Industry news

Royal Dutch Shell has the awkward distinction of being the first multinational of 2008 to cut a swathe of redundancies through its internal IT function and offshore more than 3,000 jobs worldwide, in the wake of a review of its 2005 financial results.

In many ways we can use the Shell announcement as a benchmark for how 2008 may pan out, as the company has been lambasted by trade union Amicus, not for the act of outsourcing, but for the way it has handled the redundancy packages, which currently stand at about 25% of the value of severance packages for its oil rig workers. With Rolls Royce announcing 2,300 job cuts worldwide, including in support services, 2008 could be a year in which many multinationals look to offshore providers to replace central functions at much reduced costs, particularly when those companies, like Rolls Royce, are pricing in a much-weakened dollar against the pound.

As we have explored in recent Editor's Blogs, the key skills to acquire and deploy over the next few months when inking large-scale offshore deals, which carry widespread redundancies in their wake, are solid governance, sound management, and a constant awareness of the PR implications of mishandling announcements at a time of economic and political uncertainty.

• NOA has produced some best-practice guidelines for dealing with a strategic decision to go offshore:

Unions: the rule of thumb is to involve unions right from the start. Working together and keeping communications as trouble free as possible will provide the best results.

Watertight PR and HR procedures: These disciplines have to be well planned. If the flow of information is stemmed, staff will be left wondering and will draw their own conclusions. This can be detrimental to employee relations, especially with staff whose jobs are not outsourced.

Transparency: intentions have to be crystal clear from the outset. Rumours about intentions can be hopelessly off the mark and can cause widespread unease about job security.

Retained staff: there are often issues with retained staff, those left over in the wake of an outsourcing. How will they be feeling now that the vast majority of their colleagues have gone? The remaining workforce needs to be treated carefully and companies must ensure they have the right skills and that they have the right number.

Recent studies by Gartner Group and EquaTerra into the state of the outsourcing market show our industry showing greater maturity than ever before, but also some positive underlying trends that could be threatened should 2008 suffer the economic cold snap that many fear.

The January 2008 EquaTerra survey into UK outsource service providers finds that the rationale for outsourcing is changing; once it was principally about cost reduction, but increasingly client companies are looking for other strategic benefits from moving non-core or large, expensive functions out of house. Prime among these are quality, innovation and flexibility. This is encouraging, as we, as an industry, do not like to be thought of as merely a means to hack away at companies' cost bases without adding much in the way of value.

As I have mentioned previously in this blog, with India still the offshore destination of choice for most, the quality and expertise of the Indian workforce is becoming ever more important, especially as rising wages there and greater competition for jobs in the local market mean that the attractions of low cost will ebb over the next few years and will need to be replaced by increased skill and knowledgeability.

However, should the economy in the UK and elsewhere dramatically weaken or enter recession, it seems inevitable that more and more enterprises will seek to outsource 'in anger' solely to slash costs in the short term by moving jobs out of the UK to the cheapest offshore destination. With India slowly becoming more expensive, that could mean enterprises beginning to look elsewhere in the world for a quick economic fix, rather than a solid strategic move that can be governed effectively from corporate HQ.

For our maturing industry, that could be a retrograde step in terms of the quality and manageability of outsourced services. As the EquaTerra survey found, about half of customers rate their own ability to manage outsourced services as 'weak' to 'medium'. Should they be forced to seek cheaper and less tried and tested locations than India, the existing management structure – and its quality – could be stretched to breaking point in the quest for those elusive savings.

In times of recession, few enterprises have the presence of mind to invest strategically in new management positions, especially if they are laying off workers en masse in the UK (and rising unemployment will only darken the national mood). In such a climate, it will be a difficult proposition for any board to create a new Chief Outsourcing Officer position, and yet such an appointment might be essential to maintain solid governance and good communications with offshore services, especially in more 'risky' locations.

The lesson for 2008, then, will be that boards may face a significant PR battle with the enterprise's customers in terms of maintaining service quality, and also with the workforce should they create expensive board positions at the perceived expense of local workers. This year must be the year of the steady executive hand on the tiller should that 'perfect storm' materialise in the economy.

