Industry news

As economies of either side of the Atlantic attempt to strip risk out of the economy by wrestling with interest rates and simplifying financial structures, the need to manage risk in all aspects of outsourcing is fast becoming the theme for 2008. For example, a wide-ranging study carried out by HR services multinational Hewitt Associates reveals that the development of a risk management policy is the number one priority for HR departments this year.

The study of 53 organisations employing a total of more than two million people also reveal fears over cultural and organisational changes, together with labour shortages and tough productivity targets. In four out of 10 organisations, HR departments said they must improve services to match business expectations, notably on issues such as demographic change, work-life balance programmes, and HR due diligence.

The survey also found that HR departments expect to embrace new competencies and responsibilities over the period 2008-2010, while some traditional HR activities will be transferred to business operations.

The findings are interesting, as they suggest that HR – all too often seen as a simple two-stroke hiring and firing engine under the bonnet of the enterprise – is reappraising its role, and sees the need to be more business like and proactive, but also to be less protective of tasks that may be best placed elsewhere. In a global economy, in tough economic times, and with greater pull and influx from the East, these are certainly the least risky options.

There was some good news for HR at a time when tough decisions and bad news may be on the immediate horizon. The research reveals HR directors’ satisfaction with their jobs, loyalty to their employers and trust in their CEOs. Eighty-five percent of participants said they like their company and their role, while only seven percent would give up their HR role and move to another function. Some 40% said they would be happy to work in locations elsewhere in the world.

As in previous surveys, talent management is where HR has the greatest impact on business performance. Organisational effectiveness, performance evaluation and leadership development are also ranked highly. However, it's fair to say that the results perhaps reflect a more positive economic environment than we find ourselves in at present, and in any catastrophic downturn HR departments are often asked to manage the loss of entire layers of management, lock down on strategic marketing, and to lose expensive employees.

Leonardo Sforza, head of EU affairs and research at Hewitt Associates and chairman of the committee leading the study, said: “The current business context of global interdependence, of economic uncertainty, and, in some cases, of mistrust in the financial markets, is one that is likely to emphasise the need to embed sound corporate values into the daily operations of the entire organisation.

Similarly, the strategic relevance of cross-border people issues is being emphasised by the increasing internationalisation of European business. But by confirming their own CEOs and their companies’ employees at the top of their personal trust ranking for the second consecutive year, HR executives are well positioned to 'join the dots' within their organisations, linking leadership and execution across borders.

“However HR is also conscious that it continues to struggle to delivery consistently on – and above – business expectations. There is a shared responsibility among the different corporate functions to overcome the current gap. Better and more timely involvement of HR professionals each time that new business direction and strategies are defined – together with improved business acumen by HR – are key pre-conditions of success.”

Here is a statistic for you: 15 out of every 100 dollars spent in the world are spent by Americans, but they do not save at a similar rate. US workers famously have a powerful work ethic, with long hours and short holidays, but economies such as India and China now offer both a skills base and manufacturing might at a fraction of the cost. Indeed, one economist recently argued that China is exporting 'disinflation' to the world.

Fuel bills and food prices are soaring higher than wages worldwide, but China and India are building domestic generating capacity for both at a staggering rate. Eastern Europe, meanwhile, is buying ever deeper into gas production. Gold prices hold steady above volatile and nervous markets (and will rise further as power outages in South Africa close down local production), and one thing India knows how to buy is gold.

All of this goes some way to explaining why Americans from the dustbowl to the Superbowl will turn on the offshoring industry at the drop of a dime: as we examined last week, they think it's solely about American jobs and dollars heading East.

While we know this isn't true, a survey in Fortune magazine proves that people believe that it is, and these are the people whose spending power has been the financial engine of the world. Signs are that the US is becoming increasingly protective of the venerable old economy held between its jagged shores.

It's a familiar joke about the US that people in the 'square states' never travel, while people on the east and west coasts are much more connected with world affairs. However, economic anxiety has affected the US to the extent that Americans of all shapes and sizes feel as though they are now the victims of global competition – a claim other parts of the world might scoff at, perhaps, but belief can be a dangerous thing. Fortune reported that 68 percent of those surveyed felt America’s trading partners are benefiting most from free trade – that's free trade – rather than the US.

The magazine surveyed 1,000 people this month and found that the US was on the “verge of becoming a country of economic nationalists”, with nearly 55 percent believing that growth in international trade has harmed American business, and 78 percent that it has worsened the lot of American workers as jobs fly, so they believe, overseas.

“That sense of victimhood is changing America’s attitude about doing business with the world,” said the Fortune editorial. “We are a nation crawling into a fetal [sic] position, cramped by fear that America has lost control of its destiny in a fiercely competitive global economy. The fear is mostly about jobs lost overseas and wages capped by foreign competition.”

