Industry news

Continental Airlines has signed an agreement with EDS to transform its Flight Planning Services. It is hoped the update will reduce flight operating expenses and create efficiencies for Continental by automating some aspects of flight planning.

As part of the agreement, EDS will develop and implement its proprietary planning systems ‘EDS Flight Planning Services’. This will be delivered using a software-as-a-service (SaaS) model.

“The EDS Flight Planning Services will allow us to take full advantage of our modern fleet capabilities, achieve significant fuel savings and increase our operational flexibility,” said Mark Moran, executive vice president of Operations at Continental Airlines. “Our strong working relationship and successful track record together made EDS the right choice to deliver industry-leading flight planning technologies, which will seamlessly integrate with all our flight operations services.”

EDS Flight Planning is the fourth component in EDS' flight operations suite being implemented at Continental. EDS is also currently developing EDS Air-to-Ground Messaging Services, EDS Load Planning Services and EDS Aircraft Movement Services for Continental.

“Effective flight planning will enable Continental to reduce costs and increase operational efficiencies,” said Eric Harte, vice president and leader of the Consumer Travel Industry Group at EDS, an HP company. “The EDS team will combine deep expertise in the airline industry and applications development to transform Continental's flight operations environment to optimise its cost per available seat mile.”

The urgent need for cost savings is fueling demand for outsourcing, according to advisory firm, EquaTerra. In its Q109 Advisor and Business/IT Service Provider Pulse Survey, EquaTerra reports that 57 percent of the service providers polled, including the largest U.S. and Indian companies, have seen a 26 percent increase in their new deal pipeline for the first quarter.

While the deals were smaller in scope, mirroring a trend seen in other recent research reports, they grew in number as organisations decided cost-saving initiatives could no longer be postponed.

“We’ve been citing pent up demand for outsourcing in our past two quarterly Pulse surveys,” said Stan Lepeak, managing director of global research for EquaTerra. “These deals are beginning to flow as the need to control costs outweighs reluctance to initiate major change efforts like outsourcing in the midst of an economic crisis and regulatory uncertainty.”

Some of the key findings from the report include:

• Demand for business process/information technology outsourcing rose significantly in the first quarter with 49 percent of EquaTerra’s client-facing advisors citing increased demand (up 11 percent from last quarter) and 57 percent of the service providers polled reporting a surge in their new deal pipeline, a 26 percent improvement over Q408.

• Service providers (62 percent) expect demand to stay strong in the second quarter, up nine percent quarter-over-quarter and 14 percent year-over year.

• Over 75 percent of EquaTerra’s advisors reported buyers are currently focused on short-term (less than 12 months) cost- saving deals versus process improvement or access to external talent, and are pushing service providers to finance/defer/absorb any upfront change/transition costs.

The economic crisis is reshaping business operating models

EquaTerra sees indications the worldwide recession may trigger a fundamental shift in the way organisations do business in the next decade. The scope and severity of the economic downturn is forcing organisations to make deep workforce cuts and introduce radical changes to methods of service delivery. Economic survival/liquidity is driving most initiatives and EquaTerra advisors report some organisations have no choice but to essentially transform their operating model.

Additionally, instead of bringing work back onshore, experienced outsourcers are expanding initiatives and migrating/consolidating them with existing service providers to gain economies of scale, preferred pricing and better terms and conditions. Buyers entering the outsourcing market for the first time are focused on short-term deals with a clear return on investment. These buyers have a propensity to select A-list providers, indicating a desire to go with proven performance to ensure quality and enhance the chances of a successful outcome. Both categories of buyers are sharpening their negotiation tactics and keenly monitoring ROIs.

Overall, the economic crisis has prioritised outsourcing as a tool to achieve critical short- term cost reductions and drive significant, often overdue, overhauls to back-office service delivery models. “Ironically, despite populist backlash, the recession is likely to break through remaining resistance to outsourcing as business becomes more adept at using the tool to cut cost and improve efficiency,” said Lepeak.

sourcingfocus.com readers can obtain a copy of the Q109 Pulse survey by contacting Stan.Lepeak@equaterra.com

Interest in strategic document outsourcing has grown as companies look for ways to cut expenses and capital costs during the economic downturn, according to Gartner. However, organisations must ensure that outsourcing print and electronic document publishing improves customer communications without sacrificing quality, efficiency and confidentiality, the firm says in a new report.

