Industry news

Despite the economic chill and customers turning toward best-of-breed deals and multisourcing, reports of the mega-deal's death are exaggerated, said top industry legal advisor Tim Wright. "There is currently a trend towards shorter and smaller 'best of breed' arrangements," he said to Sourcingfocus. "However, one look at the insurance sector and it is clear that the 'mega-deal' is not dead. In the second half of 2007, Resolution announced a 12-year, £580 million strategic partnership, which saw around 2,000 UK-based staff transfer to Capita and a phased outsourcing of back-office customer services to India."

Wright, a partner specialising in Global Sourcing with legal giant Pillsbury Winthrop Shaw Pittman LLP, also singled out Co-operative Financial Services' undertaking of a 10-year technology and BPO project worth £277 million, and Prudential's announcement of a 15-year deal worth over £750 million.

However, the underlying picture is not all rosy for the big-deal players. Wright added: "These life and pensions administration deals have relatively unique drivers. Declining business volumes coupled with static or growing fixed costs, coupled with the problems of running multiple administration platforms, continue to generate longer than typical deals due to the particular economics of the sector."

Wright said that in may cases the mega-deal can be a sign of inexperience on the part of the customer, coupled with the promise of poor management once the contract has been signed: "Outside of life and pensions administration, organisations with less outsourcing experience often look for the mega-deal as they don't necessarily have a complete understanding of the governance and other challenges of dealing with multiple service providers," he warned. "[Whereas] those organisations with more experience – often tempered by problems they'’ve experienced in the past – have instead adopted a “best-of-breed” approach, with many different providers engaged to provide smaller packages of services."

The trade-off of this leaves the customer seeking to manage the hand-offs and interactions between all of the different suppliers. He said, "[This] sees increasing management overheads and an ever-growing retained organisation, which does not necessarily have the requisite skills, as well as the transfer of risk back to the customer and the erosion of the promised economic benefits."

This, in turn, may drive buyers to rationalise providers over time and drive a less complex delivery model, he concluded.

For more from this interview, turn to The Big Questions: January 2008.

Q: Should the economy slow dramatically in the UK and globally, what would the implications be for the outsourcing industry worldwide? Some US commentators believe that America has already entered recession...

"Companies will look to reduce costs in all areas of their business and decreased cost will become one of the major drivers for outsourcing, displacing other drivers, such as service improvement and quality, to some degree. In addition, we expect, in business transformation outsourcing, some movement away from the high up-front investments seen in some deals recently, with customers looking to smooth significant transformation charges over the life of the deal."

Q: In which areas might this occur?

"Sectors to watch include financial services, which is more strongly affected by losses resulting from the credit crunch, and we can expect to see an even greater degree of offshoring as companies attempt to reduce costs further. On the supplier side, a slowdown could drive increased M&A activity with divestment by providers of underperforming business units, and further consolidation by the more aggressive players who see the opportunity to buy increased market share."

Q: We're starting to see lay-offs in some multinationals. It seems inevitable that many client companies may outsource 'in anger', as it were, to slash costs in non-core areas, rather than strategically as part of a considered and strategic business plan. Can this in any way be a good thing, and what might the risks be of short-termism?

"Clearly any 'knee-jerk' outsourcing reaction is not advisable. Companies risk losing control of non-core services and, where cost is the driving force, there may be a potential degradation in service quality. Inevitably, companies will seek to change to a variable cost model to enable them to match costs with business volumes. In cost-driven deals, customers still need to focus on compliance issues, such as ensuring adequate security of customer data, as well as paying careful attention to the ongoing (and sometimes hidden) management costs entailed by outsourcing."

Q: On a more positive note, what does your firm believe the real growth areas for outsourcing will be in 2008?– First, in terms of vertical sectors, and, second, in terms of discipline or business function (eg BPO, HR, CRM, and so on)?

