Industry news

As companies continue to move to using multiple providers for their outsourcing services, the number of reported "megadeals" (those worth over $1bn) awarded to a single service provider has declined, according to a new report by Gartner. In 2007, 10 outsourcing megadeals were awarded, a decline from 12 in 2006.

“The decline in reported outsourcing contracts can be partially explained by the fact that outsourcing is now ‘business as usual’ for many enterprises,” said Kurt Potter, research director at Gartner. “There is more outsourcing activity, but fewer deals on average are reported and this creates the false impression that outsourcing is decreasing.”

In terms of megadeal total contact value (TCV), the total for the 10 megadeals in 2007 was $12 billion, the lowest level reported during the last eight years, with the closest level being that of $20.3 billion in 2001. Average contract value (ACV) of megadeals also continued to decrease, from an average of $2.6 billion in 2006 to $1.2 billion in 2007.

“While further TCV erosion may be driven by the irreversible trends of global delivery and IT services industrialisation as many leading-edge organisations move into their second and third generations of IT outsourcing, they may be looking at deal expansion to include wider application or business initiatives,” said Mr. Potter. “Although these opportunities are likely to evolve from a single-provider to a multiple-provider engagement, in some cases, historical ties between provider and recipient may retain the potential for megadeals.”

Of the TCV of all outsourcing deals reported in 2007, Gartner said megadeals represented 39.4 percent of the contract value and represented only 6.8 percent of the number of total contracts in 2007, down from 7.4 percent in 2006. Although deals with less than $50 million in TCV continued to increase and reached 39.5 percent of the total number of contracts, they only represented 3.3 percent of TCV for 2007.

“Many providers are pursuing smaller contract strategies as a consequence of the new market realities, new competition and natural market pressures toward commoditisation, which reduces per-unit pricing. These strategies are often in the form of pursuit of smaller contracts from larger clients, or larger contracts from smaller companies,” said Mr. Potter. “Many clients want to test providers’ contracting practices, capabilities and cultures before moving favored providers into larger contracts, or organisations are using smaller doses of outsourcing to delay larger outsourcing adventures. Many providers are forced to pursue larger contracts to meet growth expectations. Despite this pressure, providers should continue to evaluate different or at least accommodate go-to-market and product portfolio strategies for smaller clients.”

Calsoft, a growing ITO provider, has expanded its reach in the European market by opening a new delivery centre in the UK.

From the new centre, based in Hampshire, Calsoft aims to provide a range of services from product development and testing to engineering and consultancy for businesses across the UK and mainland Europe. 

Simon Ellis, Manager of the new facility, said: “Calsoft sees a positive opportunity during a global credit crunch to deliver more for less on behalf of its clients. We’re bringing a successful global model to the European market and feel confident that we can provide clients with quality solutions and access to highly skilled product development resources.”

The move should create a number of new jobs for the UK market.

The Royal Dutch Pharmaceutical Society (KNMP), an association for pharmacists in The Netherlands, has signed off on a £2m infrastructure outsourcing contract with BT.

Under the terms of the five-year agreement, KNMP will outsource its entire mission-critical ICT-infrastructure to BT, including secure hosting of KNMP’s office automation and shared storage environment, migration to Microsoft Exchange and telehousing of all its applications to BT’s data centre in Nieuwegein. BT will also handle remote and on-site desktop management, managed IP telephony and business continuity consultancy services.

British companies are falling behind their developing economy competitors when it comes to taking calculated risks, according to a new study from BT Global Services.  Ninety per cent of Indian companies view risk as a means of increasing competitive advantage, compared to just 44 per cent in the UK, who tend to shy away from risks.

The research, conducted by Datamonitor on behalf of BT Global Services, reveals an interesting gap between developing economies and the UK when it comes to making profitable business decisions based on their calculation of the risk involved.

The key to the difference in attitudes seems to be the role of risk in enabling business development.  Eighty-five per cent of Indian companies see risk management as a tool to foster innovation and creativity, whereas only 34 per cent of UK companies share that sentiment.  The research suggests that a more proactive attitude towards risk is leading to a fuller understanding of opportunities for originality and resourcefulness in India and other developing economies.

This commitment to treating risk management as core to business growth has also resulted in the overwhelming majority of Indian companies (90 per cent) appointing a manager with overall responsibility for risk.  By contrast, only 14 per cent of businesses in the UK have taken a similar step.  Where Indian firms have appointed a “risk supremo”, 94 per cent have elevated the role to board level, compared with just 63 per cent in the UK.

John Dovey, president UK corporates, BT Global Services, said: “There are some well-established FTSE100 companies working in complex environments who have to manage huge levels of risk on a daily basis. But in general, UK companies tend to see the kind of risks associated with aggressive economic growth as something to avoid, while competitors in India have had to see them as something to manage.

“By taking a pragmatic view of managing risk, Indian companies are better able to seek considerable growth by taking on and offering their customers aggressive, innovative commercial propositions.”

