Industry news

With the UK halfway into a financial crisis, in the view of many analysts, we are also halfway into job cuts and cost reductions. BT has announced it plans to slash 10,000 jobs worldwide: six percent of its workforce.

As reported previously on this blog, the telco announced an 11% fall in Q2 profits, blaming poor performance by its Global Services division.

With 6,000 BT jobs due to go by April, principally among the company's UK direct workforce, many will point the finger at the Services unit. CEO Ian Livingston has denied any blame lies with Global Services and maintains that, wherever possible, the cuts will be made by not filling vacated posts.

That said, turning around Global services will doubtless involve a mixture of building a more efficient, targeted business – and cutting costs and jobs.

Meanwhile, the eurozone has entered recession for the first time in its history, with Germany – one of the twin engines of the European economy – joining the downward slide.

The strength of Indian offshoring, however, stands as a useful sounding board for the weakness of the home economy, with Genpact (among other providers) reporting strong financial results.

The financial crisis and global recession will accelerate adoption of global outsourcing and offshoring as strategic business tools, according sourcing advisory firm EquaTerra.

Factors expected to impact outsourcing and offshoring over the next year are:

Globalisation will continue but at a slower pace –Numerous factors, including the severe global economic downturn, repeated product health/ safety scares related to Chinese goods, a collapse of commodity prices (critical to supporting many emerging market economies) and the election of a new U.S. administration concerned with the loss of domestic jobs will slow globalisation and one of its key manifestations, the global sourcing of services. But the compelling business benefits of global sourcing – especially in tough economic times – will continue to drive growth.

Reassessment of current global outsourcing strategies/destinations – As buyer focus shifts to cost reduction and cost avoidance, organisations will carefully analyse current and future outsourcing efforts and service provider partners to ensure they are getting services from the most cost-effective location.

Steep learning curves – As buyers turn to outsourcing/offshoring to help weather economic turbulence, they will need to consider mitigating factors, including service provider capacity levels, prior direct experience and whether engaging a service provider expands or consolidates the supplier base – supplier consolidation/rationalisation is viewed as a means to gain economies of scale, reduce overall costs and speed implementation of new efforts to meet shorter term business needs.

Volatility in foreign exchange markets – Outsourcing buyers and sellers must become more effective/efficient at hedging against currency fluctuations that often negatively impact local currencies in emerging markets, creating instability in cost structure/pricing/profit margins. The seesawing value of the dollar will make calculating the true costs of outsourcing/offshoring more complicated, challenging buyers and service providers to plan/project longer-term pricing, cost and profitability levels. Efforts to do this should include explicit contractual contingencies and, when possible, spreading global service delivery efforts across multiple markets.

Wage inflation in offshoring markets will abate, at least temporarily – As Western markets pause to digest events and determine a go-forward strategy, demand for global outsourcing services will slow temporarily, curbing the recent trend toward wage inflation in offshoring markets and helping top outsourcing destinations remain competitive.

Evolving outsourcing business model – Buyers will continue to shift away from the use of project-based contract labor in favor of longer term, formalised outsourcing relationships. By committing to longer term and larger scale deals, buyers can get better pricing from service providers, better levels of service and lock-in longer term cost savings strategies.

Move toward flexible service delivery models and acquiring in-house skills needed to manage sourcing successfully – As buyers gain outsourcing/offshoring management experience, they will seek greater flexibility in service delivery models to fit form to function and tasks. The result will be a mix of domestic, nearshore and offshore shared services/captive centres and other outsourcing efforts that will evolve with the marketplace. Organisations will also place greater emphasis on defining, acquiring and transferring skills needed to successfully govern outsourcing/offshoring efforts.

IT recruitment company, Harvey Nash Group Plc has signed a strategic outsourcing partnership with telecoms infrastructure group Alcatel-Lucent.

A new subsidiary company will be created called Nash Technologies GmbH to provide wireless technology maintenance, research and development services.

Harvey Nash said it expects to create revenues of about 54 million euros over the term of the contract which runs until the end of 2010.

The French National Geographic Institute (IGN) has selected Atos Worldline, an Atos Origin Company, to design, develop and host the first national website, 'Edugéo', dedicated to geography teaching.

This major project forms part of the French Government’s Reform programs and has been developed on behalf of the French Ministry of Education. IGN has joined forces with Atos Worldline to offer pupils and teachers from French primary and secondary schools easy access to local geographical resources dating back as far as 1947.

Resources to be included in the portal are aerial photos, digital maps, current and older topographic data. The site will also included functionalities to enable 3D map viewing; the possibility to annotate a map or an aerial photo as well as sketching facilities and access to sharing work done in the classroom.

“Edugéo is a major project for the National Ministry of Education. It offers teachers new tools for teaching geography. Atos Worldline was able to support us in the development of these services by providing an educational environment that pupils can easily access,” commented Gilles Braun from the National Ministry of Education.

OMV AG, the leading oil and gas group in central Europe, has selected Fujitsu Siemens Computers as its main technology partner after signing a contract for IT infrastructure and services across 30 countries. Under the terms of the agreement Fujitsu Siemens will manage OMV’s systems across 30 European countries

Johann Kandelsdorfer, Chief Information Officer at OMV, explains why the company selected Fujitsu Siemens Computers as its technology partner: “The most-important factors in making this decision were flexibility, efficiency and the company’s ability to empathize with the customer. We wanted a provider that could guarantee efficient, reliable and cost-effective business process operations in over 30 countries. Fujitsu Siemens Computers, with whom we had already enjoyed a long-standing partnership, was unmatched in being able to completely fulfill these conditions.”

