Industry news

The Human Resources Outsourcing Association (HROA) has partnered with TPI, and the Information Services Group Inc. (ISG) to release the 2009 HROA Benchmark. The new report details the current trends and best practices in human resources outsourcing (HRO) and confirms the emergence of industry standards among large-market buyers.

The research examines the use of pricing methodologies, the depth and breadth of outsourced services, and the correlation of service level measurements and target levels with emerging industry standards. The respondents, a cross-industry sample of companies with multi-process HRO agreements in place and at least 15,000 employees, provided detailed information from existing contracts, including invoices, change orders, and statements of work, as well as real-life examples of performance targets and measurements.

Among the report’s findings are:

• Workforce administration, payroll and health & wellness benefits are the most frequently bundled services in a multi-process HRO agreement.

• Compensation is the most frequently included talent management process.

• Full-scale learning and recruitment process outsourcing were the least common processes outsourced.

This focus on core processes was found to align with the market's move to multi-sourcing versus the one-stop shop provider. Additionally, analysis of typical change order spend by process area and type of change proves instructive to companies looking to evaluate or estimate total outsourcing spend. On average, buyers should budget 10-15 percent of base fees for change order costs; however, this percentage varies by process and other factors such as level of M&A activity.

"The HROA Benchmark study provides valuable data to help organizations understand the intricacies of establishing and managing multi-process relationships," said Debora Card, TPI Associate Partner. "TPI was able to identify trends that are shaping this developing field of outsourcing, including analyzing how HRO buyers are handling some of the thorniest issues in these engagements. We think this report is a must-have for anyone looking to implement or improve HRO in their organization."

The study also demonstrates that best practices for effectively establishing and managing HRO relationships are beginning to emerge in the industry. Among the companies studied, a correlation of greater than 75 percent existed between actual experience and the HROA Recommended Practices for both pricing methodologies and service level methodologies and measurements.

"The HROA Benchmark validates that our Recommended Practices are indeed aligned with the experience of companies with large HRO engagements," said Richard Crespin, the HROA's Global Executive Director. "Outsourcing's value derives from the potential to provide repeatable products and services that are outside the core competency of clients. We are committed to helping develop industry standards that help ensure HRO is delivered efficiently and the needs of the client base are met."

TCS will provide onshore and offshore IT support and transformation services for the Volkswagen Group’s operations throughout the UK and across all its brands.

Nick Gaines, Group IS Director, of Volkswagen Group UK, commented, “We have been deeply impressed by the dedication and collaborative approach taken both by the local and India-based teams. This gives me great confidence in the future relationship between our businesses.”

No financial details were released

Neusoft Corporation, the largest offshore software and service outsourcing provider in China, has continued to buck the downturn posting impressive growth in its latest annual report. The company posted profits of RMB 491 million Yuan (approx £47 million) in 2008, an increase of 18.2 percent on 2007. Its revenue increased 10.3 percent to RMB 3.711 billion Yuan (£360 million).

The company credits its growth to strong performance in its two core areas of business - industry solutions and product engineering solutions. A large proportion of its growth is also attributed to international customers through outsourcing. Neusoft has seen steady growth in Japan, Europe, and US markets and grown outsourcing revenues by 29.6 percent (approx £120 million). Outsourcing now contributes 33.9 percent of the company's total revenue.

Commenting on the results, Mr. Wang Yongfeng, President of Neusoft Corporation, said, "In 2009, the domestic and international markets will be full of uncertainties and challenges. Under such a complex business context, Neusoft has made active business strategies to accelerate the progress of globalisation and international markets expansion, consolidate and enhance our predominant position in Japanese market, and further optimise resource allocation in Europe and U.S. markets. Meanwhile, for the domestic market, responding to opportunities brought by China's 4 trillion Yuan stimulus to boost domestic demand, we will pay close attention and follow-up the IT demands from major industries, actively raise market shares, optimise our business model, and input more in product development and service quality based on the premise of continuing increase of our core competitiveness in industry solutions, to maintain steady growth of businesses in the domestic and international markets."

According to analyst firm, Ovum, there will be an increased uptake of IT services in the Philippines, despite the economic downturn, due to various initiatives taken by the Philippines government. The Ovum report titled ‘IT services market in the Philippines: a fledgling ready to take flight’ outlines that the government initiatives to establish a central credit worthiness system, and its investments in the education sector will increase the IT services demand in the country.

Deepika Chaubey, managing analyst at Ovum and author of this research, commented, “While currently Philippines is a small IT services market in revenue terms, less attractive than other South East Asian countries such as Singapore, Vietnam, or Malaysia, it offers good opportunities for vendors focused on the public sector.”