"The financial services sector was the focus for the mega deal in 2007 –– for example, Royal & Sun Alliance, Prudential, Resolution and Co-operative Financial Services – and this is expected to continue in 2008, as evidenced by Marsh's outsourcing of its back office support systems to Capita in a £200 million deal this month.

"Sector-specific BPO (such as insurance administration) will increase as the market matures and companies become more confident with providers. BPO and IT outsourcing will continue to grow as companies look to cut costs and move more services offshore, and all types of outsourcing are set to increase due to the marked return of cost pressures in 2008 as the most significant outsourcing driver.

"The sub-prime credit crunch and other factors of globalisation, such as currency movements and relentless increases in energy and other fixed costs, come increasingly into play. In addition, the life sciences industry will see more outsourcing in 2008 as it focuses on reducing expenses to maintain expansion."

Q: With all this in mind, are there any indicators of what the next 'hot' offshore destination might be?

"India is likely to continue as the destination of choice for BPO, due to the English speaking population – although rising currency and increasing wage and real estate costs will make other countries look attractive offshore destinations. China will continue to grow, although the lack of an intellectual property protection framework is still a concern.

"Vietnam could be popular as a cheaper destination with 9,000 new IT graduates entering the labour market each year, and Singapore has strong intellectual property protection and has made significant investment in creating a large biotech presence. In addition, Egypt is actively promoting itself as an offshore service location for BPO services. However, its proximity to the Middle East may deter some companies."

The jury is still out on the effect that America’s sub-prime mortgage crisis will have on the UK information technology industry. Computing magazine predicts that shaky UK business confidence will have a negative effect on IT spending in 2008, and Gartner concurs, estimating that growth in technology spending worldwide will be 5.5 per cent, down from about eight per cent in 2007. While most pundits agree that the financial services sector is unlikely to be splashing out on technology in 2008, however, projects such as the 2012 Olympics and the planned extension of the tube network will create significant opportunities for IT professionals. Recruitment companies have reported no slowdown in IT appointments towards the end of 2007, and a recent survey by recruitment agency The IT Job Board reported that more than half of respondents expected to increase their recruitment of IT graduates.

In the light of such uncertainty, the UK IT services industry finds itself in a potentially difficult position. Will large corporations drastically cut back their IT spending, causing a crisis for IT services companies, or will there be a rush to outsource staff and work in an effort to cut costs? Gartner has predicted a major growth in business process and IT outsourcing for 2008, but will this business go to home-grown IT services companies or to overseas outsourcers? The biggest challenge for the sector will be to find a business model that works in a climate that is essentially unpredictable.

The credit crunch may well serve as an excuse for some corporations to shed the excess IT staff they have acquired. In boom times, managers in large corporations often argue successfully for increased investment in IT staff to maintain or improve quality and service levels. Within a short period of time, however, it is not uncommon for the new workforce to be no longer working consistently to capacity, or for the range of IT skills to fall short of the demands of the business and of breaking technologies. It is therefore likely that we will see some staff reductions in corporate IT departments in the coming months.

It is also possible that we will see a return of more major outsourcing deals. IT services companies, hungry for additional work, can often offer a more cost effective solution for the development, maintenance and support provided by the in-house team. They may even be able to improve on the quality of service. Recent examples of such heavyweight outsourcing contracts include BNP Paribas’ signature of £50m outsourcing deal with Atos Origin, and Royal Dutch Shell’s announcement of its intention to outsource its entire IT function to EDS.

The obvious drawback with these expensive, long-term contracts is that they are likely to suffer from the same problems of inflexibility as an in-house team. The organisation is tied to a lengthy and unwieldy contract, while the problem of long-term over-staffing is not necessarily eradicated; the headache is simply transferred to the IT services company. Most IT services firms report only 60 to 70% utilisation rates of their staff, leaving an expensive 30+% surplus of unused skills.

