Industry news

Despite its current economic struggle, the Chinese outsourcing industry has continued its growth in the early months of 2016.

“[This year] Chinese company-linked service outsourcing contracts raised 7.5 percent compared to last year,” said Shen Danyang, a spokesperson for the Ministry of Commerce (MOC).

“There was also a rising of 28.5 per cent – valued in $11.64 billion - of the offshore service outsourcing contracts in the first two months of this year compared to the last year,” he added.

The majority of the contracts – 51 per cent – were ITO-related. As the second largest service outsourcing provider in the world after India, the Chinese government has described outsourcing as the “new engine for tertiary industry and a boon to increasing employment”.

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Related:Chinese outsourcing sector booms in 2015 despite economic issues

IBM is still fighting hard to retain its $1-billion contract with Vodafone India, which is set to expire in the first week of June 2016.

Back in September 2015 Sourcingfocus reported that Vodafone was preparing to release an RFP for when the current contract expires – the Economic Times of India tipped Wipro, TCS, Infosys and Tech Mahindra as potential contenders.

A source close to the story has since commented: "Even if IBM does retain most of the contract, the renewed deal will come at the cost of margins. They are being forced to fight on price as well.” Another stated that the business Vodafone currently provides IBM with – roughly $200 million a year – is expected to be cut in half in the near future.

Vodafone and IBM have both declined to comment on the speculation.

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Related: IBM to open first European Watson IoT headquarters in Munich

A government-commissioned report has backed Network Rail’s proposal to allow for more private investment in British railways.

The new investment plans would see the privatisation of 18 key train stations and power lines, and comes amid criticism of the publicly-owned Network Rail for overrunning costs on a £38.5bn, five-year investment programme.

Nicola Shaw, CEO of High Speed 1 and one of the authors of the report, declared there was “no silver bullet” for Britain’s railways, as the government continues its pursuit of austerity measures announced in yesterday’s budget.

Network Rail wants to devolve power to its nine regional route managers, a decision Ms Shaw supports. The regions should be “empowered to find local sources of funding and financing, including from those such as local businesses or housing developers, who stand to benefit from new or additional rail capacity”, she explained.

The new privatisation plans will mark the third radical overhaul of the British rail system.

Manuel Cortes, of the TSSA union, criticised the report stating that “selling stations is short-sighted as we are foregoing long-term future retail rental income for a quick buck. Selling-off Network Rail’s electric grid means we keep a railway without having control over its strategic power network. You wouldn’t run a child’s train set like that”.

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Related: Is the UK’s public sector outsourcing in decline?

Mitie’s earnings forecast has been lowered in advance of its year-end statement, scheduled for release 24th March 2016.

Jefferies, the investment banking firm, has justified their decision to cut Mitie’s earnings forecast by alluding to the fears of a Brexit and the wider economic outlook for the UK in the coming year.

“It is clear from recent recruiter/outsourcer results that decision-making has paused and project work won’t revive in the second half,” Jefferies declared. The earnings revision comes amid the denunciation of Mitie’s management of an immigration detention centre at Heathrow, which was deemed “insanitary” and “dirty”.

Mitie has also been heavily criticised for its management of elderly and disabled facilities, which inspection firms had assessed as substandard. Both incidents are expected to influence Mitie’s business, making it difficult for the outsourcer to increase the prices charged in future contracts.

Recent NOA research has found that 73% of the UK outsourcing industry wants Britain to remain part of a reformed EU.

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Related: Barclays downgrades its MITIE investment rating

Maturity, the European IT benchmarking company, has published its yearly Strategic IT Agenda – a survey of European IT managers on the hottest topics in the industry.

Unsurprisingly, costs and security are still top concerns for IT managers around Europe. However, this time digitalisation – a new entry – managed to outdo both, appearing in the survey as the number one strategic priority for 2016.

Maturity introduced digital transformation to the survey for the first time this year in response to the growing buzz surrounding the subject in the financial media. IT security was the second-highest priority on the list. IT managers pointed to the growing importance of internet business models for businesses everywhere, as well a string of recent high profile incidents, as the reasons for the increased standing of company security issues. The past year saw an unprecedented number of cyber-attacks - both in terms of scope and scale – take place around the world, from the theft of customer data from Telecoms companies to attacks on banking systems; even the German parliament’s IT was subject to cyber-attack.

Costs dropped to third place on the list of concerns, falling in importance for the third year running. However, the report did highlight that the minimisation of resources is still very much at the heart of company strategies around Europe where the motto “do more with less” still heavily applies.

Maturity also points to a trend of the last few years which has seen “classic” topics (such as optimisation) lose standing in relation to recent entrants such as IT sourcing strategy, which increased in importance by 10 per cent within the last two years. Budgetary concerns are still the main driver for action in IT, followed by business innovation.

According to the survey, outsourcing in IT seems to have come to a standstill over the last year and is expected to continue to stagnate throughout 2016 - more than half of the companies surveyed have no plans to increase the weight of outsourcing in the business, stating that the relative amount of work done in-house will stay the same.