The Philippines government plans to invest in various initiatives involving technology adoption. It is focusing on the development of a central credit worthiness database which includes establishing a central authority for compiling data from financial institutions.

The government is also investing in the education sector and has initiated many technology-based programmes such as the computerisation of all public schools and the adoption of e-learning in the urban areas. Once all the public schools are computerised, the demand for web-based learning platforms, education management systems, assessment and data services, and networking services should increase.

“The various initiatives by the government will provide significant opportunities to IT services vendors in the region, and services such as implementation, integration and security will witnessed increased demand”, added Chaubey.

SAP AG and Cognizant have signed a global services partnership agreement in an effort to streamline their engagement, thereby enabling both companies to respond quickly to the ever-changing needs of their customers.

The agreement was signed at the SAPPHIRE conference by Francisco D’Souza, President and CEO of Cognizant, and Bill McDermott, President of Global Field Operations, SAP AG, and member of the SAP Executive Board.

Cognizant already have a SAP Touchstone Center, set up in 2008 at Cognizant’s facility in Bangalore, India, which is working in coordination with SAP Co-Innovation Labs worldwide. Through this extended relationship Cognizant and SAP plan to expand their global reach.

“This expanded partnership is a testament to our collaborative relationship and an important part of our strategy to expand our ecosystem to drive continued customer success," said Zia Yusuf, Executive Vice President, Global Ecosystem and Partner Group, SAP AG.

With this agreement, Cognizant joins a select group of companies that are a part of the SAP global services partnership program.

On the 29th April, PA Consulting announced the results of its International IT Outsourcing Survey 2009 – research into the opinions, predictions and aspirations of large-scale enterprises across the UK, Europe and the US.

It was practically a given that the biggest item on the agenda was the immediate goal of cost reduction, but there were important underlying themes that were derived directly from it.

Many organisations believe that multi-sourcing is one of the key ‘tools’ to achieve cost reduction. With more suppliers, it is often possible to obtain a lower cost for a specific service. But with more suppliers often comes a lack of integration. Where a single supplier would theoretically perform all the roles in a cohesive fashion, multiple suppliers perform their roles in isolation, placing a large administrative burden of engineering a unified and consistent collaboration on the client organisation. Multi-sourcing is by no means a negative tactic, but it does carry a health warning. If the time, effort and resource are not dedicated to the integration and management of the individual suppliers, when many organisations struggle with just one supplier, the cost savings are soon lost and the inherent risks increased.

Related to this, many organisations still do not understand the importance of relationship management. While integrating all the suppliers is vital, so is the administration of the individual suppliers. In a climate of cutting costs, renegotiation often takes centre stage and there is more scrutiny over performance clauses. There is of course nothing wrong with examining achievements against targets, but cultivating a close relationship where demands, processes and needs are fully understood, by both parties, will typically engender a better outcome than just slashing the monthly fee.

Lastly, innovation is often referred to within outsourcing contracts, but is equally often buried and lost in the negotiations over hard costs. However, starting and encouraging a dialogue on innovation rather than being preoccupied with shaving a percent or two off the contract price is far more constructive. The overall cost benefits will be greater, more sustainable and could actually result in the client company becoming more competitive in its market.

Cutting costs rapidly is a great short term solution, and will result in excellent internal PR for the department involved, but it will inevitably make the contract more adversarial, less sustainable and will damage the overall performance. While suppliers are putting more effort and time into their account management as a reaction to the economy, now is the perfect time for organisations to improve the long term return on investment of outsourcing by targeting innovation as a key goal rather than a nice-to-have and focussing on the importance of improving supplier relationships to help ensure that the business outcomes required are achieved.

Of course the contract is important but it is important to understand the internal capability of the organisation and what can be achieved by working more closely with the supplier. This balanced approach is much more likely to result in both short and long term success.

First, let me start by saying how delighted I am to have been appointed Editor at Sourcingfocus.com and given the chance to contribute to such a vibrant community. Over the coming weeks, I will be looking to that community to steer me in the right direction, so if there are particular issues you would like see covered, please drop me a line at editor@sourcingfocus.com

In considering how to tackle my first blog as Editor, one story from last week leapt out at me. It's a report from advisory firm Roland Berger Strategy Consultants that boldly claims that as many as a third of UK jobs at multinationals will be "shipped abroad" by 2015.

That prediction is based on a survey of senior executives at 200 UK-based multinationals and would appear to spell particularly bad news for IT professionals. Among those companies polled, the IT function is earmarked as the most suitable function to offshore, with 68 per cent of the respondents confirming that they are thinking about such a move. IT was followed by customer service (64 per cent), research and development (61 per cent) and sales management (59 per cent). 

