Industry news

Prediction is one of the pleasures of corporate life. Conversation would wither without it. When the economy is in recession and companies are struggling, many chief information officers (CIOs) turn to the ‘experts’, who make a living either predicting the obvious or forecasting future trends. In recent months, some of these experts have predicted that IT spending is going to decline. Other experts suggest that outsourcing is one of the latest trends to feel the pull of gravity as companies take steps to reverse some of the relentless dis-aggregation of supply chains that has taken place in the past two decades.

What failed was the collective thinking of those in large consulting outfits that specialise in IT-spend forecasting. The obliviousness of these companies to the imminent rise of outsourcing may lead them to search for justifications, one being the rationality of companies researched was too pessimistic, and another that data captured by banal surveys was from managers too far down the line in the decision making process.

There are some other reasons why IT spend forecasters are unlikely to be very good at predicting the future. Because, too much of what happens in the business world depends on the economy, and when the future direction of the economy is uncertain, IT spending remains uncertain and unpredictable. To get it right requires truly experienced people.

So, do we need an expert from an IT-spend forecasting company to tell us that CIOs will have to do more with less, when almost all publicly traded companies are tightening their belts? It is interesting that when the experts say that outsourcing is in decline, and outsourcing service providers are going to be in difficulty, we find that notable outsourcing service providers, such as IBM, TCS and Infosys produce better quarterly results and higher profits and more clients than before.

As the recession starts to bite hard, we see an increased intention among senior executives to outsource, it certainly isn’t in decline as the experts predicted. This is driven partly by cost imperatives, but mainly by shortages of talent in home markets and the growing availability of skills in countries such as India and China. However, the dis-aggregation of the supply chain must be weighed against the challenges of finding suitable suppliers, recognising operational and structural risks involved, identifying suitable locations, and managing operations that are increasingly far-flung and disparate.

Outsourcing is no longer a blunt cost cutting tool. Instead, it has become a strategic move – yet many CEOs remain unprepared. In the current recession, many companies have no option but to consider outsourcing as a strategic imperative, if they wish to come out of the recession faster than their competitors. However, outsourcing initiatives that have cost savings as the only reason simply do not allow companies to capture greater value from the market. This is because such companies do not commit themselves to the organisational changes that are necessary for outsourcing to help them. In addition, when outsourcing is only about cutting costs, businesses are reluctant to outsource complex processes, even though doing so will have a bigger impact on their performance and bottom lines. However, when companies begin with the real passion to create strategic advantage through modern ways of outsourcing, they commit themselves to transferring complex processes early. Companies would do well to remember that the manner in which they start their outsourcing initiatives will determine how they will end.

Prior to the current recession outsourcing activities were driven by the suppliers. Companies outsourced their business functions and other IT activities in an ad-hoc manner to cut costs and re-engineer balance sheets. They underestimated the upfront planning, internal capabilities and ongoing governance required. What’s more, they also ignored organisational changes needed to capture the increased flexibility and the ability to scale up or down rapidly to respond to new business needs, such as the current recession. These are the companies, who have found the promised cost savings illusive and may consider bringing back outsourced functions in-house. Companies that outsourced in a methodical manner to make their companies lean and lasting - making their value chains more elastic and their organisations more agile - will have had the positive experience required to empower them to make outsourcing an imperative part of their business.

The reality is that many CIOs rely on the ‘experts’ - whose predictions are, worryingly, mostly inaccurate. What can CEOs and CIOs do to spot the real experts from their pretenders? Here are some clues:-

· When looking for advice, go to boutique firms with a small number of highly experienced staff; it’s quality, not quantity that counts.

· A real expert will have experience, perhaps having worked as a CIO, CEO or board member of prominent publicly traded companies;

· Real experts always take an independent and fact-based view and bring their experience and judgment to formulate future trends;

· A real expert brings facts, as these provide clarity and objectivity in decision-making.

· Real experts say things in black and white, even if it is an uncomfortable truth.

· Real experts work directly with CEOs, CIOs and senior board members, which allows them to better understand what trends are around the corner.

The U.S. Air Force's Air Mobility Command (AMC) has signed a contract with CSC to provide applications infrastructure and systems support services. The contract has a one-year base period and three one-year options, bringing the estimated total four-year value to $50 million.

CSC has supported AMC's command and control system for more than 20 years.

As part of the contract CSC will provide IT support to the Advanced Computer Flight Plan, Airlift Service Industrial Fund Integrated Computer System, Commercial Operations Integrated System, Consolidated Air Mobility Planning System, Global Air Transportation Execution System, Worldwide Port System, Global Command and Control System and Global Decision Support System.

