Industry news

TPI, the largest sourcing data and advisory firm in the world has released a new report entitled ‘TPI Momentum 2009 Market Trends & Insights Vertical Industries’ The report presents a comprehensive look at outsourcing activity in 26 key sectors of the US economy.

The sectors covered in the report correspond with the widely used Forbes categories. For each vertical, the report documents information on 20 different IT outsourcing (ITO) and business process outsourcing (BPO) functions and provides analysis gleaned from the TPI experience of providing expert advisory services in more than 3,000 transactions. Within and across these segments, it shows how client buying patterns have shifted over time, by region, scope and service provider.

"With our global footprint and 360-degree view of the outsourcing industry, TPI is offering objective and concise intelligence that isn't available anywhere else," said Melany Williams, Partner and Managing Director, TPI Momentum. "This report will help all participants in the sourcing industry to uncover pockets of opportunity and align business development efforts with real-world market demand. If you're trying to decide where to focus your sales resources, you need this report."

Among the key findings were:

• Of the 26 industries studied, nine are identified as being strong verticals for prospecting activities. Among these, the Media industry has recently seen strong adoption of outsourcing among mid-market companies as well as increasing spending levels among companies with active ITO / BPO contracts. This recent increase in outsourcing activity is likely to continue as Media companies face significant market pressure and seek opportunities for short-term cost savings.

• In terms of the number of companies represented, the Aerospace & Defense sector is the smallest of the 26 industries classified by Forbes, yet it remains a strong market for outsourcing. In fact, 68 percent of the companies within this space have an active outsourcing contract with a total contract value (TCV) of $25 million or more -- the highest percentage of all verticals studied. Outsourcing activity is likely to be affected in the coming months due to a variety of changes in the sector including acquisition reform, an expected labour shortage and forecasted 2010 U.S. government budget cuts.

• TPI has observed that the larger companies in the Consumer Durables space tend to be experienced outsourcers. Because these companies have been hit particularly hard by the reduction in consumer spending, they are likely to seek outsourcing opportunities in areas they have not strongly considered in the past. When making outsourcing decisions, TPI has observed that Consumer Durables companies are increasingly focused on the long-term financial viability of the service providers considered, adding another layer of complexity to the selling process.

Xerox Corporation, the worlds largest printing company, has signed an IT outsourcing agreement with CSC, the US outsourcer. The contract, which has a seven-year base period, is valued in excess of US $100 million.

Under the terms of the agreement, CSC will provide mainframe processing and application support to Xerox’s North American business. Work will be performed by CSC’s Global Outsourcing Services at various locations across the globe utilising the company’s ‘World Sourcing’ delivery centers.

“Xerox’s selection of CSC speaks to their expertise and experience in managing critical components of IT services,” said John McDermott, chief information officer, Xerox Corporation.

Munich Re, one of the world’s leading re-insurance companies, has signed a new five-year IT outsourcing contract with Atos. Under the contract, worth over £13 million, Atos Origin will develop and manage all IT applications and systems for Munich Re’s UK businesses.

The decision to appoint Atos Origin forms part of Munich Re’s IT strategy in the UK to strengthen its client services and more cost effectively manage its risk by standardising IT systems and policies. The new contract will replace a number of existing contracts.

“Atos Origin proposed a simpler and more efficient solution that will enable us to better meet our future business requirements,” said Chris Everson, UK Head of Business Solutions at Munich Re. “The new service from Atos Origin provides us with the flexibility and control that we need to better manage risk, respond faster to changes in the market place and ensure compliance with new regulations.”

Atos Origin will deliver the services from the UK and India. The Atos Origin team in India will focus on applications development and management, while the team in the UK will work closely with Munich Re (UK) to manage testing and design further service improvements.

Capgemini is expanding its presence in Eastern Europe to meet ongoing client demand for outsourcing services with a new centre in Iasi, Romania. The centre will perform first line IT help desk support and business continuity work for Capgemini’s outsourcing unit. The new centre will be modeled on Capgemini’s nearshore centers in Krakow and Katowice, Poland.

Iasi is one of the largest university towns in Romania, offering a qualified pool of talented and skilled employees for Capgemini. The language capabilities of the graduates will help Capgemini to meet continued demand from its European outsourcing clients, supplying staff fluent in French, German, English, Italian and Spanish.

