Industry news

It's a harsh reality that in economically uncertain times, outsourcing and offshoring can swiftly become a dirty words, and we can expect that both will be in the cross-hairs of US presidential candidates in the coming weeks, as they shoot for the patriotic vote and talk up the need to protect both skilled and unskilled American jobs.

Anti-outsourcing sentiments are really expressions of fear about the lack of job security. When any economy slows down, trust becomes central to all working people's lives – witness recent protests in the capital by the British police, which at least made good the government's promise to put more constables on the street – 22,000 of them – but perhaps not in the way Whitehall intended. That protest was not about money, but about the claimed breach of trust over a mediated wage settlement. The disastrous PR implications for the government are being keenly felt, and the issue is unlikely to go away.

This is a good time to remember that such issues are as much a problem for our industry as for any other, even as we become a critical focal point for national and international debate about job security at home. Outsourcing creates local jobs, while offshoring shifts jobs overseas; but it is the latter that grabs the headlines. As the sub-prime economic cold spreads, virus-like, in both the news and the stock markets, then both outsourcing deals and outsourcing providers are being watched more closely than ever before.

First, take Capita, famously the scapegoat for all the outsourcing world's ills in the eyes of Private Eye. On Monday this week, the union Unite (formerly Amicus) accused the company of breaking promises to staff on the Capita site in Belfast. Capita’s announcement of a further 41 job cuts was criticised by Unite as a further sign that promises to secure more contracts and maintain the Belfast site as a centre of excellence are not being kept.

In a union statement, Graham Goddard, Unite deputy general secretary, said: "Unite members are concerned that Capita have failed in their promise to secure the long-term future of their life and pensions operation. The announcement of 41 job losses today represents another blow for Capita staff in Belfast, who face growing uncertainty as the company have failed to deliver on Chief Executive Paul Pindar's original commitment to the workforce of ‘opportunity and business expansion’. It would appear that Belfast was simply a stepping stone into a new market for Capita.”

The statement continued: "Unite will strongly oppose any compulsory redundancies and urge Capita to come back to the negotiating table. We are calling on Capita to honour their assurances to their workforce."

The 116 staff in the life and pensions department in Belfast must now reapply for the remaining 75 roles.

Things are equally uncomfortable on the other side of the fence, as Shell has recently discovered. The announcement that it was outsourcing more than 3,000 IT jobs was firmly rebuffed, again by Unite, but also – rather unexpectedly, perhaps – by NOA chairman Martyn Hart, who lambasted the oil giant for devaluing IT workers within the company by offering redundancy packages that were a distant poor relation of those offered to oil workers.

Hart said of the announcement (as we previously reported) : “What is of interest here is how Shell seems to treat its IT workers, in comparison to their oil rig workers. Shaving 75 per cent off their redundancy package looks like a fiscal kick in the teeth. And it’s not just a monetary issue. This action could undermine the importance of IT’s role within the company. IT is fundamental to the functioning of all organisations and Shell – and other companies – would do well to remember that,” he said.

Shell is one of several companies that has attracted its own coterie of bloggers and industry watchers, not all of whom have the company's best interests at heart, as readers of website http://royaldutchshellplc.com know only too well. This site is not connected to Shell, but reports on its every move, and takes feeds from hundreds of news sources concerning big oil's political, environmental, and economic manoeuvres in every part of the world.

As an industry we must learn one lesson well, and learn it fast. If recession strikes, this will be the first economic downturn to be reported at Internet speed. Every time a UK, US, or European job heads east, it will be commented on worldwide in a matter of seconds. We must understand that we no longer exist solely in the world of business, but also in the Blogsphere. Not only will people be watching the outsourcing world for symptoms of the wider economic health of the country, but they will be talking about us, and it will be the negative stories that stick; not the mega-deals and the contract wins.

This is the first opportunity for professionals in the outsourcing industry to discuss the issues that are truly pertinent to them on a day-to-day basis. sourcingfocus aims to be the first resource that all outsourcing professionals turn to when considering their outsourcing arrangements. The dialogue that this site will create between end users and suppliers will make an invaluable contribution to the outsourcing industry.

The site highlights the very best of the outsourcing industry. sourcingfocus includes: all of the breaking industry news; industry insight in the form of an editor’s blog, industry research, regular features from leading industry commentators, weekly outsourcing round-ups and one-off features from both suppliers and end users; new technologies such as podcasts and videos to deliver the message to a new generation of outsourcing practitioners; an outsourcing forum for professionals to discuss industry issues share best practice solutions and profile building opportunities for vendors.

A study by Pierre Audoin Consultants (PAC) has today found that India’s largest IT services suppliers (Wipro, TCS, Infosys, HCL and Satyam) will double their UK market share over the next four years if they keep up their current growth.

The survey found that the market share of these companies will reach seven per cent by 2011 as more and more UK companies are committing to large (£100m+) contracts with Indian service providers.

The new product incorporates all of the functionality of INSideOUT but is a complete redevelopment of the software. The new software is web-based, utilizes a .Net framework, and incorporates Web 2.0 technology. CGI’s insurance vision and commitment to investing in its insurance solutions, resulted in the development of new release of the software. Midwest Family will be the initial client to test the scope and functionality of the new product.

Midwest Family, established in 1891, is a multiple line property/casualty insurer actively writing Personal and Commercial Lines in seven Midwestern states including: Minnesota, Wisconsin, Illinois, Iowa, Nebraska, North Dakota, and South Dakota.

