Industry news

“A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every

difficulty.” – Winston Churchill

These turbulent economic times are a growth opportunity for the outsourcing industry. We like

to say we are a good company in good economic times, but a great company in bad economic

times.

During the last economic slowdown, industry growth continued despite tighter budgets in the

commercial and public sectors – largely because BPO service offerings were valued and sought

after. Once again, there is a sense that enterprises have not only a hunger - some say even

desperation – to look for ways to save money in this economy.

This growth will lead to job creation in the outsourcing industry. As an anecdotal example, ACS

recently completed the hiring of more than 1,100 people in the Raleigh, N.C. area, over a four

month period. We expect our renewal rates to be at about 90% for the remainder of FY09, which

will also lead to job growth.

Companies that in the past have been hesitant to embrace outsourcing, are now likely to look at

new opportunities and will also be willing to outsource higher tier services. Companies are

looking at short term solutions that can bring savings in 30-60 days, because some firms may not

survive much longer. Once these new customers experience these new solutions and are

comfortable that they are not losing quality, but are saving money, they will see that what was

once viewed as a short term solution actually also adds long term value to their bottom line.

Again, creating new opportunities and jobs in the outsourcing industry.

The jobs will be located all over the world and will include, at home workers, rural sourcing,

domestic, near shore and off shore. Businesses will have to determine which model best supports

their needs and buffers their bottom line. Those decisions will vary by company.

Not every outsourcing firm will be as well positioned to seize this opportunity. BPO firms not

only have to offer a high quality mix of horizontal and vertical solutions, their diversity will have

to include a variety of alternatives to meet a customers needs such as location, cost and other

sensitivities. Companies that can offer experience, expertise and expediency will thrive in this

economy.

Many small to midsize companies may incorrectly believe they cannot afford outsourced

solutions. They may not be able to afford customized solutions, but Business Process Utility

(BPU) offers a standardized solution that may be a perfect fit for smaller businesses. This

innovative offering will also help grow the industry, possibly adding jobs.

BPU is an emerging trend—a faster, more economical level of outsourcing that can be applied to

almost any industry. Instead of creating a customized outsourcing solution, BPU applies existing

standardized systems designed by using best practices.

Implementation time is faster. In many cases, transaction-based pricing lets companies pay only

for what and how much they use. Economies of scale and standardization keep costs down.

Some BPU examples include payments such as loan processing, claims administration, toll ticket

processing, and payroll processing.

There is another scenario where the outsourcing industry will grow, but not create any net new

jobs. Asset acquisitions are gaining in popularity. BPO firms can take over the real estate,

personnel and other recurring costs, eliminating a variety of problems for a customer – an

inefficient process, an inexperienced work force, a facility that is not filled to capacity and other

issues – and make them our own. Depending upon the way the deal is structured, the customer

can also see an immediate infusion of cash as well as a long term solution that will generate

efficiencies and savings over time for the company.

Due to the current economic situation, the industry should expect more activity and larger deals.

That trend will continue based on the fact that we are also seeing a more aggressive approach

from customers. Even companies that are on solid financial footing can and are using the current

business climate as the rationale to make changes that while not essential to their survival, will

result in a marked improvement in their bottom line.

About Tom Blodgett

Tom Blodgett is Executive Vice President and Group President for ACS’ Business Process

Solutions line of business. Tom has nearly 20 years of senior management expertise in business

process outsourcing (BPO). Blodgett is a pioneer in the BPO arena. In 1985, his family founded

Unibase, a data entry company acquired by ACS in 1996. The acquisition expanded ACS’

capabilities in the relatively new BPO services market and created an entire service segment

dedicated to delivering superior business process solutions. His Business Process Solutions

group represents $1.3 billion in annual revenue.

About ACS

ACS touches millions of lives every day. As an outsourcing partner to some of the world’s most

complex corporations and governments, we focus on serving their business operations so they

can serve their clients.

As a FORTUNE 500 company with approximately 70,000 people, our presence is wide,

supporting client operations in more than 100 countries. But our contribution to our clients’

business success runs deep – by simplifying their business processes and improving their

information technology capabilities

You can earn more about ACS at http://www.acs-inc.com.

So it's official: the UK has been in recession since the beginning of July last year.

