Industry news

In human years the offshoring industry as we know it is getting close to the prime of its life. It has grown from bouncing baby when doting customer service managers and CIOs looked on, excited as their costs fell thanks to those happy offshore agents and developers. Then came the unruly teenagers as vendor attrition rose, customer service levels fell and those at the other end of the line rapidly became unhappy with their new far-flung customer service people. Data blunders and security leaks then worried executives about their sourcing decisions and some publicly advertised their UK sourcing credentials. But outsourcing still continues apace and most would say the mature providers have overcome their early bugbears to become a ‘safe pairs of hands’. Offshoring is now 'fully grown' and is out there looking for new challenges, developing new ideas and new services. As a natural progression of this, the offshore outsourcing industry continues to clamber up the value chain into more highly skilled pursuits.

“The approach of only outsourcing "non-mission-critical" processes has become dated,” comments Stan Lepeak, Managing Director of Research for EquaTerra.

Indeed, it seems a natural progression of globalisation that offshore locations and providers will seek to provide higher level services. The larger providers become and the better local educations systems become, it is logical that staff originally happy to tap out mundane code or sell low level products, will require new challenges.

“Individuals in these offshore locations are hungry to learn, grow and be promoted and will switch organisations to gain this exposure if they do not receive it with the providers they currently work with,” says, Kulvinder Reyatt, MD of Europe and Asia, for RR Donnelley.

Local skills gaps are also a big issue. In the UK for example the lack of domestic IT expertise is a very real problem. Recent research by Vodafone found that more than a fifth of companies say they lack the IT skills needed for their businesses to thrive.

“Domestic talent pools are not big enough and they need to focus more on performing higher value added activities. For example analysis not processing and decision making not paper shuffling,” said Lepeak.

Offshore vendors have spotted the obvious opportunities and are continuing to offer new services to their customers. It is almost impossible to find an outsourcing company that still offers only low-end, high-volume outsourcing. Providers want the specialists processes and want the extra kudos, business and income that comes with it.

RR Donnelly, an age-old printing specialist, is one company that has captured the BPO zeitgeist, moving originally into low level print 20 years ago but now taking on more traditionally in-house or on-shore tasks. Creative communications, legal processing and research and analytics all fall under their offshoring menu, delivered from India, Sri Lanka and the Philippines and many European locations. The company has also developed offerings in financial management such as accounting, credit card applications and insurance claim management. The company even offers ‘Pitch assistance centres’ for large corporate, investment banks, consultancies and the like

While many of the ‘new’ services being offered by outsourcers might not have always been done in house previously, it is the offshore element that is new. So are buyers ready to offshore their PowerPoint presentations or legal documentation for example? Clearly some are otherwise the companies would not be offering such services, but the offshoring of such processes is still not widespread. So should companies be weary of sending their high-end processes off-shore?

“As an outsourcer I can confidently say no. However, in some cases there is a longstanding hostility between customers and suppliers, with the gap widening in the current recession,” said Dr Roger Newman of Mahindra Satyam. “The reality is that businesses need greater intimacy with their suppliers and for the supplier to be integrated with their business models if there is to be the mutual benefit required for long term success,” he adds.

The subject of management in high-end offshoring is something not to be overlooked. The switch-on, switch-off mentality of large scale outsourcing no longer fits with the often close collaboration now required. For example, imagine trying to refine an important presentation being developed offshore without numerous phone/video conferences. Likewise management of financial processes and data requires new in-house responsibilities, procedures and security measures.

“To successfully manage multiple BPO providers, companies need to take a number of sophisticated and often culturally challenging steps. Companies that successfully manage offshoring core or mission-critical processes look to create collaborative management models that share responsibilities, risks, and rewards, enabling both sides to reach their objectives,” comments Lepeak.

Assessing the possibility of outsourcing high-end processes begs the question how far should one go. Obviously you cannot outsource everything so surely there needs to be a balance. “You can't outsource everything - you need something on which to base competitive differentiation - but nothing should be "off the table" when it comes to considering outsourcing options,” says Lepeak.