Davis Langdon LLP, a global construction consultancy, will have their IT infrastructure and IT services for over 2000 staff across Europe and the Middle East, managed by Fujitsu.

As part of the contract, Fujitsu will provide a service desk, applications and infrastructure support, desktop managed services, network management and the provision of storage and computer capacity.

Neil Ashton, Head of Procurement and Supplier Management for Davis Langdon, said, “The RFI we issued in the spring had a number of challenging requirements and throughout the tender process, Fujitsu showed us that it could meet all of these demands.”

Chris Robinson, CIO and Head of Technology, Property and Procurement EME at Davis Langdon, continued, “Fujitsu was able to demonstrate numerous examples of where it has the same values towards service and it’s people as we do. This, coupled with the operational model put forward by Fujitsu, showed us that it understood and could align itself with our culture”.

The U.S. Department of Agriculture provides leadership on food, agriculture, natural resources and related issue.

The security contract has a one-year base period, four one-year options and an estimated maximum total value of $30 million for all six firms.

Under the terms of the agreement, CSC will compete to assist the U.S. Department of Agriculture in implementing new cyber security measures to ensure the protection and security of its networks, applications and hardware. These measures will include identifying security vulnerabilities, responding to attacks against agency resources and implementing corrective action accordingly.

ADEC Solutions, a leading global BPO services provider, has launched a sister company: FirstCarbon - the first company to deliver an end-to-end outsourced solution to carbon data management.

FirstCarbon aims to quickly establish itself as the market leader in the collection, management and reporting of performance-related, environmental data, helping UK companies with their carbon reduction strategies.

The new company is positioning itself as a solution for companies facing 2010 Carbon Reduction Commitment (CRC) regulations. This follows a recent report issued by Business in the Community revealing that two-thirds of firms are unaware of their responsibilities pertaining to the CRC regulations and damning the Government’s awareness campaign.

Jim Donovan, CEO of FirstCarbon, commented: “It’s clear many UK companies are far behind schedule with their preparations to meet CRC regulations. This is no doubt because it is very labour-intensive and administrative for companies to monitor and measure emissions-related information. Thanks to the launch of FirstCarbon, companies can now outsource this onerous and time-consuming data collection process and get on with focusing on their core business, safe in the knowledge that their own carbon footprint is being looked after”.

This morning, the BBC is reporting that swine flu deaths are on the rise in India. Over the weekend, three people died of the disease, followed by a further two in the early hours of today. A further six patients are reported to be in a serious condition in the western city of Pune, a major hub for outsourcing.

It's too early to say what the full impact of the pandemic might be on the Indian outsourcing industry, but it seems possible that the costs could be considerable, in both economic and human terms. The BBC's Soutik Biswas in Delhi has said this morning that, although the number of swine flu deaths in India is still low, there are concerns over the ability of badly-run and under-equipped government hospitals to handle a rising tide of patients. Plus, the 12 swine flu testing centres in India will not be sufficient if the number of cases rises sharply, he adds.

In light of this sad news, it seems a good opportunity to describe how one outsourcing provider, based in Mexico, has been coping with swine flu since the initial outbreak hit the country in April this year.

That company is Softtek and its approach to dealing with the spread of the H1N1 virus has been squarely based on using remote working technology to enable a large proportion of its staff in badly hit areas to work from home.

In Mexico, for example, the April outbreak meant that many companies shut down their operations for five days, according to Softtek vice president of marketing and communications, Alejandro Camino. But during this time, he says, all four of Softtek's Global Deliver Centers (GDCs) in Mexico - in Aguascalientes, Ensenada, Mexico City and Monterrey - remained operational, through use of a remote work infrastructure that allowed between 50 percent and 80 percent of Softtek staff at these GDCs to work from home. That infrastructure included web conferencing software; virtualisation of client/server-based applications; Microsoft Sharepoint Portal Server for document and file-sharing; a blog for communications with clients and a Twitter stream to keep internal staff "in the loop". As a result, Softtek was able to deliver on 100% of its contractual commitments during this difficult period.

Since then, Softtek has been applying the swine flu experiences garnered in Mexico to its operations in other regions, says Camino. “Probably the place where we are facing the biggest challenges right now is in Argentina," he told me last week. Because it's currently winter there, the virus has spread significantly in the southern cone of Latin America. The situation for Softtek is different in that country, because over 80% of the clients served by its GDC in La Plata (60km west of Buenos Aires) are domestic, meaning that "the concentration of large groups of people is an issue that we have to address jointly with our clients, at their own premises, rather than just Softtek taking unilateral measures."