Strategic document outsourcing is the subset of business process outsourcing focused on the publication of customer communications, including content creation, multimedia presentation and incoming document processing. The outsourced documents may be transactional forms, sales collateral, direct-marketing materials and more. The documents may be published in physical or electronic media, or a combination of multiple media.

"Strategic document outsourcing offers organisations the opportunity to eliminate print- and mail-related capital expenditures while potentially reducing material and postage expenses" said Pete Basiliere, research director for Gartner. "Outsource providers facilitate the targeted, relevant customer communications that can not only retain and grow the client base but also increase revenue."

Engaging a provider shifts the labour, material and overhead costs to the provider, which, because of its expertise and aggregated volume, has the ability to publish the communications for less, even when a profit margin is added onto its costs. Equally important, strategic document outsourcing providers often have the latest hardware and software, in addition to the well-trained personnel, necessary to implement targeted, relevant CRM-based communications. These providers can reduce the number of generic messages that organisations send, replacing them with fewer and more powerful communications that generate increased responses and higher revenue.

However, organisations that engage a strategic document outsourcing provider must realise that producing highly customised solutions may drive up the provider’s costs and prices. Limited paper choices, envelope window locations and other standards enable the provider to efficiently produce a high volume of a variety of customers’ applications while also providing appropriate business continuity processes. Certainly the provider understands and supports brand differentiation, but an insistence on customised solutions for non-differentiating business processes drives up provider costs and drives down the quality of service.

Several providers with multinational resources offer centralised coordination, production of targeted and regionalised content, and "distribute then publish" capabilities through facilities around the globe. Organisations with a multinational "footprint" must consider outsourcing their regional and global document publication, whether physical or electronic, to a provider that has the footprint that matches their own to facilitate and maximise brand control and messaging while constraining costs.

"While certain kinds of marketing materials have long been outsourced and to produce them in-house would be an anomaly, business communications have been outsourced only when management felt potential issues of control, confidentiality, tight deadlines and the mission-critical nature of the work would be assured" said Mr. Basiliere. "Whether the communications are in print or electronic media, or are campaigns combining the two, strategic document outsourcing enables organisations to focus on their core products and services while entrusting customer communications to a specialist service provider"

Gartner’s recommendations are available in the following report "Strategic Document Outsourcing Improves Customer Communications"

The Co-operative Financial Services (CFS) has chosen Infosys’ Finacle™ Universal Banking Solution to power its business transformation initiative.

As part of the programme, CFS will replace systems across its back-office in the retail banking and corporate banking businesses with Finacle™. This initiative will also include the implementation of Finacle™ core banking, CRM and e-banking solutions across their home-market operations in the UK.

David Anderson, Chief Executive at The Co-Operative Financial Services, said, “Deploying the right technology is critical to creating a client-centric business based on our core principles of value, fairness and social responsibility.”

According to Infosys, the Finacle™ platform is in use in over 60 countries worldwide.

No financial details were released.

It seems that Spain’s star is finally on the rise in the outsourcing world.

It seems that Spain’s star is finally on the rise in the outsourcing world. Too long in the shadow of India and Eastern Europe as near and offshore solution, Spain is now becoming the thinking company’s destination of choice.

Forrester’s recent research (Spotlight on Spain ) supports this claim by suggesting that companies should take another look at Spanish providers. The country has a large, highly-educated labour pool, sector expertise and relatively low labour costs. So Forrester argues that, for established and new outsourcers, Spanish providers offer a nearshore complement to existing offshore programmes in countries such as India. In the financial services sector we are increasingly seeing experienced Spanish resources being used to support complex IT projects such as business process redevelopment and IT transformation.