The report mentions both the increasing professionalisation of internal IT personnel and the expansion of cloud usage as the two main factors driving increased user operation of infrastructure as opposed to contracting out of operations.

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Related: Surprise as Cognizant tops list of IT leaders

A poll conducted by the National Outsourcing Association (NOA) has found that the majority of the UK outsourcing industry wants Britain to remain part of a reformed European Union. Over 100 UK outsourcers, representing all sides of the UK outsourcing industry, participated in the survey and shared their views.

Key findings include:

• 73% of the UK outsourcing industry believe Britain should remain part of a reformed EU

• 35% of those say the most significant reason to remain is “to preserve valuable outsourcing and trade relationships”

• Of the 27% that opted to leave, over half say Britain should do so to ensure that the only government ruling Britain is one elected by the British people

• 34% overall think a better deal could be secured to justify Britain’s EU membership

The majority of respondents (73%) are in favour of Britain remaining part of a reformed EU, in order to preserve EU-based outsourcing relationships, protect British jobs and maintain Britain’s influence on the world stage. Sovereignty is the main concern for those that want Britain to leave the EU – they want Britain to regain control of its laws, to ensure that the only government ruling the country is one elected by the British people, and build stronger outsourcing agreements outside the EU.

Overall, 34% of those surveyed say a better deal with the European Union could be secured. 31% believe David Cameron’s “special status” deal is sufficient, while 17% think no sufficient deal can be secured by the UK government to justify Britain’s EU membership.

Kerry Hallard, CEO of the NOA, affirmed that the UK outsourcing industry has spoken:

“The views of the NOA membership reflect those of Britain’s outsourcing industry as a whole, the same views held by the C-suite at the likes of BT, HSBC, IBM, Serco and Unilever. We’re all for keeping Britain in a reformed EU, where we can continue to have influence and be seen globally as a key player – ‘Brexit’ would certainly diminish Britain’s appeal on the world stage.

“Outsourcing is a significant growth industry for the UK - currently the UK’s second largest employer - and one where we have every chance of taking a global leadership position. Exiting the EU would quickly diminish our role within the global business services industry, guaranteeing negative ramifications for the UK’s financial, legal and consultancy markets, as well as others. We are, however, pleased that the referendum is happening so quickly – we need to get through this period of uncertainty as quickly as possible.”

Access the full report on the NOA website.

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Related: NOA elects new council to steer strategic vision for UK outsourcing throughout 2016

Infosys has announced aims to automate several projects in order to achieve a 30 per cent margin on $20 billion in revenue by 2020.

The automation process will allow Infosys to deploy less employees per projects, enabling the company to make savings of $80,000 by 2020.

Vishal Sikka, chief executive officer of Infosys, said that “Infosys will go beyond the basic automation around BPO and lower-level IT support type automation towards high-value kinds of automation… which need more sophisticated artificial intelligence technology”.

“The digital transformation shaping up the world has led to a lot of client anxiety in every industry, an opportunity that Infosys aims to tap,” he added.

In addition, this bet on automated processes with the introduction of new software will add additional pressure to Infosys’ direct competitors, similar to the effect Uber and Airbnb have had on their respective industries.

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Related: Infosys launches Uber-inspired “Zero Bench” app to maximise employee utilisation

The era when shippers maintained their own fleet of vehicles is long gone. Outsourcing in transport management has become a fixture in the portfolio of logistics managers. But shippers have become much more selective, and the goal has moved beyond just driving down costs. Above all, the quality of the services and internal processes is seen as increasingly important.

The process of calling for tenders and ultimately awarding a contract is generally a lengthy one. First, a shipper has to analyse what they need to ship to which regions and under which terms and tariff structures. The data needed to call for tenders – volumes, routes, products – is in the shipper’s freight management system. Once consolidated, this data provides the basis for soliciting quotes.

Another key point: Who should be invited to pitch? Which carrier offers which spectrum of services, and who is strong on which routes? Carrier directories or industry association rankings are helpful in selecting service providers for consideration.

Today, nearly everyone relies on IT support for tender management. Most shippers use simple tools such as email and file attachments. Transport service providers typically use spreadsheet templates to prepare a quote, and all quotes are then collected and compared in spreadsheets as well. This process makes perfect sense for smaller businesses with fairly basic transport needs. But the complexity of tender management can quickly escalate, making this method difficult to manage. For companies calling for tenders several times a year it makes sense to use specialised IT solutions.

Tender management software can help standardise outsourcing methodologies and simplify processes through focus on absolute transparency, tamperproof archiving, and automation. These IT solutions enable businesses to define standardised texts, using their existing documentation – shipment data, general terms and conditions, and international commercial terms (Incoterms). Such documentation can then be attached to emails along with the call for tenders. The ease with which documents are duplicated means that shippers can reach out to new service providers, gaining a clearer picture of their market. The call for tenders that carriers receive in such a form includes a matrix for entering quotes, making it easy for the shipper’s logistics manager to compare and work with the data. Such software can also simulate various scenarios and evolving supply structures, and plug in current data to calculate quotes. This helps to find out which transport partners offer the best terms for various scenarios, such as the loss of a major client or the relocation of a distribution centre.

