Industry news

By Dr Roger Newman, head of UK manufacturing and digital convergence relationship management at Mahindra Satyam

Many companies have outsourced and off shored their IT service requirements and from all the research I have read, most of them are successful. More importantly people are becoming more successful over time as they learn lessons, either from their own experiences or through industry best practice. As companies become more mature at handling outsource suppliers the suppliers have had to respond and deliver ever increasing benefits; one of the positive effects of a very competitive market.

Having successfully outsourced IT Services, companies are now turning their attention to other Back Office processes. Many processes in functions like HR and Finance cannot be considered ‘core’ or strategic enough to justify keeping them in-house. At Mahindra Satyam we are finding that customers are turning to us for a wide range of non-core back office services such as; Line balancing of assembly lines, development of art work for packaging, claims processing and so on. As with IT services the benefits of outsourcing this kind of work are considerable and include;

a) Cost reduction

b) Improved quality & standardisation

c) Continuous improvement & innovation

d) Freeing up management time.

The disciplines required to outsource Back Office processes are similar to those required for outsourcing IT services. Of course the vendor landscape is different and the internal stakeholders may be different but the best practices are the same.

Although the Back Office processes may not be core or strategic they are still vital to the well being of the company and their effective execution underpin the company’s reputation and productivity. If they are not executed effectively everybody in the organisation gets to know about it very quickly. These processes directly affect the customer, the staff and the management stakeholders. Your CFO may welcome the cost reductions that outsourcing will bring but if in outsourcing his function, there is any degradation of service you may have to start looking for another job.

In summary back office processes can be successfully outsourced, the benefits are strong but we must learn from industry best practice and not get lured into thinking that this is anymore straightforward or easy that outsourcing IT services. As we move into 2010 I am sure that we will see a strengthening of the trend to outsource ‘the whole stack’ of a Back Office process.

For example a company may ask a vendor to manage the IT Infrastructure, the IT applications and actually process the business process transactions e.g. a firm may monitor the hardware that the Oracle Financials application runs on, it will maintain the application and have staff entering the invoices into the system. This gives the outsourcer the opportunity to look at the complete picture and offer deeper benefits. Often this is governed by a contract that is based on outcome pricing e.g. a price per invoice processed. This does not mean that companies have to sacrifice the benefits of multi sourcing (see my views on the key to a successful multisourcing strategy at http://www.sourcingfocus.com/index.php/site/featureitem/1984). This is a trend towards deeper, vertical outsourcing e.g. everything in a particular process rather than outsourcing all processes to one supplier.

Mphasis, the fifth largest BPO operator in India, is opening a centre in Colombo to offer legal, finance and accounting services.

The centre, which will be operational from next year, will recruit an additional 600 people in the first year to join the company’s 34,000 existing employees and then a further 2,000 in the subsequent three years. The expansion is said to come as a sign that the economic downturn is ending, officials said.

The international BPO industry has been hit by a global slump, with much of the industry in Europe and North America drying up due to inward looking policies forced upon the private sector by governments to save local jobs.

Gopinathan Padmanathan, president of applications at Mphasis said: "We have a fairly well established global footprint and with the Colombo office we are expanding it further. After completing the due diligence Mphasis were really confident."

United Utilities is selling off its metering, waste treatment and connections BPO business, according to reports.

On the back of a spate of recent outsourcing divestments, the UK’s largest listed water company is expecting bids of up to £500 million.

The company is reported to have hired investment bank JP Morgan Cazenove to oversee the auction as part of a wide-ranging asset disposal.

In the last week United has also sold minority stakes in Northern Gas Networks and the Manila Water Company raising approximately £130 million. The company also plans to sell its last non-regulated businesses in the UK, Australia and the Middle East, which could raise another £270 million.

Chris Gayner of the Shared Service Outsourcing Network (SSON), said: “This is not what we normally associate with core outsourcing services but the specialised custom BPO services provide potential suitors with a route into utilities and the opportunity to provide further services.”

“It would not surprise me if the services were combined with a broader outsourcing offering specialised for Utility Companies.”

United has not yet issued a statement on the report.

BP is outsourcing its telecommunications infrastructure in a multi-million pound deal, with the aim of reducing costs by up to £1bn in the current financial year.

The energy company signed a five-year deal with T-Systems this week, which will see the IT services arm of Deutsche Telekom take over the management of its voice and data communications infrastructure, and manage BP’s contracts with external suppliers.

Meanwhile, BP has signed a parallel deal with Siemens Enterprise Communications, which will provide managed voice and conference services.

The twin deals come as yet another signal that outsourcing activity is returning after a slow year in the industry, according to informationage.com

UK companies have revealed their satisfaction with the performance of IT service providers has increased to record levels this year, as has their ability to manage their outsourcing contracts.

The amount of outsourcing has also increased and looks set to increase further in 2010, according to this year’s Information Technology Outsourcing (ITO) Service Provider Performance and Satisfaction Study carried out by business advisory firm EquaTerra.

UK ITO buyer companies rated Capgemini (79 per cent), Cognizant (79 per cent) and Computacenter (78 per cent) as the top three service providers for client satisfaction scores in this year’s study.