Compare this with India where the outsourcing sector is suffering from attrition, wage inflation and skills shortages, meaning that its cost advantages are beginning to narrow against European rates. Add Spain’s strong cultural and linguistic ties with Latin America, which allow the potential to scale and Spain, plus somewhere like Brazil, start to seem a good alternative to India or Eastern Europe.

So, for European companies, Spain’s proximity is ideal – offering better collaboration opportunities and closer working relationships – smoothing out the soft issues, such as management overheads and repeated internal change requirements, which can affect any programme.

In the financial services sector, with São Paulo (Latin America’s financial centre), as close as 3 hours from Europe (GMT-3) it’s relatively easy to maintain a close tie with an outsourcing partner and benefit from the likelihood of an improved cultural fit between the two enterprises.

Forrester sees the issue of how and where to outsource continuing in these straightened economic times; claiming “there is no doubt that interest in remote IT delivery is in the rise”. With compliance issues driving outsourcing in the financial services sector, enterprises need to be sure they have the most efficient, and therefore cost-effective, outsourcing strategy. Perhaps now is the time to consider a Spain plus Brazil alternative to traditional outsourcing destinations?

The California Department of Corrections and Rehabilitation has signed an ITO contract with EDS. The contract, valued at US $245, is a 4.5 year engagement to transform the agency’s ‘digital environment’.

Under the agreement, EDS will work to automate manual business processes in order to improve productivity, accuracy and ultimately, enhance staff, public and offender safety.

The services provided will include system integration and applications modernisation to help increase availability of accurate and complete information. Additionally, EDS will create and manage the image capture, database, information storage and server environment where offender information will reside.

“This initiative will revolutionise the process for sharing and using offender data and will significantly improve our offender management process,” said Scott Kernan, undersecretary of operations for the California Department of Corrections and Rehabilitation. “We are confident that EDS is a partner with experience in corrections and large-scale technology projects that will help

In a recent sourcingfocus.com news analysis, we covered the London School of Economics’ Beyond BRIC study. From that study we drew the conclusion that India may be having its iron-grip on the BPO industry loosened somewhat by emerging destinations. In swift succession Gartner has released a report saying that the Indian BPO industry is as strong as ever and it sees no reason why the Indian market share should fall. In fact Gartner thinks that its share will double by 2010.

This seems to totally contradict the speculation that India’s market share may be threatened by emerging destinations, nearshore vendors and a change in end user procurement needs. sourcingfocus.com spoke with Rick Simmonds, Partner and Head if Financial Services at Alsbridge, a global advisory firm, to ask his opinion these predictions

“I disagree, I think India’s market share is set to drop,” he commented. A reasonable opinion considering a recent FT article reported on Indian contact centres suffering from higher wage and location costs, with some having to get rid of staff and move to cheaper areas. Mr Simmonds goes on to state that more non-English speaking countries will take advantage of offshoring and as a result will be looking at other destinations to suit their BPO needs. “Spanish speaking nations will be looking to Morocco and Argentina. Egypt is also forging ahead in the BPO world.”

But It is not just the language similarities that businesses will be looking for when considering BPO. Mr Simmonds also believes that the current political and economic climate may deter some businesses from offshoring chunks of their processes, “Cheaper regional areas in Europe and the UK may appeal more to organisations now. Banks taking Government money won’t want to be seen offshoring either.”

Patriotic and protectionist sentiments are also adding to the increased interest in new destinations. Nearshore locations such as Northern Ireland are reaping the new wave of UK companies looking to offshore, but not too far. President Obama’s administration firmly stressed the importance of keeping jobs on American soil. While this contributed to the election winning strategy, it would have sounded nails on a chalkboard to U.S. companies. As a ‘halfway house’ US businesses will be looking to countries such as Costa Rica, Philippines and Brazil to provide them with nearshore outsourcing services. These destinations give the appearance of being ‘homegrown’ whilst still offering the cost effective benefits.

