Industry news

Capita has posted robust results for 2008. Against the odds the company increased turnover by 18 percent up £336 million on 2007. Operating profit was also up £320.9 million on the previous year.

The company has also increased its total dividend for the year by 20% to 14.4p and returned £69 million to shareholders through share re-purchases

In a statement the company signaled its intention to make various new acquisitions in 2009 building on the 12 it made in 2008. Through acquisition Capita hopes to build organic growth in new markets.

Satyam is prepared to sell 31 percent new shares to a strategic investor, The Mint newspaper reported on Friday.

According to the paper, Satyam’s board met on Thursday to discuss possible acquisitions but no statement was issued after the meeting.

Quoting a company executive, The Mint said Satyam's board wanted a winning bidder to buy a mandatory further 20 percent share in the company. No further details have been announced

The full report can be found at Reuters.

Interest in outsourcing has risen by nine percent amongst participants in EquaTerra’s ‘Outsourcing Service Provider Performance and Satisfaction Study 2008-09’. 63 percent of participants – all UK organizations – indicated they would be looking to outsource more in 08-09 over 54 percent in 2007.

The main reason indicated for choosing to outsource more was to leverage further cost savings due to pressures of the downturn. 80 percent of participants had this aim, up 11 percent from 2007.

Phil Morris, Chief Operating Officer of EquaTerra EU and Asia Pacific, interpreted the growing interest as a warning for vendors, “These study results clearly demonstrate that service providers with existing IT outsourcing contracts are unable to rest on their laurels. As price becomes a more immediately pressing attribute than satisfaction, clients will seek opportunities to consolidate their IT service provider portfolio in an effort to gain economies of scale and drastically reduce spend levels.”

Following Springboard’s report on the growth of the Indian IT market, the EquaTerra results offered a further boost to the country. ICT services as delivered from India were being used by 89 per cent of respondents. Service levels in the country also appear to be improving, with the gap in client satisfaction between India and ‘traditional’ service providers such as CapGemini, HP and Logica closing.

The study focused on over 400 UK outsourcing contracts held by over 125 of the top IT spending organisations in the country. The total annual value of the contracts included in this study is over £8 billion, accounting for approximately two-thirds of the total UK outsourcing market in terms of annual contract value.

Readers can get a copy of the report by contacting:

Melissa Gardiner

Director of Marketing EU/Asia Pacific

E:melissa.gardiner@equaterra.com

India's Economic Times (ET) has reported that local outsourcing giants, such as TCS, Infosys and Wipro, are preparing to tender for an estimated '$2-3 billion' of new Whitehall outsourcing deals as the UK government struggles to get troubled technology projects back on track.

The ET reports that as well as the usual suspects – the NHS Programme for IT, for example – HMRC will also be outsourcing more work as the department plans to make it mandatory for medium to large enterprises to file tax information online by 2011.

If so, then TCS has picked a challenging time to lay off over 100 of its 4,000-odd UK staff as it optimises UK operations. Sources say that the company has made most of its UK marketing team redundant, plus a number of consultants.

Many people who have lived through previous recessions will be familiar with a particular approach to cost-cutting: the marketing team is first to go, which undermines opportunities for new business, closely followed by anyone in the heart of the organisation whose skills come at a price.

Occasionally, the latter means slashing experience and wise heads out of the enterprise in an effort to retain low-cost bums on seats. For some reason, this keeps shareholders happy.

While I'm sure this does not apply to TCS, what such an approach sometimes creates is a top-heavy organisation that doesn't value experience, can't attract new clients and whose lower-cost employees are often demotivated and lacking in immediate leadership.

That said, it's the route most companies choose in a downturn. Few ask what shape they might be in when business picks up. (Or as a colleague at a doomed publishing company once said, "He who swerves first loses.")

Also slashing local onsite operational costs, claim various reports, are Wipro and Infosys.

A homegrown company, meanwhile, joins the queue of providers scenting new business at Whitehall.

Capita last year saw revenues rise by nearly 18% to £2.44 billion as it increased its share of the local outsourcing market to over 25%. The company has already inked contracts worth over £600 million this year and has a potential deal pipeline of over £3 billion.

Capita chief executive Paul Pindar believes that the deterioration in UK public finances will drive new government commissions. “Over the next two or three years we are going to see a significant increase in opportunities coming from central government,” he said recently.

So, outsourcers are lining up to benefit from Whitehall's immediate challenges, and claiming this is because the government lacks consultancy expertise.

But why is no one asking why so many government programmes are running disastrously over budget and over-schedule? As the Public Accounts Committee has heard many times already, it is because there is a surfeit of consultants awash in government cash, not a lack of them, but little expertise in Whitehall in how to manage the everyday terms of these escalating deals.

The top ten leading IT vendors cornered a 39 percent share of the highly fragmented £3.36 billion Indian IT Services Market in 2008, according to a report from Springboard Research. According to the report, the top three players, IBM, Wipro and TCS, took up a quarter share of the market, while the top ten ranking had many players with near one percent market share.

In terms of growth, Wipro led the established Services vendors with an over 43 percent growth in 2008 over the previous year. Satyam and HCL Infosystems registered second and third highest growth rates respectively, both growing well above the overall market growth rate of 18.6 percent.

“The overall market showed clear preference for vendors with end-to-end services portfolio, execution capabilities and the ability to combine software, hardware and consultancy,” said Sudip Saha, Research Analyst for IT Services at Springboard Research. “Big multinational players leveraged their ability to invest to corner a major chunk of the infrastructure outsourcing market, while large Indian vendors proved their mettle in the systems integration and application development markets,” Mr. Saha added.