In the final quarter of the 2008 calendar year, gross domestic product (GDP) fell by 1.5%, the steepest quarter-on-quarter fall since the recession of the 1980s.

Analysts are predicting two or three further quarters of negative growth, with worst estimates saying the economy will not recover until 2010. The financial year 2008-09 will be one of the worst on record.

The problem for the UK economy is now manifold: overseas investors see a weak pound, which has fallen back rapidly from its overvaluation last summer. Similar things have happened to the banking sector, which had ballooned massively relative to the rest of the economy and is now propped up by government loans and part-ownership.

Unemployment is pushing two million, and if the recession lasts through the autumn, could begin to hit levels not seen since the dole queues of the early Thatcher years. What manufacturing base we have is in rapid decline once again.

The key question, then, is what will the future UK economy look like? The problem is that since the 1980s it has been built on the services sector and lacks significant diversity elsewhere. If the services sector is now taking the full force of the storm, then how will a rebuilt economy sustain itself later?

Tata Consultancy Services (TCS) have been named technology partner of Ducati Motor Holding Spa, a leading manufacturer of motorbikes and superbikes.

The multi-million dollar agreement will see TCS deliver technology-based services that will help improve customer responsiveness and business efficiency.

Gabriele Del Torchio, CEO of Ducati, commented, “We believe that TCS is the right partner to help us set up a strong company platform that will help us reach the next level in terms of company competitiveness and results in today’s global market.”

AMT-SYBEX, a systems technology provider, is pleased to announce that it has been appointed by OGCbuying.solutions , an executive agency of the Office of Government Commerce, to the ‘Mobile Solutions’ (II) framework agreement as a provider of bespoke mobile solutions.

Following a competitive process through the Official Journal of the European Union (OJEU), AMT-SYBEX was selected after demonstrating an ability to deliver complete end-to-end mobile solutions.

According to the company the Mobile Solutions (II) framework agreement “specifically reflects public sector demand to satisfy the scope of increasingly complex mobile solutions including information assurance and emerging ‘Next generation Network’ (NgN) technologies.”

Marks & Spencer has signed a seven year contract with Fujitsu Services, one of Europe’s biggest IT services companies to provide in-store IT support for around 600 M&S stores in the UK, Ireland and Channel Islands.

Damone Quigley, head of infrastructure and application services at Marks & Spencer, commented, “We have modernised 70% of our store portfolio and improving the technology has been a large part of this. It is vital that we have a responsive partner who can not only install and support the IT equipment in our stores from multiple vendors, but also identify potential cost savings.”

No financial details were disclosed.

If 2008 taught us one thing, it is that nothing is as contagious as fear and uncertainty. In 2009, fear and uncertainty stalk the Indian outsourcing industry,

This weekend former chairman of Satyam Computer Services Ramalinga Raju was taken into police custody at Chanchalguda prison in the southern Indian city of Hyderabad.

Satyam founder Raju, his brother, who was the managing director of the company, and the former chief financial officer are all being investigated on charges of corruption.

Raju admitted in his resignation letter that $1 billion on the company's books had been faked.

The Satyam scandal has involved those age-old business practices in the scramble for a piece of the action: cooking the books, turning a blind eye, back-handers and sweeteners, and executives cashing in from their inside knowledge.

Last September Satyam won an international award for corporate governance: no less than the Golden Peacock, awarded by the World Council for Corporate Governance. It seems now to have been a golden turkey.

It's worth reminding ourselves that the outsourcing industry has been the standard bearer for the new Indian economy, so corporate scandals are bad news for all types of business there.

In an earlier blog, I implied that it would be unusual for large-scale malpractice to be isolated to a single company or person – in any country or sector – as such behaviour lurks in boom-time industries as companies jostle for dominance, testing the limits of the law.

Alas, for the second time in as many weeks this blog may have been prescient. Wipro, another of India's trinity of services giants, has joined Satyam in being banned from doing business with the World Bank after it apparently offered shares in its IPO to the bank's employees. Wipro says it has not broken the law.

Another Indian IT services company, Megasoft has also been banned, in this case for a failed Chinese joint venture with a former World Bank employee.

The problem for India now is acute: we know from our own experience in the West that fear and uncertainty spread like a contagion, and often bring about the outcomes we are most afraid of.