BPO is certainly flourishing. The growth in this sector is increasing at a far rapid rate than that of ITO, however, it is not monopolised by the big players. It seems that all nations can conceivably compete for a piece of that BPO pie. That will surely mean that India’s market share will reduce, despite an increase in internal growth. However, we are not prophesising India’s demise. As Mr Simmonds says, “India is always on the offshoring agenda.” The prices Indian vendors offer and the size of their work force are still very competitive and cannot be ignored. We just feel that the Gartner predictions are simply over-zealous.”

This year’s Nasscom leadership conference had a whole host of major Indian players taking the stage and delivering exceptionally up-beat forecasts for the future. This is all well and good and I am sure there is not a person out there who does not understand the importance of keeping your chin up in front of shareholders and the public. However simply burying heads in sand and dancing around issues such as, protectionist policies and a drop in IT spending will not do anyone any good. But then neither will over optimistic forecasts.

Innovate or perish. There are few businesspeople today who haven’t heard this simple but powerful aphorism. For years immemorial strategic thinking has said that, as time goes by, points for differentiation inevitably end up looking somewhat mediocre. What happens when the reason your business was different, your USP, has been replicated by every man and his dog? Well, that’s the whole problem – if the business is not constantly looking forward and searching out new, ever ‘shinier’, skills and USPs, its ability to win and impress new business will diminish significantly. A business standing still is usually destined for failure.

But how does this apply to outsourcing? Surely if you’re outsourcing a boring back office function no innovation is needed? It’s a simple commodity-esque relationship of payment and service. Not so; the outsourcing business is also inextricably bound by these three words. In the competition to bring in the best clients, create great relationships and hold on to them, innovation is flourishing. The outsourcing relationship, the services and the products suppliers offer are all benefiting from this competition-fuelled inventiveness. But what’s on offer and what do end users stand to gain?

For a long time many outsourcing providers have tried with all their might to move up the value chain. Creating higher value services and partnerships has traditionally been seen as the way to engrain relationships and by doing so, justify a more productive, more profitable relationship for all. HCL, the IT outsourcer, is one company continuing to push this approach. Its ‘Co-sourcing’ model shares out risk and reward between ‘partners’ and ‘leads to HCL innovating above and beyond the letter of the agreement, helping to transform the businesses of its clients, rather than only reduce their costs’.

The innovation that can spring from this close partnership approach does not usually stray beyond internal IT and process transformation. However, there are some cases, though few in number, of outsourcing partnerships taking things further. Luxoft, the top Russian ITO provider, provides one key example in its work with Deutsche Bank. The companies managed to develop a CRM system (Client First) they valued so highly that they subsequently planned to take it to market for other banks and share in the revenues. While this type of occurrence is rare, it does demonstrate the innovation that close outsourcing partnerships can create.

At the centre of good partnerships is usually an element of collaboration and information sharing. The advent of web 2.0 technologies in the consumer space is quickly feeding through businesses and appears to have found a perfect home in outsourcing. In an industry characterised by geographic and time-zone separation, tools allowing the seamless coming together of minds, transcending boundaries is a perfect fit.

Cognizant 2.0, a platform developed by leading IT outsourcing provider, Cognizant, is a tool used both internally and externally to facilitate communication. “It allows outsourcers to develop new levels of customer closeness and satisfaction, and if correctly implemented, can result in dramatically reduced interaction costs but with an improved result,” a spokesperson for the company said.

The Cognizant example is a good one as it conveys the importance of using these tools to enhance a suppliers offering rather than just for the hell of it. “Consultants across the globe are encouraged to collaborate to solve specific business problems using their best delivery resources regardless of location,” added the spokesperson.

Internal collaboration is one thing but what of clients? How is innovation helping keep clients in the loop? Bravosolution, a kind of supply management intermediary outsourcer, has taken things a step further. Its BEN (BravoSolution Education Network) provides a platform for public sector procurement managers to pool and share information on their own sourcing and as a result become more effective.