“The .NET release of INSideOUT gives Midwest Family a competitive advantage with our agents in terms of agent/company interfacing. It gives our agents the benefit of electronically submitting policies for all Personal and Commercial lines of business. In addition, agents will have the advantage of uploading and downloading all new business transactions, endorsements, quotes, and issuance for all lines of business. Real time feedback for new business and endorsement quoting will result in a more service-oriented approach for Midwest Family agents,” said Ron Boyd, President and CEO, Midwest Family Mutual Insurance Company. “The combination of improved functionality and technology will position us as leaders in our market space.”

“For over a decade, CGI and Midwest Family have worked together to develop and enhance INSideOUT,” said Paul Raymond, Senior Vice-President, New England and Insurance Services, CGI. “The .NET release of INSideOUT is the logical progression in our investment for this market-leading solution. We are proud to be recognized as Midwest Family’s strategic technology partner, and enable Midwest to be our premier beta site for our new product.”

Unite has accused IT services company Capita of breaking their promises to staff on their Capita site in Belfast.

Capita’s announcement to cut a further 41 jobs has been criticised by Unite, formerly Amicus, as a further sign that promises to secure more contracts and maintain the Belfast site as a centre of excellence are not being kept.

Graham Goddard, Unite Deputy General Secretary, said: "Unite members are concerned that Capita have failed in their promise to secure the long term future of their life and pensions operation. The announcement of 41 job losses today represents another blow for Capita staff in Belfast who face growing uncertainty as the company have failed to deliver on Chief Executive Paul Pindar's original commitment to the workforce of ‘opportunity and business expansion’. It would appear that Belfast was simply a stepping stone into a new market for Capita.”

The 116 staff in the life and pensions department in Belfast must now reapply for the remaining 75 roles.

Defence secretary Des Brown's appearance in the House of Commons today was a grim, if instructive affair, and only served to reinforce everything I said a couple of weeks ago on this blog: security is first and foremost about people, policies, management and enforcement. Technology comes a long way behind.

Security is always about the weakest part of the chain – data's interface with everyday employees – and rarely about defence-grade encryption protocols and sexy multibillion-dollar IT programmes. Indeed, those are the things most likely to neglect the little guy.

Mr Brown admitted that there has not been just one incidence of an MoD laptop going stray with people's personal details on it, but three since 2005. The Tories countered that, in fact, there have been literally hundreds of laptop thefts from armed services employees, many of which computers may also have contained sensitive information. The government has admitted to 69 laptops and seven PCs being stolen in the past year, and has issued a staff ban on the movement of data.

All told, that is a staggering illustration of how everyday occurrences are where the real risk lies, and not in shadowy bunkers in some far-off corner of the 'Axis of Evil'. We're talking about the Axis of People: careless people; people who don't follow security guidelines; people who are lazy; people who are the victims of opportunistic criminals... everyday human beings, in other words.

These are the people who, in the real world, have access to databases, and they are rarely technology buffs or experts in data protection and privacy laws. They are too busy doing their own jobs – such as managing the front desk in a busy doctor's surgery, or working in the back office of a local town hall.

Familiar opposition cries of systemic incompetence in Whitehall miss the main point – most average employees are not security or privacy experts – but amply illustrate another: that senior management gets the blame for the little guy not being considered.

However, the defence secretary unwittingly raised some other questions that must call into question the government's competence to manage future large-scale technology and data programmes on behalf of the public, such as the NHS IT system and the proposed national ID card. First, he said that none of the data on the laptops was encrypted; and second, that he had no idea why.

But the major admission was number three: he had no idea why so many employees needed access to such large databases – the implication being that the real weakness in the MoD's security policies was people using the system. Exactly, minister.

Mr. Brown, should future large-scale projects go ahead without just such a radical rethink of what security and privacy mean in the real world (that security is always, always, always, about people, and especially the little guy, and no amount of money and technology can alter that) then these upcoming schemes risk data loss and theft on an unprecedented scale, even in the wake of the loss of 25 million families' details in the Child Benefit scandal.

Minister, if the weakness in security is, indeed, lots of people accessing the data, then you have effectively lost your own argument in favour of systems designed to do exactly that: facilitate the widespread sharing of sensitive public data across the NHS, and across all internal and external security services affecting the UK. A staff ban on the movement of data is not a blueprint for the data-sharing future across public services promised by Whitehall.

The further issue for us in the outsourcing community, though, is that all of these MoD computers were managed by an overarching IT function on behalf of the three armed services. The lessons here? No security policy will stand up to real-world tests if a third party neglects its basic obligations. If those third parties are located offshore – as some schemes undoubtably will be in future, and have been in the past – then your security policy is not just concerned with rules and their enforcement, but also of remote management of the third party, and robust HR policies. What more risks are we prepared to take?

• With Gordon Brown recently striking a cautionary note on the ID cards scheme, the time has come for a much more realistic appraisal of the advantages and disadvantages. Any compulsory scheme must be put before Parliament; this year, the collective mood of the Commons may have darkened.

Moreover, as I've said before on this blog, the real question to ask of any large IT schemes is the simple one: why? ID cards will do nothing to prevent home-grown terrorism, as we are always promised, and little to prevent everyday identity theft or fraud. The only possible impetus must be a commercial one for the government: the turning of private data into a public, tradeable commodity.

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.”