Industry news

Mahindra Satyam, a leading global consulting and IT services provider, has announced that its business process outsourcing arm, Mahindra Satyam BPO has renewed its existing contract with NAVTEQ for a further period of two years. Mahindra Satyam BPO’s relationship with the customer is over five years old and provides a wide portfolio of services to the customer.

Luther Siebert, Vice President of Global Production Operations at NAVTEQ, said, “We are delighted to extend our contract with Mahindra Satyam BPO. Mahindra Satyam BPO has always displayed initiative and enthusiasm to support the complex processes required in the creation and updates of NAVTEQ’s digital maps. They have played an important role in helping Navteq provide best-in-class geospatial services to its customers globally.”

Steria, a leading European IT-enabled business services provider, today announced it has signed a Strategic Outsourcing Framework Agreement with the Financial Services Authority (FSA) to support and develop operational and regulatory systems.

The framework agreement includes seven aspects of work, wherein Steria has secured the right to bid within the following three areas: Infrastructure, Applications Management and BPO. The agreement will enable the FSA to be a more efficient regulator through technological upgrades, streamlined processes and enhanced productivity.

Gareth Lewis, chief information officer at FSA, commented, "The rationale behind the new supplier framework is to provide increased competition amongst our supplier base given the enormous volume of work we anticipate in the next 4 years. Steria has a proven track record in delivering cost-efficient support functions to the FSA, and we are confident in the team's ability to continue to deliver. My team and I look forward to working with them."

Businesses may be investing in IT at the expense of hiring employees, a Forrester Research analyst has suggested.

In a report entitled “IT Investment May Be Hurting US Job Growth”, Andrew Bartels observes that while IT investment by US businesses rose 11% in 2010, and profits grew 28%, employment was flat. “It certainly appears that businesses have been buying technology instead of hiring workers.

Bartel said: “This pattern was most pronounced in manufacturing industries like mining, forestry products, fabricated metals, motor vehicles, and machinery. In a quarter of industries, tech investment rose by 7% on average while employment was down by 2% on average.”

The Chancellor’s Autumn Statement on 29 November 2010 announced a consultation on some radical improvements to the tax treatment of intellectual property.

The consultation was undertaken on the proposed introduction of a preferential regime for profits arising from patents, known as the ‘Patent Box’, which could see royalties and other profits from patented products and technologies being taxed at just 10 per cent. The consultation ends today with a report to follow shortly.

John Dethridge, Tax Partner & specialist in R&D tax reliefs at Menzies comments: "It seems unlikely there will be major changes to the taxation of innovation and intellectual property (IP) tax relief as the Government is satisfied with the effectiveness of the current Research and Development Tax Credit regime. This encourages early stage research and follow up development where technological uncertainty exists. However, further consultation will follow in spring on the proposed new Patent Box.

“This is being proposed to improve the tax regime beyond the R&D stage, when the product is complete and the IP created is generating an income stream. Many other countries have a reduced tax rate for such income and the UK is currently seen by many corporate investors as uncompetitive, leading to IP being located in other tax jurisdictions, with potentially damaging implications for tax revenues and for the UK economy.

“Any improvement in the taxation of IP is to be welcomed, but we are some way off seeing what the finished article will look like. Some IP is not patented, and it seems this may be overlooked altogether. The identification of embedded patent income may also prove to be far more complex than anything in the current R&D tax credit claim process. Specialist tax advisers are going to be needed to ensure that taxation of innovation is minimised."

David Cameron has said the government will set out plans to allow private and voluntary groups to run almost every kind of public service. He told the Daily Telegraph there would be a new "presumption" that private companies, charities and voluntary groups could run public services.

Ministers are due to publish a White Paper outlining the changes in the next fortnight. Mr Cameron promised to release public services from the "grip of state control" as part of his Big Society agenda.

Mr Cameron wrote: "We will create a new presumption - backed up by new rights for public service users and a new system of independent adjudication - that public services should be open to a range of providers competing to offer a better service.

"Of course, there are some areas - like national security services or the judiciary - where this wouldn't make sense. But everywhere else should be open to real diversity."

HP has announced a new solution portfolio designed to deliver flexibility and efficiency to health organizations.

It is hoped that the new HP Digital Health solutions will enable healthcare organisations become Instant-On Enterprises.

“Sweeping regulation and the changing healthcare landscape are encouraging providers to reorganize into care teams that improve coordination and collaboration across the continuum of healthcare settings,” said Scott Lundstrom, group vice president, IDC Health Insights. “HP’s approach to ‘instant-on healthcare’ should help to address and simplify the transition healthcare organizations will need to achieve this level of efficiency.”

Microsoft and T-Systems have signed a major five-year deal that will allow Shell employees to work together online globally. Shell will buy SharePoint services dynamically via the internet with the hope to increase flexibility at work and to reduce costs.

Shell uses SharePoint as a collaboration platform. With a target date of April 2011, T-Systems is preparing to provide Shell employees a customised version of the Microsoft SharePoint solution virtually, from its own data center.

