Industry news

ABB UK has operations in over 12 main locations, with around 2,300 employees. Previously, the company’s 14 UK business units used eight different ERP systems, built up through acquisitions and local implementations over a 20-year period.

TCS has migrated ABB UK’s Finance, Human Resources and Operations functions onto a single SAP ERP system. The aim of this migration is for greater transparency that will enable a granular view of consolidated information and create quick access to accurate data about all stock, or all business with one customer or supplier. ABB has also selected TCS to provide ongoing SAP support services to ensure the smooth running of the system.

“Harmonizing these processes has not only given us faster access to information, but stronger collaboration and sharing of best practice across divisions and business units. Overall this means it has given us greater agility, alongside the obvious cost-savings,” said Bill McLaughlin, Chief Financial Officer, ABB UK and Ireland.

According to a recent report UK businesses are taking six times as long as their US counterparts to react to the dramatic changes in the current market. This situation is largely due to the UK’s complex and time consuming employment laws, and is forcing UK businesses to respond to resourcing requirements a lot slower than they ought to as once someone is on the payroll, it becomes very difficult to let them go. The lure of lower IT costs is directing business owners towards considering a managed technology service over an in-house function, which with the right supplier can be a very cost effective move.

But is a managed service really right for the business? Cost is a key consideration in any tactical operational change but organisations must not only address the business plan as a reaction to the short-term macroeconomic climate, but must also consider how best to take advantage of the future market recovery.

An effective managed service offers the chance to reduce costs, improve operational performance and stability, add agility and mitigate risk. But achieving a managed service that delivers value requires some tough questions both internally and of potential suppliers, argues Scott Nursten, Managing Director, s2s.

As the effects of the recession are felt across every part of the UK economy, organisations are increasingly looking for ways to cut costs fast. For many organisations this has already resulted in a reduced in-house IT head count and attention is now being turned towards IT systems and services.

In addition to staff costs, organisations are questioning the energy footprint, data centre and office space requirements of internal IT resources. With shrinking revenue and a trend towards lower staff numbers across the board, fixed and inflexible IT costs which offer limited potential represent a significant business risk. This doesn’t have to be the case. Joining forces with the right supplier can offer controlled costs with the necessary flexibility to mitigate risk in the short term and drive business transformation when good times return.

But every organisation is now also aware of the risks associated with under-funded IT systems and the implications for stability, productivity and customer service. So while it is no surprise that increasing numbers are looking to assess the value of a managed IT service, the near universal focus on a cost-based decision is raising alarm bells.

Basing a key operational decision such as outsourcing IT solely on cost is not sound business practice. Not only are organisations potentially putting untenable pressure on suppliers, which is likely to lead to reduced levels of service and increased risk, but they are severely constraining their ability to react to the upturn as and when it arrives.

Without a doubt, a well run, efficient and effective managed service can deliver far more than cost savings. The expertise of a good managed service provider will deliver more from existing infrastructure allowing the business to ‘sweat the asset’ and improve the return from capital and operational expenditure.

Leveraging economies of scale, the Service Level Agreement (SLA) based contract should offer 24x7 UK based support at a level that completely eclipses the potential of an in-house team in terms of cost efficiency. It should also be based on a proactive strategy that means once a problem occurs, it either won’t happen again or the time to resolution decreases with every occurrence.

Critically, by opting for a third party resource an organisation can avoid the risk of being virtually held to ransom by experienced in-house staff for additional pay and benefits. The IT department is freed from the administrative overhead of employment regulations and resourcing issues and can focus on its primary purpose and objective: providing efficient platforms for business operations.

If the deal is structured correctly, a managed service should offer a company the agility to flex up and down as required. In the current volatile market, the ability to reduce IT costs or increase service level delivery in line with business performance is a compelling argument. Add to this the benefit of aligning IT services with the business’ security policy, ensuring compliance and data protection in this challenging climate and providing a critical edge in an increasingly competitive market place, and the true value that the right managed services provider can bring to an organisation becomes clear.

Yet a managed service is not the right solution for every organisation – however tight the situation may be today.

A key consideration is the level of talent and experience that exists within the IT team. While cutting costs is a primary goal today, business decision makers need to consider which actions best support the medium and long term key business strategies. Only through a broader and more holistic approach of both financial and strategic implications/drivers can the business arrive at the right decision.