As a result, we are seeing the adoption of new, innovative approaches. . Rather than entering into inflexible long term deals covering a wide range of requirements, many larger companies now want to outsource in a variety of ways on a case by case basis. There are many new players anxious to establish themselves – the Indian and other Far Eastern outsourcing communities being obvious examples. Due to these competitive and customer pressures, the UK IT services industry has been forced to respond by being more flexible. Of course, a long-term deal may sometimes be the best way to meet the requirements of the customer. In many other cases, however, the customer will opt for a more flexible solution that can be fine-tuned as circumstances - and the broader economic environment – evolve.

Such mix and match solutions may include outsourcing or offshoring agreements for some aspects of the customer’s IT requirements, such as hardware maintenance or legacy software support. Other areas of work are better suited by alternative options, such as “preferred supplier lists” of specialists who bid for work on a case by case basis, or the use of contractors to supplement the customer’s in-house teams.

Recently, the Internet has come into its own, enabling an even more flexible and innovative approach; flexible outsourcing. Organisations looking for particular skills, or work to be carried out, have their requirements listed on a web based platform. The platform provides access to hundreds of suppliers with a wide array of skills. Suppliers with the appropriate skills for a particular job and with the spare capacity available can submit bids for the work. The suppliers are vetted in advance, rated after each job and paid through the platform. While a different specialist supplier may be selected for each job, a single platform means that there is no need to negotiate multiple supplier agreements.

It will be interesting to watch how the leading multinational IT services firms navigate their way through the fallout of the credit crunch and use these different options to meet their own resourcing and outsourcing requirements. Such firms are arguably the real experts in the resourcing and management of IT projects, whether long or short-term. As they shift their approach to adopt a more flexible and entrepreneurial model, enabling them to stay lean and highly efficient, we may well see them rise above the negative economic climate to claim new opportunities for profit and growth.

The industrialisation of the manufacturing industry provides a lot of lessons to the modern day IT industry. For example during the manufacturing of cars, suppliers’ specialisations are maximised, with each supplier delivering their particular component to the final supplier (integrator) who will piece everything together. The cost of each component as part of the assembly is completely transparent as is the business outcome, the car itself.

The IT industry can, and indeed is, moving in the same direction. More and more outsourcing solutions are becoming less bespoke and providers are offering more standardised ‘plug and play’ solutions. Industrialisation is re-constituting the design, sales, contraction and provision of IT services. As Gartner explains, industrialisation is, “the standardisation of IT services through pre-designed and pre-configured solutions that are highly automated and repeatable, scalable and reliable and meet the needs of many organisations.” In my view, IT will become much more highly engineered. This article will discuss the positives and negatives of industrialisation as well as how the outsourcing industry will feel the effects of industrialisation.

Business critical and life-critical IT services cannot move forward if they continue to be produced in the artisan style to which the industry has become accustomed – high failure rates for IT projects, inflexibility of suppliers, high rate of renegotiation of contracts and an absence of structured IT delivery have all been common end user complaints in recent times. Industrialisation will force standards whereby such complaints could and should be eradicated.

Industrialisation does have many positives. These include:

• Industrialisation will, without a doubt, componentise the whole delivery model of IT. A componentised delivery model with specialised competence centres will take advantage of the specialisations of different outsourcing locations. This follows on from the multishoring outsourcing model, whereby an end user will choose a number of different suppliers, often with varying delivery capabilities in different locations, to complete a single outsourced project.

• Greater open standards will emerge, ensuring that when suppliers build certain components, they know how it will fit into the bigger picture and therefore they know exactly their delivery specifications.

• Industrialisation will bring greater benchmarks to the IT industry. At the moment the industry lacks common delivery standards. There are no specific industry measurements that dictate the quality and quantity levels that should be reached. If all suppliers are delivering a more standardised product, end users can much more easily benchmark both cost and quality.

The customer experience will become more predictable and the business outcome will therefore be more measurable from the start.

• Development costs will be lowered and these cost savings will be passed onto the end user.