It's a fear that is beginning to play a role in the forthcoming US election, and one that demonstrates how inexactly US politics map onto those of Western Europe, as Democratic candidates talk up the issue more than the Republicans. (In the UK in particular, economic isolationism is more usually the preserve of the conservative Right.)

Presidential hopeful Barack Obama accepted his recent win in Iowa by pledging to end the outsourcing of jobs, while Princeton economist Alan S Blinder is on record as saying that communications technology risks 40 million jobs being shipped out of America in the next twenty years. The Democratic mantra is now “fair trade, not free trade”, said Fortune.

This is all very well, and the US is lucky to have candidates with the power, intellect, passion and charisma of Obama and Clinton battling to wrest power away from the Republican old guard, but any such grandstanding to the local electorate by candidates – of any party – simply plays an easy card. In economically turbulent times we are surely more connected than ever in a global market.

If proof of turbulent times was needed, one website reported this week that 75% of all the trading sessions on Wall Street this year have seen triple-digit moves in either direction. That's volatility of an almost unprecedented nature, and the US should be wary of rocking the boat catastrophically in its efforts to steady it, at a time when they are no longer the only boat out there worth getting on board.

I have devoted a number of blogs to commenting on the chilly economic winter many parts of the world are experiencing, and to an extent this has only added to the chattering of industry teeth. That said, outsourcing will increasingly be called into question over the coming months and our industry needs to know how to respond.

Announcements today suggest that the UK – whose economic options seem limited by inflationary fears – now feels the need to be as interventionist as the United States, given that Chancellor of the Exchequer Alistair Darling has set out plans for a more US-style banking industry, to prevent another run on a high street bank.

To an extent, this was inevitable, but the government's proposals were announced on the same day as Mervyn Peake – apologies, I mean Mervyn King (Mervyn Peake was the author of the none-more-doom-laden 'Ghormenghast' novels) – was appointed as Governor of the Bank of England for a second five-year turn.

One of the first actions of the previous Chancellor, Gordon Brown, was to make the Bank of England more independent, whereas this announcement effectively strips Threadneedle Street of some of its powers – a policy that is arguably more in keeping with traditional Labour values. Indeed, it is rather like congratulating Mr. King with one hand, and slapping him in the face with the other (an iron handshake, no less).

The Financial Services Authority, meanwhile – much criticised for its handling of the Northern Rock affair – will be given the right to investigate and intervene in banks' affairs at short notice. More controversially still for fans of a free, transparent market (there may still be some in the City), the new rules will allow the Bank of England to offer financial support to troubled institutions in secret.

So it seems that the solution to the financial sector's cold snap on this side of the Atlantic is a muffler: a more secretive, more clandestine industry. To put it another way, it's a free market in camera, and one controlled more directly by a Whitehall that also seems keen to bail out private investors with public money.

(Indeed, if you felt your tongue inching towards your cheek, you could argue that a strategy of centralised public control for the benefit of careful private investors (rather than a careless public) may be a 'push-me, pull-you' beast, but it seems to work for the Chinese, not to mention President Putin.)

On the other hand, perhaps all this is simply an example of realpolitik, 21st century style – that brand of nineteenth century politics that was variously interpreted as a means to maintain the balance of power in Europe, as a form of polite diplomacy, or as an instrument of rampant nationalism, depending on which country you were in when you said it.

Either way, it seems that the western economies risk becoming increasingly isolated from those of the East, while more closely modeling themselves on them – at least if a new survey published by Fortune magazine is to be believed. More of that separately...

Diligenta, a subsidiary of Tata Consultancy Services, has won a contract to deliver Business Process Outsourcing services to support Sun Life Financial of Canada UK's operations.

The services, expected to commence in May 2008, are estimated to be worth £100 million (over US$200 million) over the life of the contract.

Diligenta has been working with SLF UK as preferred supplier since October 2007, following a competitive tender which came towards the natural end of SLF UK's existing outsourcing agreement. Diligenta will continue to run the operation in Basingstoke where SLF UK's Head Office is based.

"Diligenta and TCS will ensure that Sun Life Financial of Canada UK continues to receive market leading standards of customer service," said Phiroz Vandrevala, chairman of Diligenta. "This contract win adds significantly to Diligenta's reputation as a leading player in the UK Life and Pensions outsourcing market and is proof that the TCS promise of certainty can be translated in the UK Life and Pensions market."

"The deal with SLF UK underlines the strength of TCS' Diligenta strategy, launched in 2006. Our vision was to establish a centre of excellence in the UK to capitalise on the growing BPO trend and to cultivate new opportunities in this sector," said A.S. Lakshminarayanan, vice-president and country head, TCS UK & Ireland. "With the Sun Life Financial deal, Diligenta is moving into the second phase of its history, expanding its client base and UK market share and we are confident it heralds further growth for Diligenta."