When making any radical operational change such as outsourcing the IT function it is essential to understand the business case. What is the medium-term strategy? Does that include a new product or service launch that will require considerable IT input and support? Would a managed services provider be in a position to provide that level of insight? Indeed, would the organisation be happy to even share that strategic vision with a third party? And, critically, what is the risk associated with in-house IT versus a managed service?

If the business case stacks up, the pressure is now on to get the right contract to support the organisation not just through this recession but into the future. Check the contract! There are far too many managed services contracts that include massive hidden costs that can result in the overall deal costing up to three times the expected fee. The majority of contracts can also not be flexed up or down without incurring huge penalties, creating the same inflexible cost model as the in-house resource.

Furthermore the majority of contracts are designed from a legal rather than service level perspective. Understanding the business requirements and determining the right SLA is key – from the coverage required to the location of the support staff – if the overnight cover is in India, will the problem really be resolved by 8am?

And, of course, if a key objective is to mitigate risk, it is essential to undertake rigorous due diligence on potential suppliers. In this market there are clear signs that some organisations are struggling to keep afloat. In their bid to raise finance, many are looking to cut corners and are failing to focus attention on the provision of service to customers.

Before entering into any new contract, an organisation must be tough: verify the level of cash reserves, check the number and qualifications of staff today – and how that figure compares to 12 months ago. As an example, those providers working primarily in the finance sector may have genuine reasons for headcount reduction but they should be open to such questions.

A good provider should also be innovative as well as transparent. Costs today are an obvious driver and organisations should offer not only contracts that flex up and down in line with business needs but also newly designed services that offer a lower level of service, with less reporting, for example, to provide additional customer choice.

In a recession there is a very understandable temptation to look only at the cost aspect. But while that may help the business weather the storm in the short-term there is so much more to consider if an organisation is to determine whether or not a managed service is the right strategy.

Will a managed service deliver return on investment? Will the company be brave enough to outsource all IT functions to a third party, or will it opt to keep a couple of key staff ‘just in case’ – a move that may reduce the cost benefits? And has the organisation really assessed its business needs? Setting expectations in terms of up time, resolution time and business goals is key before, not during or after, discussions with potential providers.

It is only by undertaking a thorough price versus value comparison and assessing just how a managed service will affect the business when the economy improves that an organisation can make the right decision and, critically, opt for a provider that can actually deliver value to the business over the next few years, not just the next couple of months.

It's finally over. After four weeks of polling, with 6.5 million staff deployed to collect the votes of some 714 million eligible participants across 543 constituencies, the Indian general election finally reached its conclusion last weekend, with the Indian National Congress (INC) party declared the decisive victor.

It's now time for new prime minister Manmohan Singh to deliver on his promises - so what is this likely to mean for India's IT outsourcing industry?

In the short-term, the election result has already been good news. The Indian stock market leapt 17% on Monday, and many of the key beneficiaries in early trading were familiar names in the outsourcing world:

Infosys (INFY) up $4.15, or 10%, to $36.17

Cognizant (CTSH) up $1.06, or 4.1%, to $26.82

Wipro (WIT) up $1.22, or 11.4%, to $11.91

Over the longer term, the outlook is less clear. Certainly, business leaders have broadly welcomed the new government as one strong enough to deliver economic reform and perhaps avoid the internecine struggles that have hampered previous administrations. It's also felt that the INC is unlikely to turn its back on one of the brightest spots in the Indian economy. But nor have business leaders been slow to remind the Congress party of its responsibilities to the high-tech sector.

A case in point: in an official statement released on Monday, NASSCOM (the country's trade body for software and IT service providers) "welcomes the results of the election, which are indicative of a stable government at the centre". In the current global economic environment, it continues, "it is important that India has a stable and progressive political environment that can focus on long-term policies for the sustainable development of the country, even as it takes decisive steps to immediately put the economy back on a high-growth trajectory."

But the statement also goes on to propose a range of measures it believes the government should prioritise, including the extension of tax benefits and other fiscal incentives to the high-tech industry.

Similarly, Dr Ganesh Natarajan, CEO of Zensar Technologies, shared with me his thoughts on how the government can help companies like his. “Presuming the new government to be a stronger one, it will need to work on three important key areas to give relief to IT professionals," he says.

First, Software Technology Parks of India (STPI) facilities should be treated on a par with the country's Special Economic Zones (SEZs), with the same benefits and advantages extended to the companies that reside there, he says.

