Industry news

The rise of software as a service (SaaS) companies, such as Salesforce.com, RightNow, NetSuite and SugarCRM has been much hyped over the past two years, and has led people to believe that SaaS is merely a low-cost, fashionable extension of CRM. Of little interest to the outsourcing market, you might think.

Much of the hype comes from such people as Salesforce.com CEO Marc Benioff, whose annual 'Dreamforce' conference in San Francisco attracts thousands of delegates with an almost rock-concert-like buzz.

Indeed, speakers at last month's event included Neil Young, with evening entertainment provided by the Foo Fighters – a surreal moment, considering the highlight of most UK jamborees might be an Abba tribute act.

Other speakers have included such 'outliers' and original thinkers as Malcolm Gladwell, Google.org's Larry Brilliant, Peter Gabriel, and, last year, a confused-sounding George Lucas. The Force was not quite with him, as I recall.

(Lucas's educational foundation Edutopia uses Salesforce technology, and I did put up my hand to ask him if he considered calling it 'Wookiepedia'. Mercifully, the mic was not handed out at that session.)

All this might persuade the naysayers that SaaS is another big tail wagging a small dog: lots of overvalued, overhyped companies promising to change the world on the back of an over-inflated stock price and the last dregs of the 60s dream. After all, we've been there before: the IT industry had its own localised recession as a result.

But you can tell a lot about the viability of a market by the enemies it makes, and the friends who set up shop in the exhibition hall. At present, those enemies include SAP and Oracle – Larry Ellison is an investor in both NetSuite and Salesforce.com, but anecdotally is “terrified” of the latter. (Unlikely, I think, but an amusing prospect.)

Friends of SaaS include IBM, Accenture and Capgemini, on the one hand, and Facebook and Google on the other: these companies are not even opposite sides of the same coin; they're not even in the same pocket.

But why even mention Facebook and what does this have to do with outsourcing?

Well, the mistake many people make is in assuming that Facebook and its ilk are just amusing ways for employees to waste your money sharing their hangovers with the world.

All social networking sites are now powerful computing platforms that millions of people choose to use, and which thousands of developers write applications for. They are intuitive and easy, and companies such as Salesforce.com and NetSuite want to be 'the Facebook for business'.

Ridiculous? Not at all: Facebook has partnered with Benioff's company, with the intention of using both platforms to deploy business applications.

This century, IT has become integrated into our lives to a degree that seemed impossible even a decade ago. That means there is a groundswell of opinion against any technology that is heavy-handed, expensive, corporate, difficult to use, and which you have to rebuild the enterprise around – or write consultancy cheques to understand.

The eminence grise (or rather, blanc) behind all this is, of course, Google: that once-innocuous white page that many of us called home, and which now hides a vast network of applications and services.

IBM, Accenture and Capgemini now have SaaS practices, presumably with the intention of building lucrative consultancy services around baffling wealthy executives. Even the receptionist understands 'Facebook for business', but CEOs will reach for their chequebooks to have 'cloud computing' explained to them by a man in a big blue suit. At least, that's the theory.

The fact is that SaaS is a threat to traditional outsourcing, particularly in such mainstream BPO areas such as HR. Ridiculous? No: the fastest growing software company in the world is HR SaaS provider SuccessFactors, and it is built on the promise of disintermediating your business.

The proof of all this is found in a recent announcement by that über old-school enterprise provider SAP. About a year ago SAP accidentally validated the SaaS market by announcing it was entering it. Last week the company effectively announced that it couldn't afford to play in the market because the margins were too slim.

Exactly; but others certainly can, and that is why you should watch your backs.

E-Plus Group, Germany's third-largest mobile telecommunications provider, has extended its IT outsourcing agreement with Atos Origin for a further five years.

According to an Atos Origin statement, the companies ‘decided together to move from a ‘classic’ IT-Outsourcing to a ‘Flexible IT’ contract to further strengthen the customer-supplier relationship and to enable the E-Plus Group to respond faster to changing business needs.’