Some commentators believe that corruption may spread in India rather than fall away, partly because of intensive competition as Western economies falter. If that happens, then it will impact on UK clients, who may think twice about their offshored programmes.

Of course, we face our own problems in the UK, Europe, and the US as the recession deepens and the UK's financial services sector seems to be falling like a house of cards.

In the UK's case, however, we have been the victim of our own success: we are a multi-talented people, and yet there is little diversity in an economy that is now almost entirely built on services in the image of the Thatcher years.

One wonders whether India will rue the day it followed that lead if its economy falls victim to the type of greed that typified the 'loadsamoney' 1980s.

Unisys Corporation has won part of a four-company contract with the U.S. Army. The deal will see Unisys and three other companies will provide RFID technology to all U.S. federal government agencies as well as to NATO and other coalition partner countries.

The deal, named RFID III, could reach a value of US$428 million if all options are exercised.

Unisys has been providing RFID solutions as a prime contractor to the U.S. Department of Defense (DoD) since 1994, following Operation Desert Storm. The partnership has resulted in the creation of one of the largest active RFID networks in the world, the Army’s RFID In-Transit Visibility (RF-ITV) system. RF-ITV provides the military with instant access to information about equipment and supplies, enhancing readiness and safety.

Currently, RFID tags are attached to approximately 125,000 shipments of military supplies each week. As shipments pass through field locations, fixed and handheld readers send and receive data to and from the tags. This data is made available to the military for greater visibility into the location and status of shipments.

“With RFID III, Unisys plans to assist the Department of Defense in moving from proprietary technology towards the international standard ISO 18000-7 for a more open RFID infrastructure,” said Jim Geiger, managing partner, Department of Defense, Unisys Federal Systems. “Unisys is very proud that DoD has selected Unisys as a partner in implementing these standards. The result will be a less expensive and more flexible and reliable path forward.”

Under the contract, Unisys will deploy RFID tags and readers of partner companies Hi-G-Tek and Identec Solutions.

The outsourcing industry is not immune to the ripple effects of the widespread economic volatility, however, in an economic downturn, cost will outweigh value considerations, according to Gartner.

“Although things look gloomy for the larger global economy, the outsourcing market represents a dichotomy: on the downside, organizations' cost-cutting outsourcing strategies may negatively impact market growth, but at the same time, the upside is that outsourcing will be adopted by more organizations to help them work through financial and competitive challenges,” said Allie Young, vice president and distinguished analyst at Gartner. “The well-educated buyer and provider will have the advantage. The potential for outsourcing to address immediate cost pressures as well as long-term recovery goals will be unprecedented. However, only organizations that are diligent about understanding and avoiding the pitfalls of cost-focused outsourcing and that apply business-outcome-focused outsourcing will be successful.”

The fifth annual “Gartner on Outsourcing, 2008-2009” report shows that the global economic slump has meant that outsourcing clients are re-evaluating their contracts to improve efficiency and costs. This is affecting provider selection and retention, how services are or will be delivered, delivery location and contract pricing. Beyond the drivers of efficiency and cost, however, many organizations will also experience business change as a result of repercussions of the economic crisis, which will impact current outsourcing or plans for outsourcing.

For organizations that are outsourcing, contract terms may be altered in response to corporate change: some will downsize, others will expand, acquisition and divestiture will impact others, and still others will cease to exist. Many organizations that are not outsourcing will consider or move aggressively to outsource their IT or business processes to focus on their core business. More than ever, buyers and providers must be attentive to contract issues to ensure a certain level of flexibility, since business change is almost certain.

In 2009, Gartner expects competition for outsourcing deals, particularly for standardized IT outsourcing (ITO) services, to be fierce. Some buyers will be lured by low prices from providers trying to make quarterly revenue goals or build market share. In 2008, based on analysis of Gartner’s Outsourcing Contract Database, about 76 percent of announced outsourcing contracts represented new deals; the remaining percentage was a combination of contract extensions, expansions or renewals.

