Industry news

It was interesting for outsourcing professionals to witness two very different approaches to the economic winter that both the US and UK economies may be entering, and one demonstrates the growing influence of a dynamic outsourcing industry. This week, the UK was battered with two pieces of bad news: first, a month-on-month fall in retail figures from November to December 2007 (December being retailing's golden month), and second, news that energy bills may soar by as much as 15%, even for those on green tariffs.

Even with the risk of rising UK inflation restricting the UK's room for manoeuvre in terms of interest rates, some economists still predict a soft landing for the UK economy, as long as property prices not go into freefall; a necessary economic correction, then, rather than successive quarters of negative growth (recession). Nevertheless, we remain at risk of talking ourselves into recession: a new form of economics brought about by the network effect of news being valued by the speed at which it moves.

Many economic pundits believe the US has already entered recession; we will not know until the summer, as recessions are only visible in hindsight. However, the gloom is obviously all too visible in the White House, as President Bush stood before the American media this morning, US time, and announced a typically interventionist economic rescue package of tax incentives for US businesses and citizens, designed to inject some adrenaline into flatlining consumer spending. He asked that the package be swiftly approved, and urged that it must be temporary but instantly effective, while also somehow avoiding future tax increases in the long term.

This would be the economic equivalent of the notorious scene in the movie Pulp Fiction, where John Travolta plunges a syringe into Uma Thurman's heart and instantly wakes her from an overdose-induced coma, restoring her to life.

Meanwhile, on the other side of the globe, Prime Minister Gordon Brown had headed east for high-level talks in China. Barely minutes after the American announcement, Brown faced the international media and, effectively, pinned the UK's future prosperity onto the booming Chinese economy. Britain was raising the relationship between London and Beijing to a higher level, he said, and predicted that Chinese investment in the UK would create thousands of new jobs.

This may be the case, but it also paves the way for a much deeper outsourcing relationship in the other direction. The main obstacle – apart from any political fallout from China's human rights record, not that the US has much to crow about post-Guantanamo – is the lack of a rigid intellectual property (IP) culture and supporting structure for IP-based businesses.

It is a rumour rarely acknowledged that many technology businesses have privately tolerated piracy in the East, as it has established a burgeoning market for their products there. However, such an under-the-counter approach, if it exists, will not work for long. In this month's The Big Questions feature, Tim Wright, Partner at international legal practice Pillsbury Winthrop Shaw Pittman, concurs: "China will continue to grow, although the lack of an intellectual property protection framework is still a concern."

It seems that Prime Minister Brown is far more bullish than that, and has accepted the massive growth and future global influence of China is something that the UK must be part of. And the next stop for the Prime Minister on his eastern sojourn? The current BPO destination of choice, India. Outsourcing, it seems, is now central to the UK economy, and will be of critical importance in the future.

Leading analyst firm IDC has revealed its predictions for the IT industry as a whole for 2008, with not a single mention of the 'r' word (recession). Analysts at the market data giant see the major outsourcing destinations of choice becoming increasingly central to the entire technology industry as the hotbed of future sales growth. IDC believes 2008 will see increased investments in popular destinations, such as India and China, along with the introduction of a raft of new online product and service offerings, especially in packaged solutions for smaller enterprises.

Analysts predict that global economic uncertainties will dampen IT spending growth in the US and elsewhere. As a result, worldwide IT market growth will between five and six percent, down from 6.9% in 2007. However, the implication of IDC's findings is that the vast majority of this growth will be in overseas markets. IDC expects vednors to concentrate on fast-growth, emerging markets, and to look east to Russia, India and China, but also Brazil – all locations where IT spending growth will remain strong.

The company's most interesting conclusion makes for challenging reading for all in the outsourcing industry, as it refers to the growth in software as a service (SaaS). IDC believes that to profitably reach the emerging, hyper-growth markets, suppliers must move as many services and products to the Internet, as this will mean lower distribution costs and easier and faster customer adoption. While the SaaS industry to date has seen a long tail wagging a much larger industry dog, with ambitious companies such as Salesforce.com and Netsuite grabbing the headlines and moving from small clients upwards into the enterprise, giants such as SAP and Oracle (Larry Ellison being a major investor in both of the SaaS leading lights) are now having to follow the model as well, in their case shifting focus downwards towards smaller and smaller enterprises.

IDC also predicts that the internet is compelling suppliers to create customer- and industry-specific solutions, and to build communities around these. Smaller enterprises require simplicity and out-of-the-box utility, says IDC, which means IT suppliers will be working with partners to prepackage solutions, rather than expecting customers or partners to put the pieces together. Clearly there are opportunities for both traditional outsourcing providers, and for the emerging breed of web-based companies who will begin to redefine our industry.

Xchanging, the pure-play business process outsourcing company, is pleased to announce that it has extended its procurement operations in France with the acquisition of 100% of the share capital of Mercuris, a procurement service provider based in Paris.