However, speaking to sourcingfocus.com, Sudip commented that the country’s smaller players are also doing very well.

“The dominance of the larger players is actually down on previous totals. It was at around 50 percent for a time and now is down to 39 percent. Smaller players are still growing at around 45 percent a year which is two and a half times the worldwide average.”

According to Springboard’s research, the market in 2008 saw an overall increase in the average deal size of contracts where buyer enterprises are not only using IT vendors as technology providers but as business partners, providing them with means of competitive differentiation.

“Indian outsourcing is moving to create higher-value relationships where things are more quantifiable. The days where India could sell on price alone are gone – the market is too mature for this. Vendors are looking to become partners and create new risk and revenue-sharing relationships. This move towards high-value, business partner relationships is the future of Indian IT.”

The Springboard report, “India IT Services – Competing for Tomorrow’s Market”, is a companion document to Springboard’s earlier report “Indian IT Services Market and Forecast, 2007-2011” and is part of Springboard’s annual Asia Pacific IT Services Market Canvas subscription service.

Organisations seeking to rationalise IT spending should look closely at IT services investments, because they can represent one of the largest opportunities for cost savings and optimisation, according to Gartner.

"During the last five years, spending on external services has accounted for more than hardware and software spending combined," said Frances Karamouzis, research vice president at Gartner. "However, IT services continue to receive less mind share, management attention, discipline and focus than these lesser areas of spending. Going forward, the strategy, selection and ongoing management of IT services must become one of the top strategic imperatives for enterprises."

Gartner said that it is generally not appreciated how large the spending on external IT services is because it is often extremely fragmented. The reality is that, in aggregate, enterprises spend less on their own internal staff, equipment and facilities than they do on external IT service vendors.

"The inconvenient truth of this level of enormous IT spending being overlooked or relegated to lower levels in the organisation results in the accumulation of complacency, inefficiency, ineffectiveness and lack of agility," said Ms. Karamouzis. "Organisations need to take steps now to manage IT services spending as part of wider cost-cutting measures."

Ms. Karamouzis urged enterprises to be realistic and take an honest look at their skill gaps, inefficiencies, ineffectiveness and communication issues, as these are often the areas that will yield the highest savings. She also recommended that enterprises conduct a market scan to understand market-based quality levels and cost structures, as well as comparing insourcing, outsourcing, and hybrid and alternative delivery models. These strategies will help organisations not just to cut costs in the short term, but to manage them in the longer term.

Gartner advised that is time to critically examine alternative delivery models of all types, including business process utilities, software as a service (SaaS), infrastructure utilities and many more. A newer class of alternative delivery models is emerging, premised on predesigned, standardised solutions that are configurable (to an extent), with the goal of industrialising the market. The economic recession may well prove to be the tipping point that forces enterprises to finally decouple the business processes that must remain "custom" to the enterprise from those that can effectively use a configurable industrialised solution.

"Managing IT costs is not just about buying the hardware and software. The big spending is in the delivery of IT services to design, build, deploy and manage those assets. The art and science of execution are where the money is and key to the savings," Ms. Karamouzis underlined.

The Gartner report is available here: "IT Services: One of the Highest Opportunities for Savings Given It's One of the Largest Sources of IT Spending."

HP and Sun Microsystems are to announce a new partnership over a live webcast at 4pm today.

No details have been released as of yet however sourcingfocus.com will report the top happenings from the webcast.

Watch this space.

Logica has announced a 22% reduction in operating profit for 2008. Despite a 17% increase in overall revenue it appears that the IT service provider has still felt the effects of the downturn.

However Andy Green, CEO of Logica, remains optimistic, “Our spread of customers and geographies, high penetration of more defensive sectors and strong financial discipline position us well to weather the economic downturn.”

Full details of the report can be found here: Report

900 new jobs will be created in Northern Ireland as gem, a Belfast based BPO firm, plans to double its workforce over the next three years. In total £19.5m will be invested in the expansion, £5.5m of which will come from the local development agency, Invest Northern Ireland.

Speaking to sourcingfocus.com, Geraldine Fusciardi, Sales and Marketing Director of gem, commented, "We are extremely busy right now, enhancing a quality workforce is critical to retaining customers."

Ms Fusciardi also added that businesses are looking to use contact centres with similar ‘cultural touchpoints’ they hope will make Northern Ireland an increasingly attractive location for UK outsourcers.

Enterprise Minister, Arlene Foster, also welcomed the announcement, commenting,

"With 900 positions ranging from managerial to general BPO operations posts, gem will provide career progression opportunities coupled with the further development of professional, transferable skills.”

The Minister described the investment as a "great boost" for Northern Ireland especially during an economically unstable time.

The National Outsourcing Association, the UK outsourcing trade association, predicted that 2009 could see a reduction in offshoring with rising unemployment encouraging UK organisations to seek out local locations to site new outsourcing business. Poor performing operations may also be brought back on-shore.

Unilever have chosen IBM to support the transformation and ongoing management of procurement operations for Unilever Europe's non-production items (NPI).

The agreement builds on similar IBM procurement implementations for other Unilever regions and the current finance business services agreement in Europe.

IBM will service the routine elements of NPI procurement operations from Budapest. The IBM hosted global procurement system will be rolled-out to Europe with maintenance services performed out of Bangalore, India. The contract was signed in December 2008 and implementation will be completed as a phased programme over the next two years.