Industry news

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.

Patni, the IT/BPO provider, has developed a suite of services to address the rapidly changing financial services landscape.The new array of services is designed to address cost and efficiency pressures experienced by companies during mergers and acquisitions, divestitures and conversions of internal IT systems that directly impact the overall technology infrastructure.

“The financial services industry landscape has been altered irrevocably, and the changes and challenges facing this industry are likely to continue through 2010,” said Fred Cohen, Practice Head of Patni’s Global Asset Management Practice.

The services will be delivered by Patni’s Asset Management Practice, led by Cohen out of Patni’s North American headquarters in Cambridge, Massachusetts.

Shared Service Organisations (SSOs) have achieved dramatic improvements in cost and productivity, according a report from The Hackett Group. Owing to this, business expectations are now forcing companies towards a second wave of value creation through complex outsourcing arrangement, the report says.

Hackett's latest Book of Numbers research finds that companies seeking to move up the value chain are implementing a multi-layer shared services model that incorporates transaction processing centers in low-cost regions, centers of excellence, and high-level onsite support for analysis and decision-making. Many SSOs have also expanded beyond finance to incorporate functions such as IT, procurement, and HR -- in fact, an "everything in G&A" approach is leading edge. At the best SSOs executives make sourcing decisions relating to scope and geography within a continuous improvement and customer service culture.

Results from the research, which examines shared service operations at more than 150 global companies, is featured in Hackett's latest Book of Numbers research volume, "World-Class Shared Services: Expanding Beyond the Transaction." The research also features case histories on shared service successes at Hewlett-Packard and Royal Philips Electronics.

"With a nearly 50% increase in use over the past three years, shared services has become the standard approach to corporate finance," said Hackett Finance Shared Services Advisory Program Leader Dr. Penny Weller. "These centers have played a critical role in helping reduce the cost of finance. Today, typical companies spend almost 40% less on finance operations than they did in 1992. World-class finance organisations, which spend only half of what typical companies do, have seen even greater cost reductions."

According to Hackett Finance Advisory Practice Leader Bryan Hall, "Across the board, the results shared services has helped companies generate is quite impressive. Our research finds that 65% of all companies with SSOs have cut costs by 21% or more, with some seeing savings of over 60%. At the same time, they're showing dramatic improvements in productivity, quality, and customer service."

According to Hackett European Advisory Services Director Roy Barden, "As next-generation SSOs move beyond pure transaction processing, world-class SSOs are evolving towards a three-layer model. Most have established large-volume transaction processing centers, often in low-cost labor markets. In addition, they've established centers of excellence which are responsible for service delivery and are the primary interface to the business leaders. These are often much closer to the business geographically. Finally, high-level knowledge workers are likely to be co-located with the business units, so they can serve as on-site business partners. All this puts them in a better position to provide value-added services such as decision support and reporting and analysis. Within this three-layer model, we're also seeing a growth in multifunction SSOs, incorporating a wide range of back-office operations beyond finance.

"We're also seeing several other emerging trends," said Barden. "Many companies are also now making second-phase movements of operations from near-shore locations to low-cost labor markets, and most are already doing significant work offshore, either through SSOs or outsourcers. The use of outsourcers is certainly on the rise. Overall, leadership at top SSOs are transitioning to the role of sourcing strategists, evaluating and managing a mix of internal and external options, including offshoring and outsourcing."

Consultancy firm Accenture Ltd has hired Duff & Phelps to advise on its possible acquisition of the Asia business of BearingPoint Inc, according to a Reuters report

BearingPoint Inc, which provides technology and management consulting services to the U.S. government, filed for Chapter 11 bankruptcy protection on Wednesday.

Skandinaviska Enskilda Banken AB (SEB Group), a North-European financial group, will process its SEPA Direct Debit transactions with Equens, one of Europe's payment processors.

SEB is one of Northern Europe's financial groups that have affiliates in eleven European countries. The foothold gained in Sweden is a next step in the continued expansion of Equens' position throughout Europe. Equens is already processing payments in eight European countries. The parties signed the agreement last Friday.

Edwin Echl, Global Head of Payments Operations at the SEB Group commented "Equens has a strong presence in the European market. This, combined with its pan-European market coverage, were our main reasons for choosing them. Outsourcing the processing of SDD payments is one of the first steps in our strategy to centralise the payment services of the entire SEB group."

As the UK's finances deal with body blow after body blow, with even the chief executive of Starbucks weighing in to talk down the economy – presumably from 'Grande with Cream' to 'Tall and Skinny' – hardware and services giant HP says it will cut staff wages.

The Palo Alto-based giant has said it plans to trim salaries by an average of five percent rather than contemplate new tiers of redundancies. Executive salaries will be reduced by 10-20% as part of the strategy.

Last autumn the company announced 25,000 layoffs in the wake of its purchase of EDS, and says that 9,000 of those jobs have already gone.

HP announced this week that revenues are slightly up, but year-on-year profits have fallen by 13%, with its cash-cow hardware businesses most seriously impacted. Those results were broadly in line with analyst expectations.

However, HP's services revenues ballooned with a 113% increase, mainly due to the EDS acquisition last year. Outsourcing is keeping HP in the black.

CEO Mark Hurd told analysts that services moved "counter cyclical" to the rest of the economy as companies turned to companies like HP to help them slash costs.

He also hinted that HP may be benefiting from Satyam's troubles in India.

In a company email leaked to the press Hurd said wage reductions were planned to avoid further job cuts.

"When I look at HP, I don’t see a structural problem of that magnitude," he said. "There are pockets where restructuring needs to happen, and areas where actions will be taken as part of our ongoing workforce optimisation process. But at a company-wide level, I don’t believe a major workforce reduction is the best thing for HP at this time."

Hurd will take the biggest salary cut of 20 percent, with senior executives losing 10-15% of their remuneration, and other employees 2.5-5% out of their wage packets.

In the UK, union Unite has reacted angrily to the proposal saying that workers would "be astonished" that a corporation posting profits in the billions would propose to slash salaries.

Once again, it seems, outsourcing and UK jobs are butting heads in the national press.