The US Department of Agriculture's (USDA) Food Safety and Inspection Service has awarded Unisys a contract to migrate the agency’s data centre to the USDA’s new consolidated Enterprise Data Centres (EDCs). The fixed-price contract, valued at approximately US$5.5 million over a two-year period, is part of a USDA initiative to streamline IT management, reduce costs and address IT security vulnerabilities by consolidating the department’s data centres into four EDC locations.

Unisys (NYSE: UIS) will plan, execute and manage the migration of critical FSIS applications, servers and storage network hardware from multiple locations to the USDA EDC and set up a disaster recovery environment at another USDA EDC site. FSIS is responsible for ensuring that the nation’s commercial supply of meat, poultry and processed egg products is safe and correctly labeled and packaged. FSIS is leveraging Unisys support and data centre migration expertise to help achieve an efficient transition of its IT systems.

“Uninterrupted availability of FSIS’ mission-critical applications is essential to the USDA’s ability to fulfill its mission to ensure the safety and security of our food supply,” said Eugene Zapfel, lead partner responsible for USDA, Unisys Federal Systems. “Unisys expertise in data centre migrations, demonstrated in similar projects with the Centres for Disease Control and Prevention and other public and private sector organisations, will assist the FSIS in its vital mission of protecting our nation’s food supply.”

As the US economy and political system dusts itself down in the wake of Barack Obama's historic win in the US – bolstered by the speed and organisation of his first week as President Elect – the economy on this side of the Atlantic shows signs of strong outsourcing demand, particularly in government.

British support services group Babcock has reported a 40 percent increase in first-half profit, with gross profits standing at nearly £51 million. It forecasts more growth, in the belief that businesses will turn to outsourcing to cut costs.

CEO Peter Rogers told the Reuters news agency that government bodies in particular will turn to people like his company for strategic support and spend reduction.

The company has fingers in the shipbuilding, defence, rail and nuclear sectors, and is the biggest third-party supplier to the Royal Navy.

But as we've explored in this blog before, is government services outsourcing really a sector that companies should feel confident about, given the high-profile trashing of many suppliers' names by association with troubled Whitehall projects?

There are some worrying signs, looking ahead: Home Secretary Jacqui Smith recently made the unlikely claim that most people are excited about, and supportive of, the ID card scheme, despite the ever-escalating cost to the same people who are allegedly so keen on it.

At the same time, talk of the possibility of supermarkets being among companies in the frame for managing key outsourced elements of the service is alarming – creating the intriguing possibility of a future where people's shopping habits are monitored at the till: obese? No chance of buying that cake, sir! Liver disease? Stand away from that four-pack, ma'am!

I jest, of course... or do I? One tabloid headline today shouted: 'Pay the Obese to Take a Walk'!, referring to some new DoH scheme to encourage the larger parents among us to walk their children to school.... for cash.

Whatever the reality versus the fiction, the ID card scheme remains highly controversial, and it has little to do with security (at least, no one has explained how it will make us more secure). It is almost certainly a bridge to a data-gathering/service matching economy of the future, linking in with citizen relationship management schemes at local level, and who knows what else nationally.

Suppliers may not wish to be associated with such a scheme, given the security risks and political sensitivities. Just ask PA Consulting how its reputation is in the wake of its association with a mismanaged government outsourcing deal.

But there are other, less Big Brother-style signs to be encouraged by: none other than Peter Mandelson has the found the perfect way to restore his reputation: by being the supporter in chief of local Post Offices to provide outsourced services direct to the public. Watch this space for more.

As long as the government returns to seeing the Post Office as being an essential public service rather than a poorly functioning profit-making machine in a deregulated market, it will be a national asset.

Elsewhere, two stories from the Philippines show the strength of the BPO market there: first, there is now a reported skills shortage there, and second, Philippines BPO companies may themselves outsource their staffing and HR needs.

Hello World

Bupa, a leading provider of private healthcare in the UK, has appointed Patni Computer Systems to provide BPO services for its core business applications. Under the terms of the agreement, Patni will dedicate 40 technical specialists both in the UK and India to Bupa service for the next three years.

The new contract with Patni forms part of a worldwide initiative by Bupa to drive change within its IT function. Through the deal Bupa hopes to improve levels of service to the business, to support quality software developments and to promote global re-use of applications and processes. Bupa estimates that it will make savings of around £1 million over three years through the deal.

David Guest, Chief Applications Officer at Bupa, commented: “The Group’s ambition is driving change in IT. We are a large company and our staff and customers expect professional levels of service, while growth in business volumes will continue to put increasing pressure on services and drive additional requirements. Our software is becoming ever more critical to the business, and they expect it to be delivered on time and work first time. Our range of services, geographies and IT assets is also increasing, so simplification and re-use are both important. Offshoring is an obvious part of the jigsaw.”

Cognizant, the BPO provider, has signed a five-year agreement with AstraZeneca to provide application maintenance services to the company’s global enterprise in research, clinical development, and sales and marketing. The agreement will further expand Cognizant’s long-standing relationship with the pharmaceutical major.

Under the expanded agreement, Cognizant will work with AstraZeneca’s Global Shared Services organization and implement end–to-end application maintenance services. Cognizant will provide these services by leveraging its global delivery network, talent pool and best practices. This is expected to ensure a predictable service model, reduce the overall cost of IT ownership, and deliver year-over-year efficiency improvements.

“Our strategic partnerships will enable us to streamline operations efficiency, raise standards and deliver world-class services. The selection of Cognizant will allow us to leverage their global operations to meet the needs of our business and increase our focus on our core business -- to make the most meaningful difference to patient health through great medicines,” commented Richard Williams, Global CIO at AstraZeneca.