Mercuris provides procurement outsourcing and advisory services to the Banking and Insurance sectors in France and has gross assets of €1.7m. Mercuris was founded in 2000 by its management team and in 2003 Groupe Caisse d’Epargne, one of the major universal banks in France, and the principal customer of Mercuris, acquired a majority stake in the business. Groupe Caisse d’Epargne has agreed to extend their outsourcing contract with Mercuris to 2011 representing a cumulative spend value of €1.5bn over the life of the contract. This acquisition further strengthens Xchanging’s position as the European market leader in procurement outsourcing and provides a strong platform to target the opportunities in this exciting growth area in France. David Andrews, Xchanging CEO commented, “France is an important market for procurement outsourcing for Xchanging. We are delighted to be able to welcome such a highly experienced management team and look forward to growing Mercuris further. Moreover, we are pleased to be entering into a long term relationship with such a prestigious financial institution.” Amaury Fournial, Managing Director, Mercuris said, “We are excited about joining Xchanging and being part of an organisation that has so much experience in procurement outsourcing and which can provide a wealth of opportunities for our employees.”

Xchanging, the pure-play business process outsourcing company, has announced that it has extended its procurement operations in France with the acquisition of 100% of the share capital of Mercuris, a procurement service provider based in Paris.

Mercuris provides procurement outsourcing and advisory services to the Banking and Insurance sectors in France and has gross assets of €1.7m. Mercuris was founded in 2000 by its management team and in 2003 Groupe Caisse d’Epargne, one of the major universal banks in France, and the principal customer of Mercuris, acquired a majority stake in the business. Groupe Caisse d’Epargne has agreed to extend their outsourcing contract with Mercuris to 2011 representing a cumulative spend value of €1.5bn over the life of the contract.

This acquisition further strengthens Xchanging’s position as the European market leader in procurement outsourcing and provides a strong platform to target the opportunities in this exciting growth area in France.

David Andrews, Xchanging CEO commented, “France is an important market for procurement outsourcing for Xchanging. We are delighted to be able to welcome such a highly experienced management team and look forward to growing Mercuris further. Moreover, we are pleased to be entering into a long term relationship with such a prestigious financial institution.”

Amaury Fournial, Managing Director, Mercuris said, “We are excited about joining Xchanging and being part of an organisation that has so much experience in procurement outsourcing and which can provide a wealth of opportunities for our employees.”

Europe has seen its first ever year as the world’s most active outsourcing market, according to the latest Quarterly Index from sourcing advisors TPI. In 2007, Europe surpassed the Americas in both the number of contracts awarded in the region and in total value. The year saw 220 contracts signed in Europe, yielding a total value of €32.7 billion. In the Americas, 194 contracts were signed worth a total value of €21.3 billion.

Europe also showed impressive growth in contracts entirely new to the market (which excludes transactions that are restructurings of existing outsourcing arrangements). In 2007, the annualised value of new contracts awarded in Europe was up almost 31 percent on 2006 levels, compared with an increase of 13 percent globally.

“Companies across Europe are outsourcing in ever greater numbers. In addition to the established UK market, we are seeing increased outsourcing activity across Northern Europe especially in Germany, The Netherlands, Sweden, Switzerland andFrance. As a result, average contract values for those deals entirely new to the market in EMEA increased by a very healthy 40%,” commented Duncan Aitchison, partner and president, TPI EMEA.

2007 also yielded the highest total contract value ever for Business Process Outsourcing (BPO) in Europe. It was also the first year in which Europe accounted for more than half of the total value of all major global BPO contracts. The financial services sector dominated demand for BPO in Europe, representing over 38 percent of the total value of outsourcing contracts signed. Meanwhile, the worldwide market for Financial Service Operations (FSO) outsourcing has grown by 22.5 per cent since 2003.

The picture of outsourcing worldwide is also positive. The more than €12bn of Annualised Contract Value (ACV) awarded in 2007 matched the five-year global average. New scope ACV was up globally year on year by a healthy 13 percent. The fourth quarter was actually the best quarter on an ACV basis in eleven years. At year end, active contracts globally were delivering over €63 billion in revenue to service providers, which signifies a global growth rate of over seven percent – well above the 5.3 percent five year compound annual growth rate.

“After a relatively slow start to the year, 2007 witnessed a very strong final quarter. Given the sustained growth rate we are currently witnessing and the level of activity, particularly in Europe and Asia Pacific, we have every reason to expect similar strength in the market going forward,” said Aitchison.

The India-based providers’ share of global contracts continued to expand in 2007, up by 42 percent on last year’s share and 114 percent on the three-year average 2004-2006. By contrast, despite Europe’s overall growth as an outsourcing market and a significant increase in market share for BT, the European Big Five (Atos Origin, BT, Capgemini, Siemens and T-Systems) saw their collective share of outsourcing contracts signed globally decline by 17 percent since last year, and by over 50 percent over the previous three years. Indeed, the India-based providers have, for the first time, equalised their share with the European Big Five.

“The India-based providers have increased their foothold in the past year in terms of market share. They are succeeding in expanding their share of the growing European market and continue to establish themselves as an attractive alternative to the more traditional outsourcing players,” commented Aitchison.

India’s wider economic success is also driving an expansion of domestic demand for outsourcing. The total value of contracts signed by buyers in the region has grown from €2.2 billion in 2006 to €3.9 billion in 2007. China has also seen a greater level of activity, albeit from a small base. In 2006, China-based buyers generated €0.4 billion in terms of the total value of contracts let. In 2007, this has risen to €1.52 billion. Accenture, HP, IBM, and Wipro are winning much of the Asia-Pacific deals.

“It will be interesting to track this development in which the very countries that have been known for their provision of outsourcing to others are now becoming buyers in their own right. We expect that companies across the globe will continue to seek the benefits of outsourcing as the market becomes increasingly global over the coming months and years,” added Aitchison.

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.