Industry news

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.

The recent research published by Vanson Bourne and Patni Computer Systems which claims that outsourcing confidence remains high has to raise a few eyebrows. While that specific question may have been asked of this sample, the other statistics within the research reveal that an entirely different, and concerning, conclusion is possible, if not more likely.

If 40 percent of respondents are planning to outsource more, which it cannot be denied is reassuring, then 60 percent are either outsourcing the same amount or even less, which surely cannot support the conclusion that confidence in outsourcing remains high.

Indeed, if you consider some other recent research undertaken by Harvey Nash and PA Consulting, polling almost 1500 CIOs across Europe, it appears that confidence is if anything waning as outsourcing spend is being cut by 24 percent, almost double the 13 percent of last year. Additionally, dissatisfaction with offshore outsourcing has grown from 62 percent to 66 percent.

Therefore, the conclusions drawn from this research can be considered to be misleading at best, and hide some important and potentially rather worrying trends – ones that both sides of the outsourcing community cannot afford to miss. “Lies, damned lies and statistics” after all!

Perhaps a more apt conclusion, drawing from both sets of research, is that the jury is still out over whether confidence remains high within outsourcing. Outsourcing has become something of a standard modus operandi for UK business, but given the recession, in order for this to remain a safe course of action, there are a number of areas which both clients and suppliers have to not only concentrate upon, but actively co-operate over.

For instance, we have seen many examples within the last year alone of good outsourcing strategy being implemented with either a single outsourced provider, or a well-managed multi-sourcing programme. However, we have seen at least an equal number of horror stories with massive over-dependence on one supplier, or an entirely uncoordinated multi-sourcing policy, and on many occasions, it has been caused by lack of resource, time and effort being dedicated to managing the relationships.

We are also all aware of national political pressures to bring jobs back into the country, rather than offshoring, meaning that those who do offer an offshore service must prove that they will actively pursue adding business value. Therefore, there is a real need for the development of more equitable commercial models – a move away from a negotiation of manpower levels being provided, to instead ensuring that the contract signed generates business value for both sides, especially through innovation, and that the commercial terms are output not input-based.

Similarly, governance on both sides of many outsourcing relationships has to be improved. Huge numbers of companies are terrifyingly unaware of how much an outsourced arrangement actually costs, or do not fully understand what the end goal of the arrangement is – a state of affairs that cannot be tolerated in good economical times, let alone now.

Sourcing cannot afford to be left as business as usual – it must be about adding business value, and if outsourcing clients and suppliers are confident that this is the case in their outsourcing relationships, I would be very surprised.

I'm always sceptical - but curious - when any location is presented to me as "the new Bangalore". Lately, it seems to be happening more frequently, as various regions of the world jockey for position, attempting to grab the business of companies that might otherwise consider India to be the de facto location of choice for offshoring.

There's plenty of evidence to suggest that some of these new regions will succeed, especially as the cost advantages offered by Indian outsourcers continue to deteriorate.

Earlier this month, consultants at AT Kearney published their research into how the geography of outsourcing is shifting. If you haven't seen the findings already, I'd urge you to take a look. They make for pretty interesting reading.

On the whole, it seems to me that trying to pinpoint the countries or regions that have the best offshoring proposition is a dicey business and raises a whole host of questions for prospective customers. Do these emerging outsourcing hubs have the necessary people, with the right language and skills capabilities, to meet the requirements of multinational companies? Is the technical infrastructure in place (and sufficiently robust) to support the high-volume data flows involved? What financial incentive are outsourcers in that region able to offer its target audience? Can they guarantee the kind of political stability that this audience will expect? What cultural barriers may be encountered?

Prospective customers will expect robust answers to these questions from suppliers in any new offshoring location.

They might also be wise to take a look at the recent performance of that region's currency against their own. In the last year, many companies have been caught out by the volatility of foreign exchange markets when it comes to offshoring their activities - and these shifts have, in some cases, made nonsense of carefully forged cost structures and pricing schemes. Both buyers and sellers of offshoring need to become a whole lot better at hedging against currency fluctuations and, in particular, at calcuating whether a devaluation of the local currency against the pound or dollar is likely to be outstripped by wage increases in that region.

Of course, no-one is saying that offshoring can't provide a very attractive option for organisations looking to make savings - just that they need to think very carefully about the particular region they choose. In June, I'll be blogging from Nairobi, where I'll be asking these questions of prospective suppliers, employees and government supporters of offshoring there. Is Kenya the new Bangalore? We'll see!

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 deal covers 15 monthly, bimonthly or quarterly magazines produced at Johnston Press publishing centres across the UK.

The Press Association will deliver its production services from its headquarters in Howden, east Yorkshire. The publisher will be tasked with producing over 700 complete pages for Johnston Press each month.

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.

US Citizenship and Immigration Service (USCIS) has signed a contract with CSC to conduct scanning, indexing and file management operations at a records digitisation facility. The new agreement has a one-year base period and a contract value of US $27 million.

USCIS is the government agency that oversees lawful immigration to the United States of America. The Agency establishes immigration services and policies.

Under the terms of the agreement, CSC will support USCIS by providing file maintenance activities and electronic access to various types of records, including receipt, temporary and account files, and imaged data that reside in various USCIS offices. The digitisation of these files, which are stored in the USCIS Enterprise Document Management System, allows USCIS and its customers to electronically access specific digitised A-Files for processing immigrant applications or investigations. The applications include immigrant requests for naturalisation or permanent status in the United States.

USCIS originally signed the contract over to Datatrac Information Systems Inc. in 2006 for a term of five years with an estimated contract value of $150 million. CSC acquired Datatrac in December 2006.