The advice from providers is of course speak to them to gain a better understanding of what and how processes higher up the value chain can be effectively offshored. Even amongst old-hands at the outsourcing game, a reassessment of possible suppliers is likely to be a first step.

Sukhendu Pal, Principal Consultant at Centrix Consulting, comments, “All companies need to rigorously assess each of their functions to determine in which they have unique skills and sufficient scale and in which they don’t. Better assessment of competencies can improve a company’s strategic position by reducing costs, streamlining the organisation, and improving quality. Finding more qualified BPO service providers to provide critical functions usually allows companies to enhance the core capabilities that drive competitive advantage in their industries.”

The outsourcing industry has clearly come of age so end users must adapt to keep pace. However, in current economic circumstances, it will not take much to encourage executives to investigate what is now on offer.

The Government of Canada has signed a four year contract extension with CGI Group Inc. The US $78m extension covers the provision of engineering and technical services. The contract, originally signed in 2007, changes the existing arrangement from a Resource Based contract to a managed-services model, with a focus on outcomes.

“More and more government agencies are moving towards a longer-term managed services model with companies they rely on to help them succeed in their mission,” said Hicham Adra, Senior Vice-President and General Manager, National Capital Region. “CGI has been supplying IT services to the Government of Canada for over 25 years. We have a strong track record in government, and we look forward to continuing that with the services provided to PWGSC.”

The Korea Exchange Bank (KEB), the country's largest foreign exchange bank, has awarded IBM a five year strategic procurement outsourcing agreement.

Under the agreement signed in August 2009, IBM will provide to KEB a full range of enterprise strategic sourcing and procurement services, allowing the bank to focus on its core competency and competitiveness in the banking industry while achieving cost savings and improving industry compliance and internal control.

IBM will run KEB's overall sourcing and procurement operations end-to-end, covering areas of information technology, marketing, services, facilities and supplies. As part of the project, the company will establish and support the bank's purchasing strategies, improve the purchasing process and systems, as well as manage strategic sourcing processes and relationship with suppliers. IBM will also make purchasing decisions and settle payments.

The implementation of the procurement outsourcing project supports KEB's Zero Waste Project, which is an employee-engaged management campaign aimed to optimise the cost structure and enhance management efficiency. In addition to optimise the bank's operational efficiency, KEB also wanted to yield cost savings through an advanced, centralised and streamlined purchasing process conducted by IBM.

Telfort, a mobile telecommunications company in the Netherlands, has signed a five-year technology infrastructure and applications services agreement. Telfort hopes the outsourcing deal will augment business growth while improving quality and reducing operational costs.

Under the terms of the agreement, EDS will manage the development and operation of Telfort’s applications and infrastructure, amongst others to provide the company with improved agility and cost performance. As Telfort’s service integrator, EDS also will act as a single point of contact.

“In order for Telfort to grow our business in the low-cost wireless segment, it is necessary to adopt a cost leadership strategy and become more efficient,” said Marco Visser, chief executive officer at Telfort BV. “By partnering with EDS, we will be able to streamline our organisation for efficiency, providing us the opportunity to focus on new areas for growth.”

EDS will provide applications management services for Telfort’s critical business software applications, including new customer care and billing solutions focused on enhancing the customer experience. EDS also will manage the underlying infrastructure, including the network and data center, and provide service management and service desk services.

Although the UK can’t put a foot right in the eyes of the USA at the moment, there is one thing that we can get right, Cricket. Okay, so maybe the UK is not so good at political relationships, but who cares when there is sport! This week saw England win the Ashes and all bad news was forgotten. So the Round- Up will plough on with this week’s news with a spring in its step and brimming with positivity.

A trend the Round-Up has noticed this week, amongst others, is a surge of importance placed on improved customer services as a way of differentiating oneself from competitors. According to Fujitsu, 40 percent of CIOs see improved customer service as key during recession.