The bottom three were HP/EDS (59 per cent), Verizon Business (58 per cent) and CSC (51 per cent).

Martyn Hart, chairman of the National Outsourcing Association, added: “The shift identified in this study is symptomatic of the changing nature of outsourcing relationships.”

“End users are now looking for IT partners that will advise, push back with ideas and innovate. As IT continues to become more central to businesses operation, those suppliers that can offer a higher-value service will see increasing success.”

Emerging market suppliers are gaining traction with organisations as they seek to mitigate risks through expanded global sourcing networks, it has been revealed. These six emerging markets are Brazil, Central and Eastern Europe, Israel, Mexico, Philippines and South Africa.

The news comes from Everest, a global consulting and research firm, which has completed a new study examining key emerging market suppliers that have achieved meaningful operating scale and, through investments in delivery capabilities and adopting industry best practices, are successfully serving Global 1000 corporations.

Suppliers profiled in the study are CPM Braxis (Brazil), EPAM Systems (Central and Eastern Europe), Ness Technologies (Israel), Softtek (Mexico), SPi Global Solutions (Philippines) and Merchants (South Africa).

Amneet Singh, Vice President,Global Sourcing Everest, said: “Recent world events, supplier scandals and other factors have prompted organizations to take more sophisticated approaches to risk management that go beyond performance management of their engagements. Now, they are considering the entire sourcing ecosystem, as well as a collective portfolio of suppliers, to not only diversify locations but also meet increased demands for global services delivery networks.”

Visit the Everest website to view the full study.

The outsourcing of essays for marking and assessment to India is starting to boom in the US, it has been reported.

India has increased the number of essays it receives for marking by three times in the past year, now taking charge of the assessment of around 30,000 per year, according to Business Standard (India) online.

Typically, a professor in India gets paid around $20 per assessment and checks on an average 120 essays per month.

US universities such as Butler University College of Business and University of Northern Iowa College of Business Administration outsource essays to India.

“The concept is gaining popularity in India as it not only allows professors to make some extra money but also helps them get in depth knowledge on a particular subject,” said Madan Padaki, co-founder and ceo of Bangalore-based testing firm MeritTrac in Business Standard.

Ciasco and BT announced today they have extended their longstanding partnership through the launch of a global “cloud”-based IPT solution.

Ciassco and BT’s Onevoice Unified Communications (UC) platform, will launch a scalable, business-grade and global hosted IP Telephony service.

Chris Dedicoat, president of Cisco Europe said; "Cisco and BT are deepening our collaboration today by introducing a unified communications solution delivered through the cloud at a compelling price point.”

The proposed set-up will attempt to reduce costs, allowing businesses to dramatically reduce upfront investment expenditure whilst accelerating the adoption of UC on a global scale.

Dedicoat is also hopeful the new hosted offering will help the company to “bring the benefits of the unified communications to more customers globally.”

Labeling printing solutions company Zebra Technologies has paired up with technical outsource specialist, Qcom, to provide customer service across EMEA and phone support and field service for the UK and Ireland.

In the three year agreement, Qcom will handle Zebra’s first English-speaking technical support line for end-users and resellers.

It will also deliver the full range of the new Zebracare on-site contracts across mobile, desktop, kiosk and card printers.

Paul Vogt, services director for Zebra EMEA, said: “As we continue to expand our service offerings across UK, Ireland and Europe, it is important that that we continue to offer excellent service standards to our existing and new customers throughout the lifecycle of a product.”

Neil Anderson, Qcom’s managing director, says: “This new phase of our relationship, backing the exciting new Zebracare on-site package, will allow an enhanced after-sales service to be delivered to all users of Zebra equipment, building on Qcom’s expertise in outsourcing Zebra printer support.

Learning from Santa...

Santa Claus is in for a pretty important Christmas this year. If it’s not the focus on reduced carbon emissions that is sure to impact the use of his sleigh, then it’s the furore over the outsourcing of his toy-making to specialist elves. Clearly, Santa was way ahead of the times when conducting the ultimate in business efficiency - why has it taken us so long to catch on?

2010 looks to be the year the UK fully embraces Santa’s business model. Only this week care homes outsourcing group, Caretech, announced it expects to see a boom in its business next year. The company attributes the rise in its use to the current climate and subsequent tightening of local authority finances. Old Saint Nic isn’t far off retirement. I am sure it will help him sleep easy in the knowledge that there are care home specialist providers on the market.

Although outsourcing is becoming more commonplace amongst the public and private sector alike, there are still those who are resistant to the concept of using offshore suppliers. It seems there is a growing trend in the US to bring call centre operations back into the country, having previously managed them offshore. Atlanta-based natural gas distributor AGL Resources is the latest to bring its call centre – which was operated by Wipro – back to the US, in a move which will create 75 new jobs locally.

In more positive news, car manufacturing giant Renault Group has not been deterred by the beckoning of process streamlining. Renault have signed a three year outsourcing contract with Capgemini which will see the service provider take responsibility for managing the car manufacturer’s application lifecycle. More than 180 Capgemini professionals will be involved in the project, including technical support, and applications development specialists.

I think we have all learned something from this week’s news round up. All you have to do is follow Santa’s business model and you are guaranteed a long, prosperous business life.