Second, the government must focus on the education and development of skilled labour. It's an area, he says, where many private-sector companies are interested in participating with the government. In particular, 'finishing schools' for would-be recruits are "the need of the hour", he says.

Third, the new administration must invest in infrastructure projects that will boost India's high-tech industry, according to Dr Ganesh. "The benefits will then percolate to various other parts of society," he says.

It's unlikely that the government will ignore such voices. After all, there are now 5,000 IT software and services companies at work in India, according to NASSCOM. Of these, some 60 per cent are homegrown players. They will expect to be heard - and will expect a robust response that reaps tangible results, as well.

Finnish Defense has selected Accenture to transform its enterprise resource planning (ERP) solution into a defense industry solution by extending current functionality with new features.

Under the terms of the contract, Accenture will design, deliver and maintain Finnish Defense’s SAP solution. Accenture will consolidate a number of disparate information systems so that Finnish Defense can help increase operational efficiency and focus more on leveraging its personnel in times of peace and in crisis situations. The project is designed to significantly improve Finnish Defense’s processes and common procedures in all defense branches.

TravelSky, provider of information technology solutions for China’s air travel and tourism industry, has extended its licences with Unisys China for Unisys server technology through to December 2011. Unisys have been providing server technology to the company for 25 years.

TravelSky operates the reservations and departure control systems for China's air carriers and process more than 200 million passengers a year.

TravelSky Vice President, Mr. Rong Gong, commented, “This supports our aim to make TravelSky one of the most reliable travel systems in the world while satisfying the ever-increasing growth of China’s aviation market.”

Further to the extended agreement, Unisys also provides a group of program managers, software specialists and airline experts who are based at TravelSky's Beijing offices.

The North American outsourcing market witnessed a 15 percent decrease in transaction volume during the first quarter this year compared to the previous quarter, according to Everest's Market Vista: Q1 2009 report on global outsourcing and offshoring activity. However, the BFSI market saw an increase in activity driven by the European IT services market.

Comparing Q1 2009 to Q4 2008, the study findings include:

• The global outsourcing market decreased seven percent in transaction volume, and ACV dropped 16 percent from US $3.55 billion to $2.97 billion.

• While most industries signed fewer outsourcing deals in the first quarter, the banking and financial services sector witnessed 30 percent growth in transactions, dominated by increased activity in Europe and led by the ITO market.

• The government sector dropped sharply with transaction volume falling 35 percent.

• BPO activity dropped 15 percent in transaction volumes.

• Europe witnessed a reduction in transaction volumes, although ACV was higher than Q4 primarily due to a few large deals signed in the region.

“While the American outsourcing market declined, the BFSI market saw an increase in activity, primarily driven by European financial services companies,” said Eric Simonson, Managing Principal, Everest Research Institute. “We believe that overall market activity is likely to see an uptick by the fourth quarter this year and onward.”

The Institute’s quarterly Market Vista reports provide data and analysis of deal trends in the outsourcing and offshoring market, captive landscape, current and emerging locations, key supplier developments, and key developments across the top 20 financial services companies globally. The Market Vista Q1 report also includes special sections on industry-specific FAO and an analysis of the outsourcing market in Eastern Europe.

Other insights for first quarter 2009 activity include:

• Captives activity included 20 new announcements in Q1, compared to 22 in each of the previous two quarters.

• Asia continues to dominate offshore delivery, and Tier-II cities continue to hold preference with new centres arising in locations such as Iloilo City and Bacolod in Philippines and Gdansk, Lublin and Poznan in Poland.

• Potential near-term risk issues arose in Mexico, El Salvador, Poland and Thailand.

• Aggregate US$ revenues across the Market Vista Index of suppliers declined by 2.2 percent on the heels of a 2.5 percent decline in the previous quarter. Revenues of traditional global suppliers declined by 2.2 percent and declined 2.3 percent for offshore-centric suppliers.

Quarterly Market Vista reports include key developments among 20 leading global suppliers. Traditional supplier profiles include Accenture, ACS, Atos Origin, Capgemini, Convergys, CSC, EDS, Hewitt, IBM, Perot Systems and Unisys. Offshore-centric supplier profiles include Cognizant, EXL, Genpact, HCL, Infosys, Tech Mahindra, Tata Consultancy Services, Wipro and WNS.