IT leaders are looking inwards as they seek new ways to deliver value amidst the recession, according to new research commissioned by Fujitsu Technology Solutions. The report, entitled “Dynamic Infrastructures and the Future of IT” found that more than half of the respondents prioritised the improvement of service levels when it comes to their investment in new technology.

However, this is not the main reason for Fujitsu’s visibility in the media this week. It seems the company may be in difficulty as it announced the plan to reduce up to 1,200 jobs of its UK operations. This measure is being proposed because of lower than anticipated revenues. It seems it is another knock-on effect of the lagging economy.

On a more optimistic note, (remember, just three paragraphs ago I promised springy steps cardiac positivity) interesting news came in the form of the U.S. National Guard outsourcing its training programs to CSC. It is promising that the training of America’s National Army is being entrusted to an outsourced IT provider. If outsourcing is good enough for the Army, then it is good enough for anyone!

And to end on an even higher note, Steria has signed a £45 million deal with the IPCC. The Independent Police Complaints Commission (IPCC) signed the ten-year contract with Steria to provide Information and Communication Technology.

Amongst other departments the IPCC also investigates serious complaints against HM Revenue and Customs, the Serious Organised Crime Agency and the UK Border Agency. The staff exercise police-like powers. So information and communication technology is a pretty important aspect of the department. The round-up is sure Steria will make sure no complaint goes awry.

But we’re not complaining this weekend in the UK as you well know. The August bank holiday has finally arrived and not a minute too soon. We’ll soon be welcoming tanned colleagues back into the office, packing kids off to school and wondering bewildered at where the summer went again. Enjoy the three days while they last!

As part of his studies towards the NAO's recently launched Diploma in Global Strategic Outsourcing, NAO member Graham Jump is conducting a survey into 'Price Benchmarking in IT Outsourcing'.

Due to the commercially sensitivity nature of benchmarking, real data can be hard to find and Graham's aim is to collect some intelligence on how price benchmarks are actually being used in the real world.

If you are a user of IT outsourcing services with recent (last 2 years) experience of price benchmarking and would like to participate please link to the survey at:

http://www.surveymonkey.com/s.aspx?sm=kg2SFG0aDDijkQEYzdzmGw_3d_3d

The survey does not ask you to identify yourself, your company or any third parties and so your response will not be identifiable among the other responses. It should only take 5-10 minutes to complete.

BP, one of the world’s largest oil and gas companies, has commissioned Infosys Technologies to manage and operate a large portion of its business systems. The applications outsourcing and support agreement will run for five years.

Over the last 12 months, BP has undertaken a programme to consolidate its information technology (IT) vendors for application development and application maintenance (ADAM). BP had a rigorous procurement selection process which assessed Infosys on capability, oil and gas sector knowledge and cost.

Dana Deasy, BP Group CIO, said, "I'm pleased to have selected Infosys as one of our strategic ADAM vendors. In awarding Infosys ADAM work for our Integrated Supply and Trading and Exploration and Production businesses, we look to leverage its capability and knowledge of the Oil and Gas sector. This agreement will enable BP to reduce complexity, standardize work processes, and lower our overall cost base."

Fujitsu Services operation in the UK has proposed a reduction of up to 1,200 jobs. This measure is being proposed because of lower than anticipated revenues. The reductions are expected to be complete by the end of 2009.

Fujitsu has said that the action is necessary to ensure that the company remains competitive in the current economic climate.

Fujitsu currently employs 12,500 people in the UK. It is an IT systems, services and products company with an annual revenue of £2 billion. To date the company has taken a number of measures to keep its cost base down and avoid job losses, including a company wide pay freeze, a reduction in the number of contractors and temporary workers, a re-training programme and tight control of recruitment. In addition strict controls have been applied to operational and capital expenditure.

USA Army has signed a contract with CSC to continue designing and developing training courseware. The contract has a one-year base period and four one-year options. It replaces a previous Army National Guard training services contract awarded to CSC in September 2003.