The new ‘Flexible IT’ contract will see Atos Origin take over the end-to-end responsibility for 21 business processes from Retail Postpaid Order Management through to Retail Postpaid Billing and Interconnect Billing. Atos will be paid for the services that it delivers rather than a cost agreed upfront. For example, in the case of retail postpaid order management, Atos Origin’s fees are based on the number of new E-Plus postpaid contracts.

"Many companies talk about flexible IT; we are implementing it“, says Thomas Weber, IT Director of E-Plus. "Under the new contract, IT will provide a real contribution to business results and the E-Plus Group can continue to concentrate on its core competence, for example its successful brands and the individual customer support".

Blackstone, a large US private equity firm has acquired a majority stake in the IT outsourcing arm of India's CMS Computers.

According to a statement, the new division offers ‘IT infrastructure management and outsourced business services’. The division will serve various industry verticals, including card processing, transaction printing and ATM management for the domestic Indian banking sector.

Rajiv Kaul, ex-CEO of Microsoft India has been appointed as executive vice chairman and CEO of the new company.

Virgin Atlantic Airways has signed a new IT services agreement with EDS, extending an existing 25-year relationship between the companies.

The new agreement will last an initial five years during which EDS will provide Virgin with the next generation of its airline reservations solution, EDS Reservation Services. The system will be hosted and maintained on behalf of the airline. New features to be included are Electronic Miscellaneous Documents (EMD), which allow Virgin Atlantic employees to electronically capture and account for ancillary sales, and Ticket Re-issue and Refund (TRR) software that automates a formerly labor-intensive function and improves customer service.

“We are impressed with EDS' vision for their new reservations platform and how this will enable Virgin Atlantic to exploit a service-oriented architecture (SOA) to provide improved customer services, greater agility and lower costs,” said Mike Cope, IT director at Virgin Atlantic. “This builds on our long-standing partnership with EDS during which time Virgin Atlantic has grown to become Britain's second-largest airline serving the world's major cities.”

Also new to the agreement, EDS will use its airline service-oriented architecture (AirlineSOA) that connects software and systems to better integrate Virgin Atlantic's operations and help meet the airline's unique market needs. Each of these new functionalities helps Virgin Atlantic lower core reservations services costs and add new revenue opportunities.

Banking giant HSBC is axing around 500 UK jobs - including IT positions - following a review of the "current economic conditions".

The bank plans to cut jobs from managerial positions, through to IT, support services, administration, and sales and service staff. The cuts represent less than one per cent of HSBC's 58,000 UK staff.

Paul Thurston, managing director, HSBC UK, eplained: "In the past two months we have looked hard at our business, focussing on removing duplication, managing costs and devoting resources to areas that offer the most potential for growth."

"We deeply regret taking this step, but we consider it essential to ensure our business is operating as efficiently as possible and that we are best placed to deal with the economic downturn and maintain our levels of customer service," he adds.

Swiss bank, Zuger Kantonalbank, has extended its IT services contract with CSC for another seven years. The extended deal is valued at US $33 million

Under the agreement, CSC will continue to provide SAP-based applications services, including development, maintenance and support. Specifically, CSC will continue its 24x7 operation and management of Zuger’s SAP banking platform and add new functionality that enhances system efficiency and increases ease of use.

“With CSC’s support, we can continue to lower operating costs while increasing customer service,” commented Beat Mathys, a Zuger Kantonalbank Management Executive. “This will enable us to further increase efficiency and improve our cost-income-ratio in the highly competitive retail banking market.”

Computer Sciences Corporation (CSC) has signed an ITO agreement with Marconi Corporation plc, a global telecommunications equipment, services and solutions company. The contract is valued at £450 million over 10 years.

Under the terms of the agreement, CSC will support and manage Marconi’s IT help desk, desktop computing, networking and midrange operations; develop and maintain software applications; and provide telecommunications services. The agreement encompasses Marconi IT operations worldwide, with the exception of its Asia Pacific and Middle East regions and the company’s UK-based Interactive Systems business.

Upon compliance with local legislative and consultative requirements, approximately 360 Marconi IT employees across Europe, Africa and the Americas will transfer to CSC in June 2003.