"For us as a globally operating company, SharePoint is a key instrument for smooth cooperation in projects with decentralized teams. This joint solution will allow us to appreciate considerable cost reductions and greater flexibility," said Shell's VP IT Services Jay Crotts.

Microsoft and T-Systems are working jointly on the project, with Microsoft SharePoint providing a central platform for various applications such as document and content management as well as organisation and collaboration in project work.

Outsourcing and business process automation have been used by many organisations as separate entities over the last decade to help improve the efficiency of their IT. Many companies have successfully used third-party suppliers to deliver processes such as IT support and call centers, across all verticals, in an effort to focus attention on core business initiatives that add value to customers and shareholders. One of the primary benefits of business process automation includes removing non-value-add human interventions to make certain business operations faster.

However, today the problem for organisations is that the wave of quality and cost benefits from outsourcing and business process automation has largely dried up. Simply put, they have banked the savings from large outsourcing contracts over the last ten to fifteen years and there are few new incremental savings to be found. The reality is that these largest contracts are now a thing of the past, because more and more service providers are looking to implement clearer service level agreements (SLAs) to try to minimise risk for the customer.

No matter what type of product they make or service they provide, all organisations face many burdens today, such as rising health care costs, soaring energy prices and fluctuating raw material supplies. However, when the path to profitability reaches a stumbling block, managers seem to think they must make a critical decision: either go left and invest in business automation technology, or go right and outsource production.

While each strategy has obvious pros and cons that should be carefully considered, many companies don’t look far enough ahead before walking down the wrong path too quickly. Moreover, it is my personal view that the two practices do not have to be mutually exclusive.

As the pressure to cut cost remains in these uncertain economic times, I believe that leading edge companies should be looking to embrace process automation technologies and outsourcing together in conjunction with each other. By moving forward with the globalised provision of outsourced services together with experience in process automation from certain cloud enablers, there is the potential to achieve the cost savings seen in the initial wave of outsourcing nearly a decade ago.

It is easy to see why suitable business processes automation and IT outsourcing tend to have common features. For example, both can exist on shared or virtualised infrastructure, which can be shared evenly with other parties without compromise. In addition, the service source and delivery is location independent. Good examples for business automated and outsourced services will tend to have the capability for a uniform service, regardless of location or role of the end user. Desktop support is a classic example of this. Furthermore, a successful business automation and outsourcing service should both follow standard processes such as software testing, HR, security, payroll, and have consolidation as a design feature via server farms.

However, in order for both practices to work successfully, a combined business process automation and outsourcing strategy needs to be considered as an opportunity rather than a threat by the end user IT team. While outsourcing can be perceived as reducing the prominence of the in-house IT functions at an organisation, a combination of the two, when properly applied, will add to its importance. This is because a combined approach will place the end user and his or her team at the center of efforts to automate business processes. This should drive increased shareholder value in the coming years.

The customer also needs to clearly identify who his most trusted partners are for efforts towards a combined automation and outsourcing strategy. This will require an active collaboration between customers and suppliers who will both yield benefits for the efficiencies and innovation that business automation will bring. Unfortunately, some suppliers simply choose to go against subscribing to the idea of a combined business automation and outsourcing strategy in an effort to protect their own profits.

These suppliers will remain tied to the classical outsourced model and will inevitably be driven into offering more and more commoditised services at lower prices and lower margins. These will not be the chosen partners of innovative companies that wish to move their business critical applications into the cloud over the next few years.

In summary, the foundations of a combined process automation and outsourcing service are long established in sectors such as manufacturing. For example, carmakers have shared platforms to deliver multiple model ranges and competitive glassmakers have built factories together. The good news is that these principles are now being brought to the IT enabled services. Organisations are only just beginning to identify processes that can be simultaneously automated and outsourced as part of a single business transaction.

NOA End-User Benchmarking Workshop

Wednesday 9th February 2011

It is generally agreed that a common source of failure of outsourcing agreements is that the arrangement put into place does not work for all parties involved. Benchmarking data can be used to manage and improve provider performance not just at the start of a contract but throughout the duration of the collaboration.

The NOA’s End-User Benchmarking Workshop was held with the aim of discussing best practices, lessons learned and how to mitigate risks in the ever-changing IT outsourcing market.

Chris Smith, Vice President, UK and Ireland Benchmark Analytics, Gartner chaired the workshop and focused on three key benchmarking issues.

• How should benchmark data be used to improve provider performance?

• Should you plan benchmarking activity or wait until there is a cause?

• What should you measure to ensure a good deal going forward?

Chris commented: “Providers can see benchmarking as a threat but it can help with the overall transparency and understanding of outsourcing charges. Benchmarking clauses are really about contract optimisation not primarily cost savings.

“When applying benchmarking in a deal, it is good practice to jointly agree to a benchmarking process to promote cooperation and openness. Decide on an independent third party, conduct an initial benchmark and routinely schedule benchmarks which can be used to adjust deals as needed.”