“Almost one-quarter of these contracts were a continuation of outsourcing with an incumbent provider. With the continued uptake in selective outsourcing, a provider can remain a key supplier of services to a particular client, yet potentially lose a portion of its historic contract value,” said Ms. Young. “Key providers are betting their future on forming enduring, long-lasting client relationships. In uncertain economic times, outsourcing relationships can prove (and test) the durability of relationships and the outsourcing value proposition. “

Alternative delivery and acquisition models (ADAMs) will see a net boost in adoption due to the economic conditions in 2009. ADAMs will deliver IT services through new approaches, such as software as a service (SaaS), business process utility (BPU), infrastructure utility (IU), remote management services (RMS) and Web platform/cloud computing.

IU is defined as a key initiative for IT organizations during the next 12 months by many organizations. Providers that de-emphasized IU investment will react to the growing "everything as a service" buzz by refreshing their messages, creating new service bundles and reactivating investments. IU will gain more market share at the expense of traditional data center outsourcing service, which will put pressure on traditional IT outsourcing providers to deal with the pricing pressures that IU services represent and create change in their service portfolios and within their client bases.

“ADAMs are becoming more pervasive in many, if not all, aspects of IT development, delivery and management,” said Ben Pring, research vice president at Gartner. “Market excitement over new delivery methods is intensifying and whetting buyers' appetites for new options and services that promise greater flexibility, speed-to-solution, lowered capital investment, and pay-for-use models.”

“During the next five to seven years, a broad set of new and alternative IT delivery models — already in use by aggressive early technology adopter organizations — will become mainstream,” Mr. Pring said. “Since these models have been gaining attention from enterprises in recent years in relatively benign economic market conditions, they are likely to become of far greater interest to buyers as economic conditions worsen through 2009.”

Additional information on what happened in outsourcing in 2008 and what Gartner expects in 2009 is available in the Gartner report “Gartner on Outsourcing, 2008-2009.”

EDS has secured a BPO contract with the Centers for Medicare & Medicaid Services (CMS). The deal will see NHIC Corp. EDS’s subsidiary, administer Part A and Part B Medicare claims payments for health care providers in five of America’s Northeastern states.

The contract could be worth up to US $176 million if all available options are exercised for the next five years.

The Medicare Administrative Contractor (MAC) Jurisdiction 14 contract will help streamline Part A and Part B Medicare claims processing work done in Maine, Massachusetts, New Hampshire, Rhode Island and Vermont. The contract will serve approximately 1.7 million Medicare fee-for-service beneficiaries, almost 80,000 physicians and practitioners, and 220 Medicare hospitals in Jurisdiction 14.

NHIC will serve as the first point of contact for the processing and payment of Medicare fee-for-service claims from hospitals, skilled nursing facilities, physicians and other health care providers within Jurisdiction 14. NHIC will assume full responsibility for the claims processing work that is currently performed by three fiscal intermediaries and two carriers.

“The breadth of skills and experience from EDS subsidiary NHIC will help CMS achieve its goal of consolidating its benefits processing operations while saving money, promoting innovation and realizing operational efficiencies,” said Dennis Stolkey, senior VP of U.S. Public Sector at EDS, an HP company. “EDS has been a CMS Medicare partner since 1965, and this opportunity allows us to provide additional technical support for Medicare.”

CSC has won a contract from the North Carolina Department of Health and Human Services (NC DHHS) to replace the state's current Medicaid Management Information System (MMIS) with a new healthcare administration system that will manage other state agency health services in addition to Medicaid. The contract has a seven year base period and a one-year option, bringing the estimated total contract value to US $265 million.

Under the terms of the contract, CSC will develop a new enterprise MMIS solution for healthcare administration supporting multiple agencies within the NC DHHS. The solution will be enhanced by commercial off-the-shelf products designed for a multi-tiered, service-oriented architecture and aligned with the Medicaid IT Architecture (MITA) business enterprise. CSC led development of MITA, creating the initial architectural framework, and continues to develop standards and enterprise objectives to ensure that clients' solutions meet Centers for Medicare and Medicaid Services requirements. The new system will also provide the department with an information technology platform that promotes efficiency and information sharing across all divisions and programs.

In addition, CSC will be the fiscal agent for the NC DHHS and its divisions, providing operational support to manage provider and recipient call centers, prior authorisation reviews, claims processing, pharmacy operations, medical policy reviews and other administrative activities. CSC also will provide similar support to other health coverage programs offered by NC DHHS.