Carriers can also benefit from targeted IT support and sometimes use web portals to issue calls for tenders. Some of these portals are free to use and don’t require a contract with the portal operator. It’s also important for outsourcers to be able to display all their information and specifications, and for logistics providers to be able to submit quotes that include more than just shipping rates and prices – lead times, the price for door-to-door delivery, and all additional fees, for example.

Of course, in addition to a good price, good quality of service is of great importance, too. So when the collaboration with a carrier is working well in terms of cost and performance efficiency, it’s probably not worth changing, as every change is associated with a certain transition phase and risks. It generally takes some time before all the supply chain partners work together smoothly. That’s why it’s crucial to look at the whole picture and not just at the price.

Should the deal go ahead, Sainsbury’s CEO Mike Coupe and CFO John Rogers are targeting £120m in synergies from the acquisition of HRG, with the majority coming from consolidation of store locations and revenue synergies as opposed to “slash and burn” in the back office. Their stated aim is to "Bring together multi-channel capabilities including digital, store and delivery networks to provide fast, flexible and reliable product fulfillment to store and to home across a wide range of food and non-food products”.

To enable this vision there will need to be a strategy to bring together the best of the IT systems and services to create a best-in-class consolidated multi-channel platform. And of course this will inevitably require a hard look at the third party relationships that each organisation has in place to deliver their IT services.

Accenture has been working with HRG since 2013 in a strategic transformation role to reposition Argos as a digital retailer, and the two organisations are publicly declaring that this has led to a sales increase of £165m and a 28 per cent increase in operating profit. Compare this to Sainsbury’s experience with Accenture, where a similarly ambitious transformation programme ended five years early with an ignominious divorce and chief executive Justin King saying that it was failing to deliver value.

A lot of water has passed under the bridge since then but corporate memory is long and John Rudoe, CIO of Sainsbury’s, will doubtless be pondering his vision for the combined IT organisation and how this will impact the technology and sourcing strategy.

Creation of a single strategy does not preclude continuing to operate separate relationships with the third party providers that are involved in delivering IT services to the two businesses. In fact there may be benefit in a multi-source strategy, particularly if lines can be drawn to delineate between the “fast” digital transformation activities and the “slow” enterprise IT management activities to create a clear bimodal organisation. The challenge comes in the history here, with both organisations pursuing a digital transformation strategy, with their supporting providers Accenture on the one side and TCS on the other.

Whatever happens there will be a significant change of scope for one or other of these two providers and Sainsbury’s will have to think through some important questions in a structured way, including:

• Does the IT strategy for the combined business clearly align with the previous strategy of one or the other, and therefore point towards adoption of one or other of the IT service providers as the primary relationship?

• Is there any appetite to maintain a relationship with two strategic providers, and if so is the organisation mature enough to manage the inevitable commercial and operational tensions that will arise?

• What provisions are there in the existing relationships relating to change of control and early/partial termination? Are there any penalties for such a scenario?

• Do these two providers have a history of operating effectively in a multi-sourced environment and are they likely to “play nicely”?

Of course, with the recent bid from Steinhoff, all this speculation may be moot, but one thing seems sure and that is that there will be much thought given to this between now and 18th March (the deadline for a revised offer from Sainsburys) both by Jon Rudoe and his team and by the account executives at TCS and Accenture.

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The National Outsourcing Association (NOA) has announced a new NOA Council, the body responsible for shaping the strategic focus of the NOA, and delivering their vision which will help to grow and shape the UK outsourcing industry in 2016 as well as improve the positive reputation of outsourcing globally.

Representatives from Zurich Insurance, Centrica, Conduit Global and Egypt’s Information Technology Industry Development Agency (ITIDA) all features as new additions to the 2016 Council. The NOA Council is voted in by the NOA membership, which comprises of 350+ companies across the entire outsourcing industry. Each individual has been elected off the back of a proposed manifesto, in which they outline their objectives and vision for all aspects of outsourcing in 2016 and beyond. Manifesto subjects include:

• Moving robotic process automation (RPA) from hype to reality [Symphony Ventures]

• Governance in digital ecosystem partnerships [Avasant]

• Best practice standards and corporate accreditation [BBC]

The Council, who participate on a voluntary basis, includes buyers, service providers, advisors and consultants working across the outsourcing industry. They meet officially for the first time on Monday 14th March to determine a framework for how their visions and manifesto objectives will be delivered throughout 2016.

Kerry Hallard, CEO of the NOA, commented: “I am extremely pleased with the broad representation and sheer depth of experience present within this year’s NOA Council. The newly appointed representatives will be integral to the delivery of the NOA’s future strategy, furthering our efforts to professionalise the industry and strengthen the UK’s future as the strategic global hub of outsourcing. My thanks go out to last year’s Council for their valuable contributions during 2015.”

See the 2016 NOA Council in full.

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Related: NOA Appoints Capita’s Tom Quigley as Marketing Director