However, industrialisation is not all positive. Companies have to be wary as there are some disadvantages:

Where high-end niche products are concerned, companies may stick with a more customised model. Solutions that are more complicated and have more intricate requirements are almost certain to need an IT solution that needs to be tailored. The IT industry, whilst being dominated by a handful of companies, still does not have sufficient and consistent standards. On the other hand, standardised solutions can provide the building blocks upon which a customised solution can be developed; this is the whole philosophy around SOA. Even a project that is incredibly complex might be able to use an industrialised solution at the base with certain customised elements layered on top. This is also an opportunity for suppliers to develop a niche service which can differentiate them from the more standardised market.

The other problem with the standardisation and industrialisation of IT solutions is the fact that technology is disruptive and ever-changing. Look at the IT industry now compared to ten years ago. Therefore building a ‘standard’ solution to all IT needs may work now, but the constantly shifting technological needs of companies may not be met in ten years time. Therefore the standardised solution needs to be sufficiently open, flexible, configurable and adaptable to constant market changes.

So how will this affect the outsourcing market as a whole? Initially, standardisation brings the reality that one level of competitive advantage is diminished. Whereas bringing in a supplier to put in place a high-level, high-quality (and probably very expensive) CRM platform might have previously yielded a direct ROI, the fact that the solutions are standardised means that companies need to gain an advantage over rivals in other ways. The most direct and simplistic of these is through customer service. This is particularly true in the banking sector where customer service is already a huge differentiator and the standardisation of IT services will mean that the customer service (rather than the IT) becomes the key differentiator.

In theory, industrialisation should open up the international offshoring market to a number of new locations which could deliver a good, standardised, service at a lower cost than their rivals. This would have a knock-on, negative affect on providers in traditional outsourcing locations such as India, as their service would be matched and their price margins eroded. However, the practice does not quite match the theory and in reality there are barriers to industrialisation – service delivery still needs to be led by high quality delivery methods, a highly automated infrastructure and most of all a product that is consistently beyond the quality level of some emerging offshoring destinations. On the other hand, emerging offshore entrants who do have the skills and infrastructure can now compete on the international outsourcing stage as benchmarks become more transparent.

As before, innovation is the key to prolonged success in the outsourcing marketplace, but this is not only within new technologies. Innovation of processes and commercial arrangements are becoming increasingly important.. The technology should lay the foundations and the challenge now is for companies to develop solutions that maximise the benefits delivered by the IT.

As the industrialisation ‘wind of change’ moves into the outsourcing landscape, firms will continue to operate a sourcing model whereby the innovation-oriented tasks with higher user interaction are conducted onshore and the lower level, process driven, ‘automatable’ tasks will be mainly conducted offshore. This will create an industrialised delivery model which is could be much more joined up, and relies on a global capability model.

Industrialisation is happening, and will continue to unfold (regardless of the positives and negatives), and it is having an impact on the outsourcing industry as a whole. IT suppliers are having to become more agile and innovative and adapt their processes, skills, tools and HR policies towards a new approach of working orientated to specialisation, without losing market focus. The IT suppliers that cope best will lead the market and those that cannot adapt will lag behind, creating further consolidation in the industry.

Are you interested in outsourcing some parts of recruitment process but want to maintain control of key elements like your employee brand? According to the latest industry figures, outsourcing is on the up, with the number of companies outsourcing critical business functions rising year on year.

A recent survey of some 3,500 procurement, supply chain and finance professionals worldwide revealed that 95% of firms want to use procurement outsourcing to improve their sourcing strategy.

Along with key findings from the Recruitment and Employment Confederation highlighting recruitment to be the primary problem for more than half of all UK companies, ahead of business strategy or management, it is not surprising that more UK companies are turning to RO (Recruitment Outsourcing), according to de Poel Consulting.

Some companies are, however, reluctant to use the services of specialist recruitment outsource providers to outsource elements of their business. At the yearly CIPD event in Harrogate last September, HR Directors were surveyed about their attitudes to RO. The results showed that although 60% of respondents are frustrated that it takes between three and five months to fill a management position, 56% feel outsourcing recruitment is a risk to their organisation.