Benchmarking Benefits

• Encourages discussion and alignment of your deal in context

• Provides a measure for continuous improvement

• Drives provider behavior to reduce charges

• Tests the validity of fees for specified services

• Evaluates relative performance within a peer group

• Creates leverage for price adjustments

• Quantifies the appropriate price/service delivery balance

Clauses

Gartner IT Key Metrics Data 2010 showed that 39% of end-users use a third party benchmarking firm to satisfy their contractual benchmarking clauses while 24% have no clauses at all.

It was emphasised that specific areas need to be benchmarked at the beginning of a contract and any intentions to benchmark any discrete service area or all of the service areas in the contract.

Be clear, in the contract, of the date of execution for the benchmark, such as 12-18 months after the contract start date and if a delay occurs, contractually document the delay and new start date. Do not let a slipped date be the catalyst to not benchmark.

It is always best practice to benchmark before outsourcing which provides a starting point to set forth a clear reference between current state and future measureable benefits from outsourcing.

Stipulate Benchmarking Methodology and Provider Selection Criteria

Define the benchmarking methodology, different third-party Benchmarkers perform benchmarks and comparisons differently.

Often, one methodology and/or third-party Benchmarker is preferred by clients or service provider. Disagreements about who will perform the benchmark can lead to derailment of the benchmark.

Define How Peers Will Be Selected and Compared

Peer group selection should be left to the third-party benchmarker; however, the characteristics need to be negotiated and defined in the outsourcing contract and realistic benchmarking comparisons must be defined. Peer comparisons, such as top 10% of group, top 25% and average of peer group, must be defined in the contract.

Define How Benchmarks Will be Staffed, Managed and Funded

The service provider should include all costs to support the benchmark activities (that is, resources to gather data and manage the service provider portion of the process, and review meetings), into their cost models for the outsourcing deal.

If benchmarks are established and defined in the contract, the service provider will have a clear understanding of the level of work and expectations. Benchmarks can be funded in different ways such as payment by the service provider, payment by the client and payment split 50/50.

Stipulate, in the contract, who will fund the benchmark; otherwise the question will quickly arise and can delay or halt the benchmarking exercise, as well as create ill-will between the parties.

Define How Benchmarking Results Will be Used in the Deal

Benchmarking results can be a powerful tool in determining whether the price and value of the deal are in line with market-based pricing and value expectations, but you must stipulate in the contract how the analysis will be used. For example, a contractual trigger to adjust prices during a certain time period along with service-level changes. The contract must also state what will be done with the outcome of the benchmark results.

Conclusion

The workshop concluded with a question and answer session which focused around Gartner’s own four key benchmarking questions:

1) Vision and Alignment - Can both parties meet their strategic & operational goals, and respond to business and technology changes?

2) Price & Service Levels - Do the Scopes-of-Work, delivered service & price meet the business requirements and are they reasonable?

3) Customer Satisfaction - Are the business unit users and managers satisfied?

4) Contract & Relationship - Does the management of the contract and relationship meet the needs of both parties?

Attendees included: Chris Smith – Vice President, UK and Ireland Benchmark Analytics: Gartner, Adrian Turner - European Head Corporate Procurement: Apple Europe Ltd, Stephen Green - Head of Operations: ATOC Ltd, Alasdair Wann - Group Procurement Global Sourcing: BT, Sav Thevendria - Service Manager: Carphone Warehouse, Marelize Verdoes - Vendor Test Manager: Carphone Warehouse, Duncan Falconer - Application Technology Consultant: Carphone Warehouse, Neil Wright - Head of Customer Services: Everything Everywhere, Danny Booth - Group IT & Communications Director: Hyperion, Peter Thurley - Supplier Relationship Manager: Metropolitan Police Service, Francis Kendall - Site Head of Statistical Programming: Roche, Mary Coyne - Head of IT and Indirect Procurement: TUI Travel, Michael Ruddock - Finance Director: Westbourne Terrace Management Services and Paul Corrall, Editor: Sourcingfocus.com

Intelenet Global Services Pvt Ltd has announced a new facility in Latin America as part of its global focus on providing effective right-sourcing solutions. The new centre, in Guatemala, will serve as a near shore destination for global clients with North American operations and will provide multi-lingual support in English, French and Spanish languages.

“Our expansion into Guatemala is a key step in improving our global footprint and providing comprehensive, integrated solutions to our clients,” said Susir Kumar, Managing Director and CEO, Intelenet.

“Guatemala has emerged as an important BPO destination as the local population has a very good understanding of the American culture and the country has an abundance of English speaking people. It offers a strong blend of multi-lingual skill sets, talent and a favorable business climate, making it an ideal location to service clients in America,” added Mr. Kumar.

Intelenet believe that Guatemala offers key competitive advantages as a first-class outsourcing provider including:

- a modern, robust, fibre optic infrastructure with 99.89% redundancy

- three mobile phone operators with a 90%+ mobile phone market penetration

- 19 local network operators

- lower development costs

- GMT (UTC)-6 time zone

- a highly educated, bilingual and trained labour force with computer languages