In a European, multi sector research study of IT decision makers, security has been ranked as the biggest IT issue. The research was carried out for infrastructure experts Siemon, and recorded 97 percent of respondents ranking security high or very high in importance. Compliance and global standardisation were also found to be at the top of the list of end user priorities.

The group of companies surveyed were all major blue chip organisations with the majority operating globally and having over 10,000 employees. The respondents were spread across various sectors with a focus on finance and IT.

Those answering the research came predominantly from IT management but the sample also included consultants, networking teams and project managers.

Commenting on the research findings, Steven Foster, EMEA managing director at Siemon said, “In today’s world of mission critical applications and reliance on data, it was little wonder security came out as the number one priority. This may partially be a factor of the financial bias in the sample population but with such a high score across all sectors it’s a clear message that for major corporations security is front of mind, followed by legislative compliance and system standardisation.”

According to Foster, the high scoring for global standardisation was least surprising as the company has seen this factor having increasing influence in major infrastructure tenders within the top tier of the corporate market: “Whilst regional market preferences continue to prevail, with the increasing demands placed on network infrastructure, we have seen global specifications shifting towards the highest performing, most robust and secure solutions such as category 6A and category 7 cabling” he said. “Many global organisations are keen to standardise their IT, working with global equipment suppliers to achieve internal standardisation – cabling is no different and is now recognised as an integral and critical part of the IT infrastructure.”

Another interesting result from the survey was that concern for environmental issues was a focus for attention. This was recorded as either a high or very high priority for over half of the respondents with 52 percent scoring this issue as a serious concern.

As a supplementary finding to the survey, over 70 percent of companies surveyed judged network cabling to be ‘very important’. “It is heartening to see cabling growing in perceived value within IT,” said Foster. “Many corporate end users are realising that whilst cabling is a relatively small part of the overall IT investment, it is the platform on which all else is built. Quality cabling systems continue to dominate the blue chip sector of the market.”

The global BPO market will reach over £230bn by 2012 according to a report released by NelsonHall today. The report, compiled on a yearly basis by the analyst firm, expects the BPO market to strengthen in supplier capability relative to the more mature IT outsourcing market.

The firm expects the current economic climate to speed up the globalization process, with organizations using offshore outsourcing to both reduce their cost bases and hasten entry into emerging growth markets. The majority of this development is forecast to take place in the financial services and telecommunication sectors.

Services such as customer management, payments and other industry-specific financial sector services, and recruitment process outsourcing are all expected to benefit from the trend. And as organizations increasingly focus on establishing themselves in the emerging economies of Asia and Latin America, they will look to locate support functions such as finance and accounting services and procurement within these geographies, leading to opportunities in the outsourcing and relocation of existing shared services centres.

The report is available to NelsonHall subscribers here NelsonHall BPO report

Siemens AG has signed off on a £63m outsourcing contract with Orange Business Services to migrate a large portion of its worldwide network to Orange.

The five year deal will see Orange migrate Siemens’ wide area network infrastructure across 70 countries across Africa, Asia, Southwest Europe and North & Latin America.

Norbert Kleinjohann, CIO of Siemens, said: "Orange Services provides us with a global, future-oriented network at an attractive price".

Intellect, the trade association for the UK Technology industry, has launched an online survey which seeks to assess key trends across the offshoring industry. The association is asking professionals who are engaged with the sector to participate in the survey.

The research will provide a valuable insight into the future of offshoring at a time when it has grown increasingly important to UK businesses. Globalisation has opened up markets across the world; by taking advantage of this offshoring has increased the opportunities available to UK enterprise, enabling them to develop innovative models of business for the 21st century. To gauge these future trends, the survey asks a number of a questions about the major issues faced by the industry including:

• Will it be the bigger players or the specialists who thrive in the future?

• Will we see an increase in public sector awareness and usage of offshoring?

• Is offshoring still politically sensitive or is it now seen as standard business practice?

The survey, based online, is open to all business and IT professionals with experience in offshoring. It will be live until 11 July 2008 and can be found at:

Intellect survey

Industry experts have welcomed the survey:

Paul Morrison, senior manager, Alsbridge, said, “Offshoring is at a crossroads with no clear view of what the future holds. There are a number of directions in which it could head, with widely varying implications for businesses in the UK and beyond. Intellect’s survey provides a canvas to capture the wide spectrum of professional opinions on offshoring’s future”.

Hilary Robertson, BPO Strategy Director, Steria said, “The survey is a valuable means to increasing our understanding of a sector which is continually growing in importance to the UK economy. I’m delighted to be able to contribute and hope that that other industry professionals will join in with this exciting project”.

As the first phase of Intellect’s offshoring research the survey’s findings will be incorporated in a whitepaper on offshore futures to be release in October 2008.