The search for a suitable RO provider can be confusing because suppliers come from various backgrounds and bring different skills. Some firms were born out of executive search companies while others are recruiters who have relabeled their staffing business as RO so they can offer a fully managed service. There are also software companies that have developed online recruitment tools and are moving into the service sector.

de Poel believes that it is important to ensure that agency spend is manageable and visible across the business and outsourcing providers do not ask clients to outsource their entire recruitment process, nor ask clients to outsource their relationships with agencies, limiting communication and possibly restricting understanding of company culture. Benefits of taking this approach include cost reduction, freeing HR managers from administrative tasks so that they can concentrate on strategic issues and improving competition by better brand management. de Poel Consulting is an independent cost-reduction consultancy specialising in both temporary and permanent agency labour recruitment, as well as subcontractors.

News that the British government has wasted well over $2 billion on cancelled or failed IT projects since the turn of the century – not including the cost of the abandoned crime-reporting portal in early January – makes for depressing reading as we set foot into a challenging year for the outsourcing industry.

Arguably, that cost of failure represents only a small percentage of the government's $14 billion annual IT spend, as calculated by Joe Harley, programme and systems delivery officer at the Department of Work and Pensions. However, the same Mr Harley is on record as having said (according to The Guardian, 5th January 2008) that "only 30% of our projects and programmes are successful. It is not sustainable for us as a government to continue to spend at these levels."

In a recession, that would be doubly true – $14 billion could be invested in failing schools, to help pensioners meet the cost of rising fuel bills, or to top up ailing pension schemes – but it also begs the question what other large-scale projects might be on the brink of failure if only $4.2 billion is invested successfully each year, and the balance of that $14 billion is wasted money. Perhaps Mr Harley was including overdue and over-budget schemes as 'failed' – those that may not have failed technologically, yet, but which have certainly failed the taxpayer?

Either way, this forms only part of the issue I want to share with you this week. The other element concerns news that the British government has been working covertly with the FBI on a proposed data-sharing scheme to give US intelligence access to personal data on UK citizens, and to track people moving across Europe and using the UK as a platform for jumping continent over the Atlantic (software pioneers and rock stars, perhaps?). This is the same government, remember, that loses data on 25 million households in the post.

The issue is not that any of this is surprising – we live in fearful times and in slow-moving bureaucracies, and both make for healthy software sales – but whether or not government is approaching IT from an outmoded standpoint: that of the 1990s marketing executive.

In the narrowband, client/server 1990s, intellectual property (data with commercial value, or monetised ideas) was king; you gathered it from willing or careless customers and, safe in the belief that it was yours (because you gathered it or patented it), you flogged it to the highest bidder.

Everything in the government's approach to technology suggests this is what they are doing: they believe any data they gather about citizens is the government's property, however personal or accurate the data may be, simply because the government gathered it. But the government is not an advertising agency or a supermarket monitoring shopping habits. It is in the employ of its citizens, and is elected to protect them – and not from themselves.

The truth of the matter is that it's likely that the government is gathering not the raw material to create services, but rather an intellectual asset they can sell and resell. Indeed, evidence suggests they also intend to use personal data as a means to save money by withdrawing services from named individuals rather than providing those services to one and all.

Witness the creep of Citizen Relationship Marketing programmes across the UK, whereby boroughs target named named individuals and withhold benefits from them because they have not parked their cars correctly, for example, or emptied their bins. This has gone unnoticed by the national press, but it is a quietly unfolding scandal – and like all such democratic travesties, it wears a polite and reasonable face.

I believe this way of approaching personal data and public technology programmes is nothing more than witless and authoritarian; it's a 'because we can' philosophy. And with every small step we move further and further away from the kind of society that most of us want to live in; even those of us who sell the enabling technology. Such data is already shared across local county boundaries; clearly it will also be shared across national ones too, if the US gets its way.

The government's zeal for large-scale implementations fails in the real world because it is rooted in the politics of the 1990s marketing team, not of forward-thinking government; it's all about the hard sell and the hard bargain, with scant regard for veracity, privacy, or sophistication. It has little to do with enlightened modernity; it's merely a blunt instrument.