Janet Fuller, Chief Executive of SLF UK explained, "We have successfully outsourced our customer services operations for over five years. In preparation for the natural end of our existing outsourcing agreement, we undertook a detailed and thorough review of the BPO market in the UK and selected Diligenta for its cost guarantees, risk transfer capability and its commitment to match or exceed our service requirements. We have confidence that Diligenta will work closely with us and our current provider to transition the services during the second quarter of 2008 - a process which we expect to be transparent to our customers. We are pleased that Diligenta will continue to run the services from Basingstoke as we are very happy with the quality of people and services provided from the current site."

French services bellwether Capgemini kicked off a promising 2008 by annoucing a six-year, £23 million IT outsourcing contract with UK psychometrics company SHL on 25th January. Since then, however, the deal has been placed in the familiar context of renewed rumours about a possible Indian takeover of strategic parts of the business by either Infosys or Wipro.

The SHL win sees Capgemini signing on to upgrade and maintain its new client's IT infrastructure of about 1,000 desktops worldwide, and moving three datacentres in Europe and America to a single location in Bristol. Support will be provided by Capgemini's service centres in Poland and India, and back-up from the company's Rotherham facility.

Andy Ross, CIO and CTO at SHL, said: "Working with Capgemini will help us meet the challenging targets we have for growth, service and cost effectiveness. Their solution gives the flexibility SHL needs at a time of significant change and will help us deliver the high service levels our customers expect from us. We look forward to an excellent long-term relationship with them.

Capgemini Director Paul Soutter added: "We have worked closely with SHL over the six months of the bid process and, as a result, we understand the IT needs of their business and their staff, including their many qualified psychologists. We are therefore confident that we can provide the consistent and predictable growth in IT capability that they will need as their business develops over the next six years."

Indeed, psychology may be the key to renewed speculation about a takeover, suggested Capgemini CEO Paul Hermelin: "The rumours are without foundation and have already been strongly denied," he said. "I ask myself if these practices are not above all designed to discourage our customers and potential partners at the moment when we are gaining market share and attracting new talent."

It has been reported in the Indian IT and business press that neither Infosys nor Wipro are keen on a total buyout because European laws would prevent a restructuring that favours the Indian offshore model. No further evidence has been provided of the veracity of takeover claims.

India's business process outsourcing companies could attain revenues of up to £25bn by 2012, but the industry will need greater investments in education and infrastructure by the government, according to a report.

At its current growth rate, India’s £5.5bn BPO industry will reach about £15bn by 2012, said the joint report, published by consultancy firm Everest Group and India’s National Association of Software and Services Companies (Nasscom).

Services giant Logica baffled the outsourcing market by making twin announcements on 28th January. The strategic news is that it is creating a new outsourcing services division to handle applications management, infrastructure management, outsourcing of ERP implementation and testing across Europe. However, the second announcement is that the head of the new division, Logica chief operating officer Jim McKenna, plans to quit the company later this year to "pursue a portfolio of interests".

If nothing else, the timing of the two announcements has been badly handled, and undermines both the purpose and impact of the strategic move to the wider market.

Under McKenna's leadership, the company says that the new division will take end-to-end responsibility for outsourcing services, providing outsourcing sales and design specialists to all Logica’s customers via local organisations, incorporating the 9,000 or so Logica employees currently working in the company's onshore centres, nearshore locations such as the Czech Republic, and offshore centres such as India, Morocco and the Philippines.

CEO Andy Green said: “Our customers are clear. They want Logica to relate to them locally, while also delivering the best competencies from around the world in the most cost effective and efficient way. Our new Outsourcing Services division will have the scale, tools and methods to offer sales and delivery support to our local organisations so that they can help our customers to succeed.”

But what of the departing McKenna, who is managing the new entity for barely a few months? A Logica stalwart and COO since 2005 – in most companies a role synonymous with the efficiency of a company's day-to-day business, and often its rationalisation – he was also interim CEO before Andy Green clinched the role on January 1st this year.

David Tyler, Chairman, said: “Jim has been at the heart of building Logica over the last 14 years and has had an excellent track record at the company. On behalf of the Board, I would like to thank him for his outstanding contribution, particularly in the last few months as interim CEO when he showed great commitment and leadership. Jim will leave with our very best wishes for his future.”

New CEO Andy Green seemed rather more single-minded: “I am delighted that Jim has agreed to stay on for an interim period to help me lay the foundations for the next stage of the group’s development. Jim has been instrumental in building the global delivery capability and his experience will be invaluable to me and the rest of the team as we establish the new Outsourcing Services division, which will focus on meeting the growing demand from our customers for globally competitive outsourcing services.”