The upside of EquaTerra's findings remains that the outsourcing market is growing year by year, spearheaded by the UK in Europe, and that real dissatisfaction with outsourcing contracts is rare, occurring in only 14 percent of the deals evaluated in the study. The risks are that those figures may rise if customers outsource as a quick or desperate fix rather than as a properly evaluated and managed strategic decision.

The OUT Group is the only specialist PR and marketing provider dedicated to the outsourcing community. As the commercial arm of the NOA, it has a wealth of specialist expertise concerning the specific issues affecting outsourcing providers and their clients. The OUT Group can deliver a broad range of marketing and consultancy programmes including media relations, internal communications, event management and tender development. The OUT Group is comprised of the NOA’s secretariat and board members and calls upon the network of NOA members for the fulfilment of additional services. For further information visit www.outgroup.co.uk.

The National Outsourcing Association (NOA) is the UK’s only outsourcing trade association. Advocating best practice, the NOA represents outsourcing end users, vendors and other companies which support outsourcing, such as legal firms, consultancies and HR. The NOA is involved in research, events, education and public affairs. The vast quantity information that the NOA has collected is referred to as BOOK (the Body Of Outsourcing Knowledge).

For more information on the NOA please go to: www.noa.co.uk

IT directors are set to head to non-traditional outsourcing destinations such as Morocco, Mauritius and Venezuela to make the most of low labour costs and specialist skills.

Analyst firm Gartner has identified 35 countries where IT directors could consider establishing their own development and shared services operation, or where local service providers are beginning to sell services beyond their domestic market.

With immaculate timing the Department of Health (DoH) kicked off 2008 by announcing that the first patient electronic records have been uploaded to the new NHS online database, just as news of more data security breaches in the public sector was breaking.

Details of the first 100,000 patients have been uploaded to the controversial NHS database. Around 20 GP surgeries have added 110,000 individual records to the scheme, which will contain details on patients' medical history, current medication and allergies.

The £20 billion National Programme for IT (NPfIT) is intended to store more than 50 million patient records when it is complete, providing access to doctors anywhere in the NHS.

NHS chief executive David Nicholson insists that the new system will be more secure than internet banking. "We are listening to what people say about data security and we have a level of security built into the system which is way above industry standards,” he said. “Clinicians, professionals and people like myself take this sort of thing very seriously. This is a very high level of security.”

But 80 percent of UK medics have no confidence that the NHS is a fit custodian for electronically-stored patient data. According to a study carried out by www.doctors.net.uk – which has over 151,000 registered doctors as members – only 20 percent expressed any confidence that the electronic records would be secure. Even more alarmingly, only four percent expect local NHS organisations to maintain data privacy.

This lack of confidence appears justified after nine NHS trusts were forced to admit losing hundreds of thousands of health records late last year. Eight trusts in England are reported to have lost 168,000 patient details in total, while a ninth lost staff details. Some 168,000 people are thought to have been affected by the data protection breaches.

In a further blow, all deliveries of patient information in London were halted in December after a CD containing details of 160,000 children was lost in transit from BT to St Leonard’s Hospital, Hackney in an incident that occurred on 14th November. The disk was protected using 256k encryption and sent by secure courier by BT to St Leonard’s Hospital IT dept. It was signed for by hospital staff, but never reached the person in the IT department it was destined for. "We take any breach of security very seriously,” said Ruth Carnall, chief executive of NHS London. “I have asked for an independent review of all NHS data transfer in London and procedures are in place to stop this from happening again."

BT, the local service provider for NHS IT in London, insists that because the disk failed to reach its destination, the pass phrase key needed to decrypt the disk was not issued and, as such, there was no risk of the information entering the wrong hands. Ironically, BT is the provider of the secure NHS N3 data network but said that the NHS Trust in question – City and Hackeny PCT - had asked for the data to be sent by disk. This calls into question whether or not whether some NHS trusts have the basic technical competence to handle electronic data, rather than written records.

Opposition MPs are demanding a rethink of the NHS plan in the light of the recent data security scandals in the public sector. Data breaches to date include 25 million records lost from HMRC child benefit database; 6,500 records exposed from the Northern Ireland Driving Agency, and three million records lost from the Driving Standards Agency. "This is further evidence of the Government's failure to protect the personal information which we provide,” said shadow health secretary Andrew Lansley. "Following the HMRC and DVLA failures we will need further steps on the part of the Department of Health to show how their planned electronic patients' database will protect our medical records."