Still, despite operating in some of the most swine flu affected areas of the world, the company has had only one case of an employee testing positive to H1N1. "This was in Santiago in Chile. He was treated with retro-viral medications and is fully recovered," Camino reports.

To me, the Softtek example offers important insights to other firms on the need to be prepared for swine flu. In the UK, for example, children and young people (who so far have proved more susceptible to the virus than others) will soon be returning to school and college, and the weather will be getting colder, prompting speculation that the country could see a second, more virulent 'wave' of the virus.

That could hit businesses hard. Economists at Ernst & Young recently predicted that swine flu could reduce 2009 GDP (gross domestic product) in the UK by 3 percent and that companies need to have a strategy for dealing with it. Next year, they say, the economy could see a further 1.9 percent knocked off GDP, "just as it could have been starting to recover from the credit crunch." They advise companies to make sure staff can work from home and make full use of technologies that facilitate remote working, such as video conferencing and collaboration packages. Hopefully, outsourcing providers around the world, as well as their customers, will heed those words of advice.

Cast your minds back a few years and think about which geographical locations were considered service providing power houses. India, UK and the US were the big three, collectively making up a huge chunk of the global services market. Fast forward to present times and the service landscape could not be more different.

Countries previously only realistically able to trade within the agricultural, apparel or manufacturing markets are now finding themselves on a level playing field with the big service boys. So which destinations are causing the change in landscape? In true Columbus-esque fashion sourcingfocus.com sets sail to navigate the ‘New World’ of BPO.

The BPO market has slowed down, as Alistair Maughan, partner at legal firm Morrison and Foerster points out, “ The BPO market has been much quieter than the ITO market recently. IT outsourcing gives immediate payback where as BPO has a longer ROI time and requires more investment.”

Despite a slow market, there are still a variety of upcoming locations hungry for a piece of that BPO pie.

First stop, Asia. This continent has been the epicenter for outsourcing. India, is of course the region that instantly springs to mind when people think of call centers, IT support or back office processes. In fact, for a while it seemed that so much of the outsourcing market was heading to India, it was hard to see anyone else really making headway in that space. However, times have changed.

Clive Longbottom, Service Director for Business Processes Facilitation at Quocirca, has highlighted a lot of to and fro in the Asian BPO market, “The Philippines has become really massive again for BPO. It was essentially dead as American companies pulled out of Manila because prices rose and quality went down. Organisations moved their operations to India, however as that market matured the same happened; prices went high and quality came down, so the Philippines became an attractive destination again.”

It’s not just the Philippines that has been making headway in the offshore market. Some of India’s closest neighborus have been quietly readying themselves for a push into specific service sectors. Mr Longbottom highlights Sri Lanka as being one of the key destinations to keep an eye on for finance and accounting services. Boasting the largest amount of CIMA qualified graduates outside the UK, as well as stringent data protection laws, the Asian ‘tear drop’ is set to be a key player in a niche market.

Looking closer to home, Eastern Europe is fast becoming a key destination for companies looking to keep closer tabs on their outsourced processes. Mr Maughan, highlights Romania and the Czech Republic as key areas, “Romania and the Czech Republic have done particularly well within the outsourcing world. Romania in particular offers a very attractive pan European solution, with good language capabilities.”

However, as Mr Longbottom points out, some of the previously socialist countries, which have recently converted to capitalist ways, are finding themselves in hot water. The recession has meant that capitalist converts have found themselves without the necessary cash to invest in infrastructure vital to BPO success.

The recession has also forced some destinations to adjust their place on the value ladder. Ireland was a location that quickly hoisted itself out from offering lower level services and positioned itself as a nearshore destination for high level BPO and IT. Knowledge process outsourcing and product development were the markets which Emerald Isle service providers felt were right for them.

These areas of outsourcing traditionally come with a high price tag and high price tags are traditionally something which companies refuse to work with during difficult financial times. So we may see Irish providers slip down the value chain, lower their prices and return to their roots.

Although there is a positive burst of activity from previously inactive destinations (Kenya, Malta and ,less prominently, Turkey) we are finding the same big vendors leading the field in the majority of these new locations. In fact, in a bid to stay competitive, vendors such as TCS, IBM and Infosys are setting up shop in these emerging destinations and taking the cream of the crop from the labour pool. As Mr Maughan highlights, a Romanian IT graduate would be crazy not to start his career with IBM in favor of working for a startup.