Interested readers can participate in an Everest webinar. The 45-minute Webinar, followed by 15 minutes of questions and answers with participants, will take place on May 19 at 9 a.m. CDT; 10 a.m. EDT; 3 p.m. GMT Standard Time; 7:30 p.m. India Standard Time. To register readers should visit: www.everestresearchinstitute.com/Events/Webinars.

The Chinese Ministry of Commerce (MOFCOM) has entered into a Memorandum of Understanding with, the sourcing data and advisory firm, TPI.

The advisory firm also strengthened its relationship with the China Council for International Investment Promotion (CCIIP) by entering into a strategic cooperation agreement.

Under the agreements, TPI will advise MOFCOM and CCIIP on accelerating the growth of the country's emerging IT and business process outsourcing sectors. TPI will also assist MOFCOM and CCIIP with their efforts to expand and enhance the pool of talent in China, nurture globally competitive service providers and attract business from multinational companies. In addition, MOFCOM and CCIIP will assist TPI in promoting its growing capabilities to Chinese businesses.

Madam Zhou Ming, Executive Vice President and Secretary General of CCIIP, commented, "The China Council for International Investment Promotion is pleased that TPI is working with us to promote development of the outsourcing industry in China."

A new report released today by Capgemini and the University of Edinburgh examines the changing ways in which manufacturers are doing business as a result of shifting market conditions. The study, “The Global Networked Value Circle: A New Model for Best-in-Class Manufacturing,” explores the evolving nature of today’s manufacturing value chain and examines the global value chains of some of the world’s leading manufacturers, considered to be ‘best-in-class’. The study introduces a new value chain model, known as the “value circle”, for manufacturers looking to optimise everything from product design and the manufacturing of goods to sales and supply chain management.

Consumer reaction to the global economic downturn has hit much of the manufacturing industry hard. Reduced consumer demand has led to serious production cuts at factories around the world. The old approach of a simple value chain in which manufacturing firms take new materials, transform them into products and feed them into the distribution system has gone. In the new value circle model, manufacturers are increasingly engaging with their customers and distributors in the very process of innovating, developing and delivering new products with close collaboration for design, supply and customer satisfaction. This is leading to the transformation of the traditional value chain, with inputs at one end and outputs at the other, to a value circle involving interaction at all levels to create a continuous cycle of improvement.

As part of this shift towards a value circle, rather than linear value chain, some of the new approaches being taken by manufacturers include:

• Product design and innovation - a shift from “doing it”, to “resourcing it”: Adopting new systems to capture and absorb new ideas and innovations from customers, suppliers, collaborators and competitors as well as in-house resources around the world.

• A shift from manufacturing to manufacturing-management: Where manufacturing is done by others, at any location globally, principally in collaborative-partnership arrangements where both parties gain through mutual learning and innovation.

• A shift from contracts to partnerships in supply chain management: Developing closer relationships with fewer suppliers, who are closely monitored, giving both parties competitive advantage.

• Using IT to actively manage the value network: Manufacturing increasingly requires the creation and productive management of highly complex global networks. Achieving this without loss of control, value or margin requires the use of the latest IT approaches such as Radio Frequency Identification (RFID). These approaches are not just supporting the new network management approach by making it feasible, they are driving it.

• A shift towards active partnerships with customers: Addressing customers’ needs and problems by developing closer relationships that enable manufacturers to understand and then deliver what they require. This not only improves customers’ lifetime experience with the manufacturer, but also helps drive product development and innovation process, linking the two ends of the value chain to create the new, more circular approach.

In order for companies to broaden their value chain, the study also identifies three key capabilities for manufacturers. They must have the ability to identify their core competencies. From here, they can partner with others to overcome weaknesses in other areas and focus on developing world-class operations. However, this requires the managerial and IT capability to form, develop, deepen and manage complex business relationships. Companies must also have the foresight to identify the relationships that will be key assets.

“As companies face shrinking consumption, slowing production and declining prices, now is the right time to reassess their entire value chain as they look for ways to keep costs low and improve efficiencies while continuing to innovate,” says Nick Gill, Global Manufacturing Sector Leader, Capgemini. “By adopting a practice of actively managing globally networked value circles, best-in-class manufacturers will be well-placed to weather the current storm in the market and take advantage of the upturn when it arrives.”

sourcingfocus.com readers can access the report here: The Global Networked Value Circle: A New Model for Best-in-Class Manufacturing

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.