British Telecommunications (BT), a subcontractor to CSC through this agreement, will provide networking services, including local and wide area networking, voice and conferencing services, and global remote access facilities. An additional 40 Marconi IT employees, principally from North America and the United Kingdom, will transition to BT in June 2003.

“This agreement will contribute significantly to our committed cost reduction and efficiency program and allows us to focus on our core business, which is building, maintaining and supporting the networks of the world’s leading telecommunications companies,” said Mike Donovan, Marconi’s chief operating officer. “The Marconi employees transferring to CSC or BT are moving to organizations where IT and telecoms services are their core business. This will give them new and extensive career opportunities and increased exposure to leading-edge practices in IT systems deployment and support.”

Patni Computer Systems, a leading global IT services provider, has won a contract with Akbank, Turkey’s leading bank and the most valuable company on the Istanbul Stock Exchange.

The system integration deal will see Patni implementing Akbank’s new customer relationship management product from Chordiant Software, over the next 16 months.

The new CRM solution will complement Akbank’s existing customer management systems to enable Akbank to enhance its portfolio, campaign and leads management processes. Once implemented, the CRM system will also provide Akbank with a uniform and consistent view of its customers to drive up targeted intelligent sales and improve existing reporting facilities.

Brian Stones, Executive Vice President of Patni said: “This is a great win for us. Akbank prides itself on being an innovator in its field and this new system will enable it to enhance its overall customer relationship management system in order to strengthen and maintain its current position as Turkey’s number one bank.”

Outsourcing in the banking and financial services sector is showing short-term signs of a slowdown for the remainder of the year due to the economic crisis, but the market will likely regain momentum in early 2009, according to the Market Vista: Q3 2008 report on global outsourcing and offshoring activity by the Everest Research Institute.

“Despite a 40 percent increase in transactions by financial services firms during the third quarter, a slowdown is emerging due to delays in initiatives and managements’ keen focus on the economic crisis,” said Eric Simonson, Managing Principal, Everest Research Institute. “In the medium-term, restructuring, integration, and redefinition of sourcing strategies by large financial firms will lead to an increase in project-based work for suppliers and increased pressures on captives.”

The Institute’s quarterly Market Vista reports provide data and analysis of deal trends in the outsourcing and offshoring market, captive model landscape, current and emerging locations, key supplier developments, and key developments across the top 20 financial services companies globally. The report also includes a special section on the Asian market.

Other insights for the third quarter activity include:

• Overall outsourcing transactions increased 15 percent over the previous quarter, valued at about US $3.2 billion in ACV.

• Banking, financial services and insurance firms signed 81 transactions, up from 54 in Q2.

• Momentum from Europe continued to grow with a 10 percent increase in transaction activity.

• Captives saw significant momentum - 24 new announcements, compared to 18 in Q2 and 16 in Q1.

• Indian suppliers are experiencing slowdown pressures; hiring by the leading Indian suppliers dropped 22 percent quarter-on-quarter and 49 percent compared to 2007.

• Central American countries (especially Guatemala, El Salvador, Panama and Costa Rica) are taking active measures to improve their near-shore proposition.

A key development was the inclusion of Unisys Corporation to the list of key suppliers tracked. Overall, supplier investment led to 100 percent increase in new center setup, while M&A activity was 68 percent lower than Q2.

Guthy-Renker, one of the world’s largest direct response marketers based out of the US, has announced a US$531 million BPO contract extension with EDS.

The new agreement, lasting four years, will see EDS provide ‘consumer-direct’ BPO services to Guthy-Renker's growing customer base in the United States, Canada, Australia, New Zealand and other international territories. Services include order and payment processing, warehouse and fulfillment, and call center/customer service.

“EDS remains an important and trusted business partner to Guthy-Renker as we grow our business across new products, channels and markets,” said Kevin Knee, co-president and partner at Guthy-Renker. “As we execute our growth strategy, we rely on EDS' global reach, industry knowledge and technology expertise to help us deliver an exceptional customer experience.”