One lesson for the outsourcing industry as a whole, particularly in uncertain economic times, is that the PR implications of allowing forward-looking strategic announcements to become mixed up with boardroom news is that both need careful handling, and ideally, separation in the public mind.

Infosys Technologies Limited, a world leader in consulting and information technology services, and Provenir, a leading provider of enterprise customer lifecycle management software to the financial services industry, today announced they have entered into a global relationship in which Infosys will deliver professional services to Provenir. In a separate agreement the companies have agreed to jointly offer information technology services and solutions.

"We are delighted to have Provenir as both a client and a teaming partner," said Ashok Vemuri, senior vice president and head of Infosys' Banking and Capital Markets. "This relationship is an important part of our strategy which will enrich our offerings and deliver clear competitive advantage to our clients."

This relationship between Provenir and Infosys will enable clients to take advantage of Infosys' best practices, consulting capabilities and technology expertise to quickly implement solutions that enable clients to fully leverage the broad capabilities of the Provenir Platform.

As a teaming partner, Provenir will have access to product expertise and strong application development and integration capabilities to help validate its product offerings. The partnership with Provenir will further enhance Infosys' superior industry expertise while working with one of the leading solution providers in the financial services industry.

"As our business continues to grow, particularly outside of North America, it is important for Provenir to be able to find ways to help our customers maximize the value and competitive advantage they can get from the Provenir Platform," said Jeffrey Oulton, chief operating officer, Provenir. "Our partnership with Infosys demonstrates our commitment to this objective. We look forward to leveraging Infosys' understanding of the financial services industry, deep client relationships, and global resources to deliver even greater value to our clients."

HCL Technologies (HCL), the global IT and engineering services provider, today announced that it has been selected as the provider of a mobile and remote working solution to Wiltshire Police. Valued at £2 million, the partnership will last for five and a half years, including an initial six month implementation period.

Policing in the UK faces huge challenges, as it tries to balance ever expanding demand with a period of tightening financial constraints. Liberating officers from their desks is a key strand in Wiltshire Police’s plans and HCL’s mobile and remote working solution is seen as central to this. It’s about enabling officers to do their work better and smarter, by cutting down unproductive time and giving them the information they need to combat crime and provide assistance to the public.

The first of HCL’s engagements with the UK public sector, this partnership is a milestone in HCL’s growing presence in the UK market. Rajeev Sawhney, President Europe, HCL Technologies, commented on the partnership, “This is a significant award for HCL and one that we are particularly proud of. It demonstrates our commitment to local markets and the UK public sector.”

Matt Bennion-Pedley, Wiltshire Police’s Director of Finance, said: “It was HCL’s business focus and collaborative approach that gave them the edge. We were looking for an innovative approach but also one that has to deliver results quickly, be easily scalable and adapt to continual changes in policing legislation and practice. It is still early days in the solution’s development but we believe we have found a real winner. This augurs well not just for us but also for UK policing in general.”

The solution will involve the creation of a Service Oriented Architecture (SOA) that is costeffective both to maintain and develop, and can be easily replicated in other Forces or associated agencies. The solution is network and device independent and hence is not limited by the operational policing solutions within any Force.

Luxoft, one of Russia’s leading providers of IT outsourcing services, has been named in one the most comprehensive and respected rankings of the EMEA region’s fastest-growing technology companies. Luxoft is the highest placed Russian software company in the Deloitte’s ‘EMEA Technology Fast 500’ list.

With 474 percent growth over the last five years, Luxoft is one of the top Russian companies in the top 500. The ranking is compiled by Deloitte, who has surveyed thousands of companies across 25 countries. This is the seventh annual survey that Deloitte has carried out. The average five-year revenue growth for all companies in the 2007 survey was 1,443 percent – the highest in the history of the rankings – demonstrating the fierce competition faced by companies trying to claim a place in the rankings.

Luxoft’s recognition comes in the wake of being named the sole recipient of the 2007 Frost & Sullivan Global Outsourcing Growth, Excellence & Customer Value Leadership Award and the world’s number one IT outsourcing product engineering vendor in the annual Black Book of Outsourcing as well as in the top three for emerging European vendors of the Global Services 100. Luxoft has also been awarded the National Outsourcing Association’s “Financial Outsourcing Project of the Year” and earned the “Best Employer of Russia” award from the Russian Chamber of Commerce and Industry.

Dmitry Loschinin, CEO of Luxoft, said, “’Technology Fast 500’ has long been considered a key indicator of trends and major developments in the IT industry. The rating includes fast-growing companies that are customer focused as well as quality and process oriented. The fact that Russian companies, including Luxoft, have fared so well is an indicator that the Russian IT industry has reached maturity and taken its place in the world’s economy.”