"The network has proved to be a goldmine for collaborative information sharing for UK Public Sector procurement professionals. With more than 1,100 users from local & central government and the NHS, it has enabled people to share information around Standard Policy Documentation from EU Directives, local legislation and best practice for organisational procedures. [It’s] a sort of Wikipedia for public sector professionals,” commented John Shaw, Director of Education for BravoSolution.

The benefits derived from this kind of platform are not only one-way, however.

“BEN enables us to take on board feedback from public sector procurement professionals and tailor our services to meet their exact requirements. This evolution of sourcing practices based on the recommendations of the buyers is enhancing relationships with suppliers and also enabling clear cost and efficiency savings through shared best practice methods," he added.

The wide availability of collaborative tools and other new technology could also be having an affect on the nature of deals themselves. One thing on the lips of most IT professionals is virtualisation and SaaS (software as a service). The increasing possibilities of not needing all software systems on the corporate network are having a knock on effect on both the cost of outsourcing and the size of deals.

According to a recent report from Gartner, the number of outsourcing deals worth less than US$50 million increased in 2008 while those of more than US$50 declined. There appears to be a trend towards smaller deals and this is only likely to increase throughout 2009.

The multi-sourcing approach is symptomatic of this trend. The model, where numerous suppliers are used in quasi-competition for various parts of a businesses outsourcing, is an innovation in itself. According to its proponents, the increased competition will drive innovation whilst driving down costs at the same time. The best of both worlds it seems.

“By drawing on and shaping an outsourcing partnership with one or more suppliers, a dependent and supportive ecosystem can be created and leveraged. An 'Outsourcing 2.0' approach will in theory simplify the outsourcing process, by getting the job outsourced to third parties with mutual business interests, and align business goals with the servicing parties,” commented Simon Ormston, Head of Outsourcing at BT Global Services

Along with innovations emerging organically and through supplier competition, there are various macro-factors affecting the focus of today’s outsourcers. After the recession, to which outsourcing is a natural answer, green initiatives are sparking some interesting developments. Green, unsurprisingly, is the thing of the moment and many western governments, including the UK, are increasingly putting green on the agenda where procurement is concerned. Currently directives are in place surrounding green suppliers but it won’t be long until legislation follows, forcing organisations to outsource sustainably.

Patni, an Indian BPO firm, is one company ahead of the game in this respect, having spent a whopping $14 million on a low emissions, low impact delivery centre. The company is planning many more centres across India to cope with the future demand. With public sector organisations increasingly needing green suppliers, innovation in the green space only looks set to grow. The importance of good environmental credentials will also inevitably feed into private sector procurement more fully as time passes.

In a time when budgets are heavily under threat, many suppliers obviously have their ears to the ground where their customers are concerned. Making sure new innovations are forthcoming with their associated advantages is clearly central to continually impressing clients and gaining new ones. The benefits to be gained by tapping the needs of markets, experimenting and implementing new initiatives, cannot be underestimated. Some suppliers seem to be doing it and succeeding while others are not. The question is can a supplier afford not to innovate? After all, standing still is dangerous.

Uncertainty has reached a fever pitch since the onset of the financial crisis. Though the recent G-20 summit in London has made markets across the world respond with a spirited show, the real impact on various industry sectors will take time. However, the rejection of protectionism by the G-20 members in the summit should certainly bring some cheer to the global IT outsourcing business.

Challenged by the change in reality, the IT outsourcing industry is already reeling under the need to reposition itself to sustain its high growth trajectory. Compared to 2007 when the business of outsourcing was on a roll, 2008-09 has brought more competition and greater demands on cost controls for most players in the segment. The volatility in exchange rates has made the case even worse. And with some belt-tightening by clients during a recession, little choice is left for most. From cost structures to human resource and portfolio of product and services, everything is going under scrutiny. What might emerge is anybody’s guess. But, I believe that we will see a more conservative mindset taking over the business of IT outsourcing.

While IT outsourcing companies will continue to be optimistic, their decisions to innovate in 2009-10 will be prompted by the prescribed need of the client. Innovation or big solution implementations will not happen unless it leads to better Return-on-Investment (ROI) and cost improvements. Open ended efforts will have no place in future schemes.