Small firm sales expectations have fallen to a six-year low according to figures released today by the Small Enterprise Research Team (SERTeam) at the Open University. The knock-on effect of the credit squeeze as well as evaporating consumer confidence has hit small retailers the hardest and the housing market slump means smaller construction firm order books are drying-up.

The quarterly SERTeam survey, drawing over 800 responses in Q1, takes a closer look at regulation as well as reporting on performance and prospects. More than 90% of respondents doubt that government understands small business well enough to regulate and nearly as many believe there is a lack of joined-up thinking across government departments. Some 61% of firms report that they are spending more time on regulations and paperwork than this time last year and only one in ten believes that the government consults well with business before introducing or changing regulations. On average, small firms spend 5.4 hours per person per month on regulation compliance but the many self-employed who work alone spend nearly double (9.7 hours).

Graham Ball, a partner in Castleberg Sports, sports and outdoor pursuit’s retailers in Settle, North Yorkshire comments: "In a small, family-run retail business like Caslteberg Sports the hours are inevitably long. Once you've shut shop you have all the back-office jobs to attend to but you accept that as part and parcel of being your own boss. When times are good, and you can perhaps take on an extra member of staff, this situation is eased, but in tough trading conditions, as at present, you sometimes wonder if the diminishing returns are worth all the effort. Whilst accepting that regulation is necessary, it is then particularly that you may feel a trifle frustrated about the time and other resources used up in compliance. Take VAT, for example; as tax collectors we are not merely unpaid, we have to pay our accountant for the privilege of so being."

For the first time, this survey draws on data supplied by Barclays Bank which indicates that the rate of small business formation has turned downwards. Combined with inflationary pressures and a cautious attitude to taking on new staff, it is quite apparent that Britain’s smaller firms are feeling significant trading pressures.

Professor Colin Gray, Chair of SERTeam Trustees is familiar with watching and commenting on economic cycles: “We are seeing a noticeable slide in the economy which is not surprising given the increased rate of business closures recorded in 2006 and into 2007. Worsening economic conditions appear to have fed through into a slowdown in the rate of new business starts and the only sectors expressing any optimism are agriculture and services where output and prices remain relatively strong.”

Global sourcing in the retail and consumer sector is thriving, but many companies are not particularly clear on their cost savings nor are they confident of product safety and other risks, according to a survey launched today by PricewaterhouseCoopers (PwC).

Cost is the main driver of global sourcing decisions, yet 21% of respondents do not know what savings to expect. Furthermore, the survey of nearly 60 retail and consumer goods' companies found that one-quarter of respondents did not know what their actual savings were - both largely due to lack of organised measurement techniques.

Companies from Australia, Canada, China, France, Germany, India, the UK and the US took part in the survey, 44% of whom source more than £250 million of product globally each year and 27% source more than £500 billion globally. The survey showed that China is still the number one destination for global sourcing for 83% of respondents. India followed with 58% but Mexico, Brazil, Malaysia, Canada, Chile, Italy and Bangladesh were also cited.

According to the respondents overseas sourcing has become so widely embraced that the cost savings generated no longer necessarily provide a competitive advantage. As executives watch competitors reduce costs through overseas sourcing they have no choice but to follow suit because "everyone else is doing it too."

"Given rising oil costs, currency fluctuations, inflation in China and quality concerns companies need to consider whether or not it is cost effective to source raw materials or finished products from overseas sourcing locations," says Lino Casalino, PwC Canada's retail and consumer advisory leader.

"The survey results show that while some companies have a robust process for reviewing and monitoring the benefits and savings arising from their global sourcing efforts, other companies are either not aware of the potential benefits or do not have the systems in place to track them."

Another key theme emerging from the companies surveyed is that the practice of global sourcing is dynamic and growing. In fact, both historic growth rates and projected growth rates are double-digit figures - almost half of survey respondents have seen a growth rate of more than 10% in the past five years and four in ten project growth rates of more than 10% in the next five years.

The survey also picked up that product quality is the single greatest risk to global sourcing, cited by 68% of the survey sample. However, less than half said they were very confident of managing the risks associated with product safety, despite the potentially damaging repercussions of a product failure or product recall. A quarter of respondents source over 75% of their product globally and with such a high percentage lacking confidence, more active steps are needed to manage product quality risk.

Sustainability concerns have clearly gained ground in the retail and consumer goods sector, illustrated by the fact that 41% of respondents feel climate change is one of the most significant risks to their supply chain. However, almost one-third of respondents were 'not very confident' or 'not confident at all' about their organisations' ability to properly manage carbon footprint risks.

"Global sourcing in the retail and consumer sector will experience robust growth in the future. What is clear from the survey is that while they are moving in that direction - the majority of survey respondents are not yet taking advantage of all the potential benefits of their global sourcing operations," says Casalino. "Companies must adapt their organisation structure and processes to maximise cost savings and minimise associated risks, while identifying new ways to differentiate themselves through global sourcing - through cost, quality, brand or environmental approaches."