT services vendors in the region, and services such as implementation, integration and security will witnessed increased demand”, added Chaubey.

SAP AG and Cognizant have signed a global services partnership agreement in an effort to streamline their engagement, thereby enabling both companies to respond quickly to the ever-changing needs of their customers.

The agreement was signed at the SAPPHIRE conference by Francisco D’Souza, President and CEO of Cognizant, and Bill McDermott, President of Global Field Operations, SAP AG, and member of the SAP Executive Board.

Cognizant already have a SAP Touchstone Center, set up in 2008 at Cognizant’s facility in Bangalore, India, which is working in coordination with SAP Co-Innovation Labs worldwide. Through this extended relationship Cognizant and SAP plan to expand their global reach.

“This expanded partnership is a testament to our collaborative relationship and an important part of our strategy to expand our ecosystem to drive continued customer success," said Zia Yusuf, Executive Vice President, Global Ecosystem and Partner Group, SAP AG.

With this agreement, Cognizant joins a select group of companies that are a part of the SAP global services partnership program.

On the 29th April, PA Consulting announced the results of its International IT Outsourcing Survey 2009 – research into the opinions, predictions and aspirations of large-scale enterprises across the UK, Europe and the US.

It was practically a given that the biggest item on the agenda was the immediate goal of cost reduction, but there were important underlying themes that were derived directly from it.

Many organisations believe that multi-sourcing is one of the key ‘tools’ to achieve cost reduction. With more suppliers, it is often possible to obtain a lower cost for a specific service. But with more suppliers often comes a lack of integration. Where a single supplier would theoretically perform all the roles in a cohesive fashion, multiple suppliers perform their roles in isolation, placing a large administrative burden of engineering a unified and consistent collaboration on the client organisation. Multi-sourcing is by no means a negative tactic, but it does carry a health warning. If the time, effort and resource are not dedicated to the integration and management of the individual suppliers, when many organisations struggle with just one supplier, the cost savings are soon lost and the inherent risks increased.

Related to this, many organisations still do not understand the importance of relationship management. While integrating all the suppliers is vital, so is the administration of the individual suppliers. In a climate of cutting costs, renegotiation often takes centre stage and there is more scrutiny over performance clauses. There is of course nothing wrong with examining achievements against targets, but cultivating a close relationship where demands, processes and needs are fully understood, by both parties, will typically engender a better outcome than just slashing the monthly fee.

Lastly, innovation is often referred to within outsourcing contracts, but is equally often buried and lost in the negotiations over hard costs. However, starting and encouraging a dialogue on innovation rather than being preoccupied with shaving a percent or two off the contract price is far more constructive. The overall cost benefits will be greater, more sustainable and could actually result in the client company becoming more competitive in its market.

Cutting costs rapidly is a great short term solution, and will result in excellent internal PR for the department involved, but it will inevitably make the contract more adversarial, less sustainable and will damage the overall performance. While suppliers are putting more effort and time into their account management as a reaction to the economy, now is the perfect time for organisations to improve the long term return on investment of outsourcing by targeting innovation as a key goal rather than a nice-to-have and focussing on the importance of improving supplier relationships to help ensure that the business outcomes required are achieved.

Of course the contract is important but it is important to understand the internal capability of the organisation and what can be achieved by working more closely with the supplier. This balanced approach is much more likely to result in both short and long term success.