Under the terms of the contract, CSC will provide distributed learning educational products to the Army National Guard. CSC will develop and update new and existing courses as well as convert classroom-based courses to a distributed learning environment. They will provide services at the Distributed Learning Development Centre at Camp Dodge, Des Moines, Iowa, and the National Guard Professional Education Centre at Camp Robinson, North Little Rock, Ark.

Businesses across the world have been using outsourcing as a strategy to reduce costs, streamline workforces and improve quality. On the whole, this strategy has been effective and has resulted in management teams across all industries turning to outsourcing more frequently.

Now, if businesses outsource to UK based suppliers then jobs remain onshore, graduates have a chance to learn the vital basics and the UK moves into the future happy in the knowledge that it has a well skilled workforce. The problem is, many of the biggest businesses are not using UK suppliers, instead they are opting to offshore, leaving the UK with a growing skills gap. In fact it is safe to say that the gap is quickly becoming a void.

Over the past few months there have been a host of businesses receiving less than favorable reports about their offshoring practices. Most recently, Lloyds Banking Group has been under fire from the media as a result of a Daily Mail report that said Indian IT contractors were being brought into the UK to work in place of UK counterparts. The article was supplemented with internal documents that revealed the concerns Lloyds managers have about knowledge gaps within their IT department, hence they were possibly looking to their Indian partners to provide them with the necessary skilled workers.

What this means for Lloyds is that they lack the necessary skills to do basic IT processes without calling in the offshore cavalry. This is worrying; a large financial organisation should have the capacity and the business sense to keep a retained team of workers on-shore. It is probable that Lloyds became a little too focused on cost cutting and rapid ROI whilst losing sight of the future security of their organisation.

Mass offshoring is not just having an effect on the capabilities of UK businesses, it is also having a distinct effect on those yet to begin their business life, the graduates. Firms excessively offshoring work and not investing in their own staff has resulted in fewer graduate opportunities and in turn means that mid level IT specialists are becoming a rarer breed. Graduates need on-the-job training in order to become tomorrow’s IT specialists. Who will train future developers, networkers and IT managers if there is no one left in the country with the foundation skills?

Martyn Hart, Chairman of the National Outsourcing Association, commented, “As India and various other destinations enjoy a wealth of low level IT work, IT specialists in these countries will arguably have had better experience and training than their UK counterparts. In turn, those IT workers that have climbed the career ladder in key offshore destinations would have had such a breadth of experience that they may be better placed to manage the IT teams of the future.” So, where does this leave the UK?

Of course offshoring is understandable if not vital within a global economy. However, retained knowledge and balance are just as essential as offshoring. Companies must realise that they need to have an even spread between on-shore work and offshore. Their Indian suppliers will not tell them to keep work at home, that is for sure. So management teams need to wisen-up and be aware of the risks involved with overzealous offshoring.

Mr Hart points out the risks involved with handing over IT to an offshore supplier, “By not retaining enough good quality in-house IT expertise, businesses are at risk. They will no longer have the capability to design and run applications or IT systems themselves and will have no choice but to rely upon their offshore service providers. This would leave them in a very vulnerable position; suppliers could essentially charge what they wanted for applications and systems and they would lose their competitive edge because they would have to rely upon the same ‘off the shelf’ package as their competitors.”

So what are companies going to do? Well one area that is worth exploring is sending an in-house graduate team offshore for a period of time to learn the trade. The offshore suppliers will be best placed to train them because they have been fulfilling the work already, the graduates get the experience they need and supplier relations will be significantly improved. After the team’s tenure at the supplier’s base, they can return back in-house and bring their new found skills and knowledge with them.

The fact is that excessive offshoring is contributing to the UK’s ever increasing skills gap. If companies want to be best placed to ensure that they are prepared for future challenges, then they need to have the skills and knowledge in-house. Having a good mix of outsourced and in-house expertise is paramount if businesses don’t want to find themselves at the mercy of a supplier’s sales team.

Graduates need nurturing. It wont just be the likes of Lloyds quaking in their boots as they stare at their empty IT department, all businesses may find themselves at a distinct disadvantage unless UK organisations start taking the time to invest in the future of this country’s talent pool.