Industry news

Last week the London School Of Economics released their report entitled, ‘Beyond BRIC – Offshoring in non-BRIC countries: Egypt – a new growth market’. sourcingfocus.com was excited by the prospect of a study that looked beyond BRIC, there has been much speculation that India is losing its iron grip on the outsourcing industry so it’s poignant that this report has been released.

Martyn Hart, Chairman of the National Outsourcing Association, commented on India’s situation, “India has long been the nation of choice for British and American organisations to offshore their IT and business process service provision. Tax breaks, a cost effective workforce and excellent currency exchange rates meant that in terms of cost cutting India was second to none.”

Mr Hart goes on to outline the reasons why India may be experiencing a drop in demand and why other destinations appear to be capitalising on a turbulent economy, “In recent years it hasn’t been such smooth sailing for India. 2008 saw the combination of inflation and currency appreciation have an impact on the Indian market, with the Rupee almost reaching a ten year high against the dollar. Soaring demand for services also meant that there was a significant increase in local salaries. This saw the cost of offshoring to India rise, making other low cost destinations just as desirable to end-users.”

It would also be fair to assume that recent events, such as the Satyam debacle, have dented India’s reputation and in turn end user confidence. So what does this mean for rising stars in the outsourcing industry?

Nicholas Nesbitt, CEO of the largest Kenyan call centre, Kencall, commented that it is not just for financial reasons that customers are considering other destinations, “India’s top workers are no longer looking for work with outsourcing suppliers, they are looking to be employed directly with the likes of Google and so on. Kenya has a fantastic skills base which suppliers can still readily access. This means that we can cherry pick the very best graduates to offer our clients.”

Protectionist attitudes are also acting as a catalyst for end users to look closer to home for service providers, or at least to vendors with cultural similarities. The Beyond BRIC study identifies nearshoring as a strong trend, pointing out that reduced time zone differences and fewer travel costs appeal to potential outsourcers. Mr Nesbitt believes that cultural similarities are a real driving force behind his business “All of our staff speak English 24 hrs a day. They are educated in a British style system and are very much in tune with Western culture, from sports personalities to current affairs.” Any company concerned with alienating their customers by engaging with a far flung supplier would surely be enticed by these cultural touch-points.

ITIDA, the Egyptian development agency, will certainly be happy with the report’s findings. Indeed Egypt has been powering ahead in the outsourcing industry, picking up ‘Outsourcing Destination of the Year’ award at last years National Outsourcing Association’s industry awards. However we see the Egyptian outsourcing market being rooted in ITO for the time being. Yes, Egypt has a large skill base, good language capabilities and low costs. However the cultural touch-points, which are becoming so synonymous with companies looking to new destinations, are simply not as good as competing destinations.

In conclusion this latest report, although heavily geared towards promoting Egypt, does effectively give an idea of why new destinations are starting to gain momentum in a changing market. The BRIC countries will need to be wary of the shift in business strategy, as companies look to take advantages of offshoring whilst avoiding long distance offshoring deals. We may find that this rise in competition will push all involved in the industry to up their service as well as create innovative solutions that not only win new business, but retain existing clients. Outsourcing is now a truly global industry.

The UK Identity and Passport Service (IPS), an executive agency of the Home Office responsible for issuing UK passports and ID cards, has awarded CSC a 10-year managed information technology (IT) services contract to upgrade the IPS application and enrollment system. The agreement has an estimated value of £385m.

Under the terms of the contract, CSC will assume responsibility for several existing legacy IT service contracts supporting the IPS. CSC will upgrade the existing application and enrollment system with new capabilities to process applications for passports and ID cards. This upgrade will allow customers to apply online; will improve background checking; will provide a new system for reporting lost and stolen passports and ID cards; will provide customer support for updating personal data; and new IT and telephony systems.

James Hall, Chief Executive of the Identity and Passport Service, commented, "The British passport is already one of the most secure in the world, and it is vital we maintain that strength by moving with the rest of the international community."

According to a Reuters report three executives at Satyam have been arrested for alleged involvement in the company’s recent accounting fraud.

The Central Bureau of Investigation (CBI), India’s main investigative agency, said in a statement that it had arrested the vice president, senior manager and assistant manager in the company's finance department on Sunday, but did not name the individuals.

"They have been arrested for their active role in perpetration and involvement in the crimes committed by the accused already arrested in this case," the CBI said.

Xerox Corporation has signed a six-year ITO contract with HCL Technologies. The deal covers data centre services and transformation.

The contract will span mid-range services, business continuity and disaster recovery for Xerox’s information management operations. HCL will manage data centre hosting and migration, virtualisation, consolidation and storage architecture services across North America and Europe. In addition, HCL will provide architecture and consulting services for new technology and system design, adoption and lifecycle improvement.