You can picture Whitehall mandarins itching to find a legal way to identify obese people and smokers and to begin withdrawing services and benefits from them, or increase their national insurance contributions, or force them to do physical work in the community. Why would it not happen?

So why use an outsourcing forum such as this to lambast politicians for their approach to large-scale IT programmes?

One, clearly because they have a bleak record of implementing them and wasting staggering amounts of public money in misconceived tilts at modernity (good for our industry, but only in a world of 'me, me, me', rather than the meme-world of the networked century); and two, because much cleverer enterprises than this government – and it is now an enterprise, have no doubt – have realised that sucessful technology programmes are no longer merely about IP and vast data repositories.

The real opportunities lie in allowing people to connect with each other in new, innovative, and self-selecting ways, and provide services to people who need them. High-street names recognise this; social networking sites have grown wealthy on this simple idea. The fact remains that people form much more stable communities when they are allowed to connect freely and share, than when their every move is logged by a bureaucrat solely from the point of view of being a floggable commercial asset.

Alas, even terrorists understand this better than the government – and you don't tackle issues such as that by trying to reverse the process. The twenty-first century experience shows that technology's great contribution to society is that it connects and mobilises, and will route around any obstacle that stands in the way of communication.

On the rare occasions the government does 'get' this fact, the projects it kickstarts are woefully misconceived, because no one asks the big question: why? For example, why would most people use the Internet to report a crime? If you witness a burglary or a violent assault, your first thought is not 'I must log onto the internet, track down that government website, and spend an unpredictable amount of time grappling with the interface and my browser before typing in the details'. No, you think: 'Dial 999'. If someone had said 'why?', then the online crime reporting site would not have wasted so much of our money.

The challenge for outsourcing providers and their customers in 2008 is to recognise how and why some enterprises have become so successful by facilitating the network – and the network effect – and why other organisations are mired in expensive, slow, old-economy projects, at least partly because they believe there is money to be made once all those billions of pounds have been emptied down the drain in the public's name.

Prove it!

Indian outsourcer Wipro has stated that it has not been in talks to acquire or merge with French IT services company, Capgemini. It had been widely reported that Wipro, India's third largest outsourcer, was considering acquiring Capgemini.

Wipro issued a statement at the request of French securities regulator, Autorité des marchés financiers (AMF).

Capgemini's share price rose in December after the The Hindustan Times reported that Wipro was expected to bid for Capgemini by the end of January. A Capgemini spokesperson denied at the time that there were any talks between Wipro and Capgemini on this issue. It was also been reported earlier in 2007 that Infosys was planning a bid for Capgemini.

As part of plans to create a global delivery model, Indian outsourcers are moving into the European market.

Alsbridge, the outsourcing, shared services and offshoring advisory firm is to partner with iMPOWER to provide practical support to local authorities in managing shared services programmes.

iMPOWER is an independent consultancy, specialising in working exclusively in the local government sector. Alsbridge is a niche consultancy specialising in shared services and business process outsourcing and integration in both the public and private sectors.

By combining both iMPOWER and Alsbridge’s practical experience and skills, the partnership will allow local authority clients access to a team whose focus is entirely on delivering lasting change through shared services projects.

Chris Price, Head of Public Sector Practice at Alsbridge comments: “Our mutual belief is that for shared services to deliver their promise, there is now a need for a different type of consultancy support – one that focuses on design, transition and delivery.”

Giles Piercy, Director at iMPOWER adds: “Our joint independence from delivery solutions and our willingness to provide a framework of transferable skills and tools, will help clients manage their shared services programmes”.

The two companies combine to provide:

• a deep understanding of local government and the issues faced in delivering quality customer service, efficient processes and cultural change, with;

• international expertise in quickly designing and delivering shared service centres and assisting blue-chip organisations in integrating and / or outsourcing business processes

• a proven routemap for transitioning and transforming services

• a range of in-house methodologies and toolkits and have proven experience of skills transfer.