Lansley called for the national database to be replaced by storage on “local servers with interoperability between them”. “You have to look at the risks as well as the benefits… unfortunately, the government only appears to have looked at some of the benefits and has not taken advice on the risks,” he said. “What worries us in data security terms is if you create an enormous database you not only create opportunities for catastrophic data loss, you also create real opportunities for people all across the country - if they have access and proper passwords – to access other people’s data.”

However, the DoH appears intent on ploughing on with the centralised system. Some senior medics have advocated a campaign of disobedience against the database by supporting a campaign to urge patients to opt out and producing a letter that people can send to their GP to stop their records going onto the database. To date, more than 200,000 people have requested this. "Some doctors are actively encouraging their patients to rebel,” said Dr Paul Cundy, chairman of the British Medical Association (BMA) general practitioners IT committee, who helped compose the protest letter. "This letter is an easy way for patients to express the rights that the BMA feels they ought to have by default."

The letter can be downloaded from the website of the Big Opt Out campaign at www.nhsconfidentiality.org.

Following a hold-up while it investigated accounting errors from prior years, CSC has finally reported on its Q1 and Q2 performance, which sees Europe coming out well.

The delay was due to the discovery of certain accounting errors related to accounting for income taxes and for the effect of foreign currency exchange rates from previous financial years. The corrections in accounting for income taxes resulted in a cumulative charge of $303 million for fiscal years 1995 through March 30, 2007, the company said.

CSC reported it swung to a first-quarter net profit of $108.1 million, or 61 cents a share, from a restated net loss of $59.9 million, while revenue for the quarter came in at $3.84 billion versus $3.56 billion the previous year. For the second quarter, the company posted net earnings of $75.8 million, while revenue for the period came in at $4.02 billion versus $3.61 billion.

European revenues grew 18% during the quarter and 17% for the half year. In constant currency, second quarter and year-to-date revenues increased 9%, making Europe the firm's strongest performer. “The really pleasant change in the company's FY08 performance is in Europe,” said research house Ovum's Phil Codling.

“While CSC as a whole stalled in FY07, in H1 Europe grew by 17% to $2.20 billion, with constant currency growth of 9%. CSC's expanded NHS commitments account for some of this improvement, but CSC Europe is proving it is no one-trick pony. Growth appears to be more broad-based, with higher revenue from consulting and SI business in Europe, reflecting CSC's hiring efforts in these areas.”

CSC CEO Mike Laphen conceded that Europe was outperforming the US. “The European environment, I am pleased to say, has picked up for us quite nicely both in France and Belgium and in what we call our 'central market', with the exception of Italy – we are still struggled a bit there.”

Despite gloomy predictions about the impact of the credit crunch, Accenture reported first-quarter net earnings of $381.3 million, up from earnings of $284.2 million a year ago.

Total revenue for the three months ended 30th November rose to $6.1 billion from $5.17 billion last year. Operating income of $726 million for the quarter grew at the same pace as revenues, leaving operating margin unchanged at 13 percent. Bookings were $5.9 billion, including consulting bookings of $3.4 billion and outsourcing bookings of $2.5 billion, fuelled by both BPO and application outsourcing.

In the Americas, revenues grew 11%, driven by growth in the US and Canada and by strong growth in Brazil and Argentina. In EMEA revenues increased 25% with continued upturn in the UK and double-digit growth in France, Italy, Spain and the Netherlands. Revenue growth in Asia Pacific was 29%.

The results were above Wall Street's expectations and left CEO Bill Green in bullish mood. “Our $5.9 billion in new bookings this quarter was another major achievement,” he said. “We remain confident going forward with our bookings momentum and our revenue targets. We continue to keep a very close eye on global economic trends, developments in the capital markets, and other issues which may affect our business. But our first-quarter results demonstrate rich opportunities for the right services.

“We look at what people think is going to happen their business and I think, on balance, people are pretty confident about what they see. Even in some of the areas that are challenged, people continue to invest broadly in their business. IT is a part of that, but there are a lot of other things people are doing to improve their business performance. We haven't seen any impact of IT budgeting on our business at this point.”