“Data centre environments are the heart of our business operations and we look to partner with companies that can manage our centers and take them to the next level,” said John McDermott, chief information officer, Xerox. “HCL has demonstrated their leadership position in delivering global, transformational infrastructure services.”

The latest UK economic figures paint a depressing picture: annual manufacturing decline stands at 13.8%, and 3.2 million unemployed are predicted for next year. However, the rate of decline in the services sector is slowing.

At a time of bleak news, it's no surprise that the spotlight has again found RBS lurking in the shadows. Big trouble, it's fair to say, is brewing.

RBS – that poster boy for the UK's economic woes and their subsequent mismanagement – has this afternoon announced 9,000 job losses worldwide, over half of which will be in the UK.

The losses will fall in the bank's back-office functions, such as IT, call centres, procurement and property management. RBS employs 45,000 people worldwide in back-office roles, so 10% of that roster will be lost from the UK alone.

Union Unite has described the announcement as “truly devastating” and “appalling”. Unite is a major contributor to the Labour Party, and the UK's Labour government currently owns a 70% stake in the company on behalf of the taxpayer.

With former boss Sir Fred Goodwin's multimillion-pound pension payoff still hotly contested, this is perhaps a recipe for a Spring of confrontation and recrimination – especially in the wake of attacks on RBS offices during G20 protests last week.

At the heart of this standoff, alas, may lie offshore outsourcing companies and their stake in the behind-the-scenes operations of many large UK enterprises.

RBS has said that it aims to keep compulsory redundancies to a minimum and plans to redeploy staff where possible. That may prove to be code for locating them with BPO partners at home or overseas.

Despite RBS's public stance against large-scale outsourcing, rumours have been circulating since March, fuelled by disgruntled staff, that huge IT layoffs were on the cards as the bank pursued its relationship with Infosys.

Also consider ABN Amro, bought by an RBS-led consortium in 2007. A huge IT consolidation project has been underway since then, during which RBS brought back its acquisition's IT infrastructure management and application development in house. Previously, it had been managed by EDS. However, RBS retained the Indian wing of its operations (RBS operates in India under the ABN Ambro brand).

• In other news, another government-owned bank has inked a prominent outsourcing deal.

Bradford & Bingley (B&B) has signed a contract with specialist consultancy Euristix to outsource its credit risk management. Twelve staff will transfer to Euristix, where they will monitor the bank's mortgage portfolio – from B&B's government-owned Bingley HQ.

However, the timing of the announcement was unfortunate. On the same day, outspoken Goldman Sachs chairman and CEO Lloyd C. Blankfein slammed banks for causing the recession by outsourcing risk management to third parties.

During many a past negotiation, I have heard one or other party talk about the need to work "in partnership", to look for "win-wins", and to focus more on the relationship rather than the contract. In many senses this is quite correct....a well drafted contract will not help make a project a success, if the overall relationship between the parties is going down the drain. However, when push comes to shove, it may be worth remembering that projects focussed on relationships alone may be overly dependant upon individuals, who may not always be around to help resolve matters when things get more difficult.

A recent project I have been advising upon illustrates the point. The client signed up to an outsourcing deal with a supplier some years back. Within a relatively short period of time, the supplier was (metaphorically speaking) back in front of the client, cap in hand, admitting that it had got some elements of its original proposition wrong and was now losing money on the contract. They were generally doing an ok (albeit not brilliant) job in providing the services, and so the client decided to be flexible and "partnership orientated" by agreeing to variations in the overall commercial and charging model, which pretty much ensured that the supplier would be able to make a modest level of profit throughout the remainder of the term of the contract.

Wind the clock on a couple of years, to today's more difficult times. The client now needs to save some money, and identifies a discrete "chunk" of the services which it can obtain a lot more cheaply elsewhere, and looks to exercise a right of partial termination it has under its contract so as to be able to realise them. Whilst obviously the supplier would not be delighted at the thought of losing some of its services in this manner, one might have thought that they would remember the past accommodations afforded to them by the client and be flexible and "partnerial" in their response....but I suspect that you can guess the actual response. Yup, obstructive, aggressive and to the letter of the contract (interpreted in a particularly literal and myopic way).

Of course, the supplier may well be under significant cost pressures itself, and directives from higher management might fetter what individual supplier executives might have otherwise been inclined to do in order to preserve specific client relationships. Nonetheless, I am forced to wonder what the implications of these behaviours will be for further negotiations in the short to medium term. Organisations will frequently have long memories of particular suppliers and of particularly "painful" contract episodes, and those suppliers who chose to maximise revenues today by taking the tougher lines available to them may pay the price tomorrow

Premier Foods, the UK’s largest food producer, has extended its ITO contract with Capgemini. The company will continue to be responsible for the management of Premier Foods’ data centres and technical support needs across all its business systems.