Gartner Says Worldwide Outsourcing Market to Grow 8.1 Percent in 2008.

The global outsourcing market continues to grow at a steady pace, with Gartner forecasting a growth rate of 8.1 percent in 2008. But healthy growth rates for outsourcing do not necessarily mean that user organisations are without challenges. “Although user organisations often have fundamentally sound procurement organisations to initiate outsourcing contracts, for many, their IT sourcing strategies and governance structures are still immature, lacking altogether, or misaligned with enterprise objectives,” said Kurt Potter, research director at Gartner. “Because these organisations lack the basic building blocks for successful vendor management and outsourcing success, expected cost savings and other benefits are difficult to obtain. In extreme cases, the lack of needed trust and control to optimise the outsourcing relationship results in deal failure. Also, more organisations focused less on outsourcing for cost savings than in previous years and more on using providers' global delivery models to access the right skills at a reasonable price, wherever they are.” Although outsourcing continues to grow, publicly reported IT outsourcing (ITO) and business process outsourcing (BPO) contract values decreased overall by 50 percent in 2007. Part of the explanation for this apparent discontinuity is that as the outsourcing market matures and becomes more commonplace, there is less publicity of deals. Companies are simply outsourcing more, but electing to use a multiprovider strategy and more deals are simply smaller in size, with many of these deals not large or ground shaking enough to report. “In 2008, we expect to see some early adopters of multisourcing to consolidate around fewer providers to reduce their service integration costs and harvest the benefits of better relationship management with fewer strategic suppliers,” said Mr. Potter. “Because of multisourcing complexities often associated with handoff points between competing providers and unclarified vendor management processes, some organizations will consider prime-contractor outsourcing models or the appointment of new vendor management roles in their retained organizations.” Buyers increasingly are moving work to lower-cost, offshore delivery centers. Although cost remains a major driver for global delivery models (GDMs), more-mature users are seeking ways to better support their business needs. Indian providers gained traction in Europe in 2007, but faced strong competition from more-established vendors with GDMs. Indian providers are growing approximately 40 percent annually in the U.S. and 60 percent annually in Europe. Although spending on offshore services is three times higher in North America than in Western Europe, the gap is closing. “Other countries will continue to emerge as challenges to India for a number of reasons,” said Ian Marriott, research vice president at Gartner. “Strong demand is putting a strain on the available Indian labor force, while staff attrition and cost increases remain high. Global companies continue to accelerate their demands for a presence in countries other than India, and providers are seeking to expand their geographic footprint of delivery centers accordingly. More-sophisticated buyers are seeking a multicountry strategy to minimize risk and align nearshore and offshore delivery centers with their primary time zones. Although India's offshore revenue will continue to grow, the country's share of total offshore spending will decline slightly in 2008.” Gartner believes that the outsourcing market has reached a tipping point with regard to utility delivery models, and that change and innovation will take hold and accelerate in this area through 2008 and beyond. More providers are developing utility-based offerings across infrastructure, application and business process domains. The trend toward software-as-a-service (SaaS) is gaining the most traction, with major software vendors, such as Microsoft and SAP, and large Internet players, such as Google and Amazon, making announcements about new SaaS offerings and mass-customized software platforms. User organizations need to realize that the utility delivery model is a viable alternative to traditional outsourcing, and they should seriously consider utilities in their sourcing strategies

BNP Paribas, the French bank has signed a five-year, £50m contract with Atos Origin for IT services in the UK and France.

The contract includes the majority of IT services under the control of BP²I, a joint venture between BNP Paribas and IBM set up in 2003, and includes the management of desktop services for the bank's investment banking business in the UK and retail banking in France. The deal is an extension of an existing relationship which was limited to the retail banking business only. Thierry Bjalon, country manager for BP²I UK, said: "IT transformation is crucial to our business success and we have selected Atos Origin because of its position in financial services, its delivery track record and experience of managing desktop services solutions."