Convergence

The lines dividing discrete services like IT consulting, upstream application development, business process outsourcing will become even more obscure. Large service providers will face increasing competition not only from each other but also from outsourcing specialists working on a consortium basis. In short, outsourcing will move away from doing work in isolated pockets, thereby creating new opportunities for fringe players to join the game.

The next couple of years may also witness acts of merger and acquisition in this space. Led by situations where business process outsourcing is considered a natural extension of a relationship, many IT vendors may acquire smaller BPOs to look complete and offer more. In absence of a suitable option, two outsourcing entities may even merge to create one compelling proposition. However, there will be space for all, given the fact that recession will only fuel global sourcing demand, with corporations attempt to do more with fewer dollars.

New Opportunities

New verticals are emerging and will soon replace the historical mainstay. With the bastion of IT outsourcing - banking and financial sector - being in trouble, business of IT Outsourcing is now focusing more on recession proof industries verticals like manufacturing, healthcare etc., for growth. The healthcare industry globally has been a good adopter of global outsourcing in the last couple of years and trend is expected to continue. Other sectors like manufacturing, retail and telecom will be attractive industries as they look for opportunities to cut cost.

However, the client, with reduced IT budgets, will be more selective - demanding stringent Service Level Agreements (SLAs), and greater contractual flexibility.

Everything is Negotiable

In an environment of cost-cutting and flat budgets, businesses will increasingly look for service providers that can guarantee business outcomes. Contracts and pricing models are increasingly including components of risk associated with the business outcome. Going by the present day trends, the traditional pricing structure will soon give it in to a more dynamic pricing model. An alternate that’s already gaining traction is outcome based pricing. Related to a higher risk-reward incentive, this model ensures that the complete processes, technology and the supporting infrastructure are priced under a single scheme with unified Service Level Agreements.

Alternate Delivery

Alternative delivery and acquisition models (ADAMs) will be more pervasive in many aspects of IT development, delivery and management and become part of the mainstream. ADAMs will deliver IT services through new approaches, such as software as a service (SaaS), business process utility (BPU), infrastructure utility (IU), remote management services (RMS) and Web platform/cloud computing. These services promise lowered capital investment, greater flexibility and speed, and pay-for-use models.

Risk Hedging & Newer destinations

In the coming year, we will see more clients asking for alternatives to traditional Outsourcing locations like India to de-risk their service delivery. They will seek newer geographies with similar or niche capabilities. Countries like The Philippines and Vietnam has exhibited spectacular growth, with aggressive marketing strategies to increase traction in the global market.

Conclusion

Despite the global slowdown, the business of IT outsourcing seems to be rightly positioned for growth. Even though business margins may shrink, the industry will continue to grow in the future. Service providers with geographic diversity, well-managed overheads, and strong and long-term customer relationships are more likely to thrive in this period of consolidation and business realignment.

Approximately 250 jobs will be created after the Irish Republic's leading outsourcing firm, Abtran, announced plans for a new innovation centre. The company will invest 6 million Euros to develop the centre and hopes to complete the project in 2010.

The Taoiseach, Brian Cowen T.D., commented, “I am delighted to announce this significant investment in R&D by Abtran with the creation of 250 new high-value jobs by 2010. Abtran’s continuous investments in research and high quality resources have made the company deeply competitive.

“The further expansion of this successful Irish firm is based on the exceptional work which has been carried out to-date by management and staff. It is this constant focus on excellence and knowledge development that will contribute to Abtran’s further success in the years ahead.

Cork-based Abtran, which specialises in support services such as sales, administration and planning, is to expand its existing facility at Bishopstown, just outside the city.

Abtran’s founder and Managing Director, Michael Fitzgerald commented, “Abtran’s vision is to create a world class brand that builds on our success to date and continues to compete globally. Ireland is capable of competing and winning on the world stage and we have shown that there is an opportunity to develop this industry and establish Ireland as a destination for Business Process Outsourcing.”