The deal, valued at approximately £9 million, will also see Capgemini host of Premier Foods’ new SAP systems for the next five years.

Phil McCallum, Director of IT & Infrastructure at Premier Foods, said, “We have had a successful relationship with Capgemini for a number of years. By extending this to cover the hosting of all of our environments, both legacy and SAP, we are able to simplify and increase the resilience of services. Capgemini won the business with a flexible and effective bid allowing Premier Foods to evolve over the coming years in line with business need. Since selecting Capgemini, a well executed transition from previous data centres has been undertaken.”

Capgemini is also working with Premier Foods on other business projects, including a new business intelligence system based on SAP, and a supply chain track-and-trace project for the company’s Hovis division.

sourcingfocus.com’s first audio podcast looks at greensourcing. Following our recent greensourcing article, we ask LCP consulting and Cranfield School of Management what the outlook is for sourcing green. Then Patni, the outsourcing industry’s wannabe eco warrior, tells us about their sizeable investment in delivering greensourcing.

Participants

Jeremy Hammant of LCP Consulting

Saurabh Karora, from Patni

Alan Braithwaite, a Professor at Cranfield School of Management and founder of LCP

http://www.sourcingfocus.com/podcasts/greensourcing.m3u

This week saw an array of companies extending their ITO contracts for a further 5 years. So, despite the current gloomy economic outlook, it’s reassuring to see businesses booming.

Firstly, IBM was awarded a five-year ITO deal by the Campbell Soup Company. Campbell and IBM have been IT services partners since 1994.

As part of the new agreement, IBM will provide IT infrastructure services, network support, application maintenance and security services from IBM Internet Security Systems. IBM will offer infrastructure services on demand for enhanced cost-efficiency and increased flexibility. IBM’s global delivery centers will support Campbell’s operations in North America, Asia Pacific and Europe.

Joe Spagnoletti, the CIO of the Campbell Soup Company was quoted singing IBM’s praises; “In a competitive environment, it is important to have a partner that understands our business and provides added value.”

Following this trend, Atos Origin, a leading ITO provider, and Vivarte, a leading footwear and apparel retailer, have also extended their managed IT operations partnership for an additional five years.

The extended contract will see Atos Origin continue to hold responsibility for all Vivarte’s information systems. The partnership covers the supply and operation of the mainframe information system, management of 135 distributed servers and 1,000 workstations, plus user support and administration of the Local Area Network linking three Vivarte sites (phew).

Similarly to IBM, Vivarte’s Chief Information Officer, Hilda Coppin Finkelstein proclaimed that it has so far been a ‘fruitful collaboration’ and that this collaboration has enabled them ‘to consolidate (Vivarte’s) IT resources while efficiently meeting increasingly demanding business and quality objectives’.

Finally, finishing this weeks news round up with a totally unrelated news story, Logica, a leading IT and business services company, has been awarded a £75.6 million contract over seven years to design, build and operate the Police National Database (PND) by the National Policing Improvement Agency (NPIA). Of course, security has been a hot topic in the tabloids this week with the May Day Riots, so I thought they deserved a mention.

The PND is a highly secure information sharing system that will enable the Police Service in England, Wales, Scotland, Northern Ireland and other government organisations to electronically share local intelligence and operational information nationally.

The initial phase will see Logica bring together data from five operational areas of policing into one central system. It will provide forces with immediate access to up-to-date information from across the Service, overcoming artificial geographical and jurisdictional boundaries. Ultimately, the PND will assist forces to improve their operational effectiveness.

So to round up, outsourcing is on the up and police efficiency is being improved. I don’t know about you but I think that constitutes as a good week.

In the words of John Gray, ‘we only part to meet again’, see you next week.

The Campbell Soup Company has signed a new five-year ITO deal with IBM. Campbell and IBM have been IT services partners since 1994.

As part of the agreement, IBM will provide IT infrastructure services, network support, application maintenance and security services from IBM Internet Security Systems. IBM will offer infrastructure services on demand for enhanced cost efficiency and increased flexibility. IBM's global delivery centers will support Campbell's operations in North America, Asia Pacific and Europe.

"IBM's ability to deliver quality services that help us achieve our business goals is the main reason for our long-term, successful relationship," said Joe Spagnoletti, CIO, Campbell Soup Company. "In a competitive environment, it is important to have a partner that understands our business and provides added value."