Economic uncertainties and the credit crunch have done little to impact on Accenture as yet. “The fact is, we haven't had any deals terminated because of the economic situation, and we've had nothing pushed out because of the economic situation,” said Green. “When you stand back and look at it, if you look at the US business, 70% of the US companies expect pretty significant increases in sales, and almost 80% of those companies expect their employment to rise. Some of the industries that are challenged are clients that are coming to us for services that address short-term cost improvement.

“I would say I did, in the last four weeks, probably 20 CEO one-on-ones, mostly in the United States. And in every one of those sessions, there were opportunities to expand our work and deliver more value to the client. But [there are] some industries that are challenged, people that might have been taking a longer-term view are sitting here at the beginning of 2008, and they are saying, 'I know we're going to do this transformation, that's a three-year journey'. But there is a thing called sort of the high impact near-term returns and people are saying, 'Can we drive short-term cost reduction and use some of the benefits of that to fund the longer-term transformation?'. People are looking at 2008 and saying: 'What can you guys do?'. So I can bring some money to the bank in 2008, for their 2008. And I think that's where demand comes from.

“What I do make sure I do is have a handle on what the hell is going on in the business,” he added. “The only way to do that is with the big clients and that's why I have spent the last month out on the road. Taking people's temperatures, seeing how and what people are focused on. What do they need to do? Is globalisation still driving the competitive agenda? Every day there are changes in the competitive dynamic, and those changes create opportunities for Accenture.

You can either let the business drive you or you can drive the business. I think what our leadership team has done is, knowing there are some uncertainties in the way the environment is made, so we took charge in that we are driving the business.”

Wipro plans to hire more than 900 employees for its 45,000 square-foot Cebu facility, which will handle customer-focused support processes starting the 2nd of January, 2008. The company is also looking at establishing additional centers in other fast-growing cities in the Philippines.

The centre in Cebu will offer an exhaustive range of services to Wipro’s customers. The focus will be both on Voice and Non voice business in the field of Customer Service Support, Technical Support, HR Services, Financial & Accounting and Procurement Services.

The global outsourcing giant chose the Philippines among several other locations due to the availability of qualified talent in the country. According to T.K. Kurien, President, Wipro BPO, “The Philippines is one of the largest English speaking nations with a strong IT orientation and a talent pool of 29 million. This is one location that we definitely want to expand our presence in.”

Wipro’s choice of Cebu as its newest BPO destination highlights the Philippines’ emergence as a leading global outsourced service hub. Earlier this year, investment advisory firm Tholons identified Manila among the Top 5 prime outsourcing destinations, and Cebu as one of the leading emerging global destinations for outsourced processes.

Tholon’s study also revealed that the outsourcers consider process maturity, availability of relevant skills and cost as the top reasons for deciding on the locations for IT and BPO services outsourcing.

“Our business objective is to enable delivery of multi-lingual services to our global customer base. With a strong and robust game plan for the year, we are very clear in announcing Wipro’s arrival towards Global Serviceability, and Philippines is a major milestone in this journey” said Sanjeev Bhatia, Vice President, International Operations, Wipro BPO.

Wipro BPO took a quantum leap in 2002 after acquiring Spectramind which then had 3,000 employees and now employs around 20,000 plus people at all its BPO centers across the globe. In 2007, the Hewitt Survey rated Wipro among the 25 Best Employers in India.

As a part of its global expansion strategy, Wipro has already invested in several overseas centers. In the last nine months alone, Wipro successfully setup global delivery centers in Romania and Shanghai.

The Highways Agency has signed a £75m IT infrastructure outsourcing deal with Atos Origin.

The five-year deal is aimed at making savings of 15% a year from the budget of the Highways Agency, which is responsible for operating, maintaining and improving England’s strategic road network.

Under the terms of the contract, 120 Highways Agency staff transfer to Atos.

The deal will see Atos support and develop the agency’s back-office applications. The IT services firm will also deploy its Atos Workplace Solutions managed desktop platform to automate desktop deployments and provides flexible access to corporate resources from PCs and mobile devices.

The contract is the second major public sector deal Atos has signed within the past few weeks, following a £14m managed services deal with the Department of Culture, Media and Sport.