So, despite an exciting new landscape to explore, end users are essentially dealing with the same bunch of people. The difference is that now a potential outsourcer can make a demand for processes to stay within a certain geographical region around the globe, regardless of whether they are dealing with a big Indian or American vendor.

There are those who have managed to carve a name for themselves within this competitive market. KenCall, a Kenyan based service provider was particularly praised by Mr Longbottom as being a ‘shining beacon’ in the Kenyan BPO market. There is potential for start ups to gain a foot hold in the industry, they just need to establish a niche, employ best practice and ensure high quality for a reasonable price – no easy task.

All in all, we have got an exciting, competitive landscape within BPO. End users should always look to follow good practice when choosing a location and supplier. The old rules apply: don’t base your judgment solely on cost, get references and make sure you know what process you are outsourcing and which location/supplier is the best at delivering that process.

S-OIL Corporation (S-OIL), the third largest oil company in South Korea, hopes to yield significant savings through its IT outsourcing agreement with IBM. As a result of the contract S-OIL will reduce its investment in IT infrastructure and in-house maintenance services.

The agreement will see IBM supporting S-OIL in the key business areas including application operation and management, server, storage and network operation services, user support services, and disaster recovery services.

No financial details were released.

NEWS FLASH – companies are outsourcing their IT processes because they don’t posses the technical skills in-house. This is not something the Round-Up has woken up this morning and decided. It is actually the result of a report titled "State of the Outsourcing Industry in Mid-2009: Activity to Resume with a More Cautious and Global Focus" conducted by the AMR Research Inc.

The survey was conducted in May and June with 700 companies and the results broken out by enterprise and midmarket firms. AMR defined midmarket as companies with $750 million to $3 billion in revenue. The report concluded that IT outsourcing trends among midmarket companies in 2009 shows that outsourcing activities will increase over the next six to eight months, particularly in the areas of application development, hosting and IT infrastructure.

Another report that surfaced this week was the 5th annual report by the Duke Offshoring Research Networks. It is a collaborative report between the Conference Board and the Duke University Centre for International Business Education and Research.

The good news is that it returned positive results for offshoring practises this week. According to the report, offshoring strategy for U.S. businesses has more than doubled over the last 3 years. Small to medium enterprises emerged as particularly capable of discovering original locations for offshoring activities and were also noted as more adept in their use of the internet and web based cooperation technologies. So much for President Obama’s crack down on offshoring!

While the report did note employee turnover and the depletion of managerial control as possible risks of offshoring, Tom Heijam, one of the authors of the report, was keen to highlight the general benefits offshoring could provide to companies. He particularly cited “cost savings” and “the meeting of target service levels” as some of the benefits offshoring practises offered. It seems our boys and girls in those offshore destinations are doing their companies proud with meeting service level agreements.

The Round-Up couldn’t finish without the mention of one of the big players this week. Wipro Technologies has won a contract with BJ’s Wholesale Club Inc.

Wipro’s data centre in Nebraska will provide support to the wholesaler who insists the move will not be detrimental to the quality expected by its customers. BJ’s CIO, John Polizzi, was keen to point out the contract will allow BJ’s to adapt to change “without sacrificing quality.”

So to round up the Round-Up; ITO is on the up, offshoring is rising in the U.S. despite Obama’s best efforts and there is no stopping the high rollers from winning those big contracts. Phew, all of that in a week. I wonder what the Round-Up will come across next week…

Southend-on-Sea Borough Council has signed a three year contract with Civica, a software-based solutions company, to implement electronic document management (EDM) and workflow technology. The organisation-wide project is hoped to save £15 million over the next three years.

Perceived benefits of the contract include: reducing administration costs; saving physical storage space; and delivering a tangible return on investment of £1 million by April 2011.

The technology is already in the pilot phase across three departments at Southend-on-Sea that are particularly paperwork-heavy. The pilot will end in September 2009 and if successful, it will be implemented across the organisation in December 2009, to be completed by April 2011. The phased programme will eventually cover 20 service areas and more than 2,500 staff.

Martin Hone, Head of Finance and Resources, Southend-on-Sea Borough Council said: “As an organisation, Southend-on-Sea Borough Council is determined to reduce costs, increase efficiency and deliver an improved service to citizens. We initiated a transformation programme in January 2009 and Civica’s EDM and workflow technology will greatly improve administrative processes, allowing us to provide citizens with a faster service while cutting back paperwork and enhancing flexible working options for our staff.”