“This trend towards offshoring is markedly different from the international outsourcing we have seen to date, with both knowledge economy jobs and core business functions now being exported to economies that are more competitive in the global environment,” said David Stern, Roland Berger's UK managing partner. “These [jobs] are unlikely to return once the economy picks up, a trend that threatens a permanent rise in UK unemployment, leading to falling revenues and ultimately a decline in GDP."

That's pretty strong stuff and it got me thinking: aren't we constantly told that the UK faces a major skills gap when it comes to IT? According to sector skills body E-skills UK, around 14,000 vacancies a year need to be filled across the IT profession, yet UK universities churn out just 12,000 computer science graduates annually. And in a survey conducted last year by recruitment company The IT Job Board, around a fifth of UK companies looking to recruit IT staff say they find it difficult to attract applicants with the right skills. 

To me, this suggests that, when it comes to IT, it's not really a case of shipping jobs abroad in order to drive down costs. While that might be true in some cases, many UK companies are simply widening the net in their search for the expertise they need to keep vital IT systems up and running. It clearly makes sense for them to look to countries where a career in IT is a highly prized aspirational goal for young people and where the latest skills can be found in abundance, unhindered by the problems of a rapidly ageing workforce seen in European economies. 

It also strikes me that when a company decides to use software-as-a-service (Saas) applications from salesforce.com and the like, we don't see the nearly the same fuss. Yet the implications of this model of computing are often much the same as offshoring, putting systems management and software development jobs in the hands of third-party providers, often overseas.

The fact is that today's CIOs aren't just under pressure to cut costs - they're also expected to invest in innovative new projects that will give their organisations a competitive edge when economic conditions improve. And if the talent and skills to help them do that aren't available at home, doesn't it make perfect sense for them to look abroad? I'm all for keeping jobs local where it makes good business sense, but when it comes to IT, we need to 'mind the gap'. UK businesses cannot rely on local skills alone in order to compete.

The US Army has awarded CSC a task order to provide systems engineering, technical and program support for the Project Manager, Defense Communications and Army Transmission Systems (PM DCATS). PM DCATS provides the Department of Defense with communications transmission systems such as satellite, wireless, fiber optic and microwave.

Under the terms of the task order, CSC will provide a broad range of support services, including project and technical management; research, design and development; systems engineering; and training. CSC will support a range of PM DCATS projects at various locations worldwide, such as the United States, Iraq, Afghanistan, Kuwait, Germany and Korea.

The task order will run for three years and has a value of $226 million.

Starbucks, the largest coffee retailer in the world, has signed a CRM contract with Convergys Corporation. The deal is a two-year extension of an existing contract.

The new deal was signed in response to its internal contact centre’s inability to provide cost-effective and efficient facilities for North American stores.

Convergys and Starbucks have worked to develop a powerful facilities support tool to track every piece of equipment in each company-owned facility, follow repair orders, and support invoicing from approximately 1,300 service providers. The companies also collaborated on the development of specialised training to help Convergys agents provide contact centre services for facilities support. Convergys agents now assist Starbucks retail employees in complex troubleshooting and equipment repair, as well as in identifying appropriate service vendors, issuing repair orders, and tracking repair work.

“Transferring an essential management function like contact centre services for facilities support to Convergys was a first for Starbucks,” said Badger Godwin, vice president, Store Development – Global Real Estate & Facilities for Starbucks. “Our decision has been more than validated, with Convergys proving to be a true, collaborative partner to Starbucks. We have worked together on agent training, scaling to meet our growth, and the creation of software tools to drive cost savings and improve the efficiency of our facilities support operation.”

Landis+Gyr, a provider of integrated energy management solutions, has awarded Unisys Switzerland a five-year multi-million dollar extension to its IT outsourcing contract.

Building on the existing relationship, Unisys will continue to provide end-user support and data centre services, SAP solution management and a range of additional IT services to more than 5,000 Landis+Gyr employees. Unisys will deliver the services from its global services centres, as well as on-site.

“The difficult global economic situation has reinforced how important it is to have long-term partners who add value to the business,” said Dieter Hecht, Executive Vice President & Chief Procurement Officer at Landis+Gyr. ”Our decision to renew our contract with Unisys is based on the quality of the company’s services and the return on our investment they provide. With Unisys driving forward the implementation of our global IT strategy, Landis+Gyr can respond effectively to the business challenges we face now and in the future.”

The services provided by Unisys under the contract extension include, round-the-clock system management and SAP operations, virtualisation and consolidation of IT technologies and international service desk outsourcing.