Richard Dicketts, Global Head of Infrastructure Management at Capgemini, commented, “Opening a new outsourcing centre in Romania highlights the ongoing demand for these services, despite the current economic climate, and enables us to continue to help our clients grow, innovate and maintain a sustainable competitive advantage.”

Time Warner Cable Inc, a leading US television company, has extended its existing e-Care contract with Convergys. Time Warner Cable worked with Convergys for over a decade in various lines of business including billing solutions. The company will now extend its agreement in order to create a superior customer experience.

Convergys will work with Time Warner Cable to offer ‘e-Care alternative customer contact channels’ including both email and online chat in both English and Spanish. Through these channels, customers can receive account information and support, digital phone technical support, and answers to queries about billing, browsing, connectivity, and email issues. Along with live agent availability, Time Warner Cable offers a wide range of channels for support of its nearly 15 million customers.

“Time Warner Cable strives to provide its customers with the type of service and care opportunities expected from a digital company like ours and our relationship with Convergys supports our commitment to providing that level of customer care,” commented Time Warner Cable Executive Vice President and Chief Marketing Officer Sam Howe.

Atos Origin has acquired Shanghai Covics Business Solution Ltd, a leading Chinese SAP consultancy integrator. The move marks the first acquisition carried out by Atos Origin in China.

Through the deal Atos Origin hopes to reinforce its capability across SAP systems in China, notably in Beijing, Shanghai and Guangzhou. In addition, it will be able to double the number of its local experienced SAP consultants.

Herbert Leung, CEO Atos Origin in Asia Pacific, said: “The acquisition is no doubt a strategic move to sharpen our competitiveness of delivering SAP implementations complying with the highest SAP quality standards in China. This is also in line with our aim to use our China SAP operations as a major SAP Competency Centre across the Asia-Pacific region.”

After the acquisition, Shanghai Covics will be wholly owned by Atos Origin. Retaining the company name, Shanghai Covics will continue carrying on its business while Atos Origin reviews its operations and synergies during the transition period.

We are currently seeing more interest in innovation from our outsourcing clients here in the UK, although they do not always call it that. In fact, for some people the word innovation may be a word that they choose to avoid. That’s understandable as innovation can sometimes have a ‘bad rep’, especially if associated with gadgets or experiments that don't have business value. The fact is, innovation means different things to different people. However, in the new economy, there is certainly a need for companies of all sizes to differentiate (or ‘innovate’) and it is the CIOs who recognise the ways in which IT can provide that differentiation who are succeeding in the current economic climate. There’s often a pre-conceived misconception that only large organisations with equally large budgets can benefit from innovation programmes. This really isn’t the case. Approaches to innovation can and in fact must be tailored to match the size of the organisation, skills, business strategy and available resources.

At IBM, I lead a team that focuses on collaborative innovation and together, we have created specific innovation programmes (we call these "Value Creation Centres"). The innovation projects that we deliver (which fit easily into outsourcing contracts), range from the tactical to the strategic and from business to technical in focus. For each innovation project, a combined task force from IBM and from the client side is formed from the outset in order to establish a clear innovation management model that defines our joint approach. These programmes have been well received by our customers, but the focus of these has changed in recent months. Right now, a number of customers are interested in a more tactical approach to innovation.

Innovation in business can be defined in many ways and it’s not necessarily about inventing new and complex solutions. Very often there’s a simple answer to a challenge and the innovative approach needed to solve it. It’s important to remember though that innovation is not something that can simply be bought; it is a creative process that needs to be nurtured and managed systematically, using a range of tools and techniques, right through to delivery.

Successful innovation programmes don’t need to be a long-term commitment, they can run for a limited time to address a particularly pressing business need or to match personnel and resource availability. Whether you want to expand your core business, gain entry into new markets or simply become more efficient, an innovation project cannot be ignored.

Amid stories of doom and gloom, it was refreshing to see analyst firm Gartner’s recent report that outsourcing deals in IT are on the up. Companies today are clearly eager to remove the cost of operating IT whilst maintaining service levels. Moreover, this outlook proves how outsourcers can continue to add value by delivering innovative business processes.

Whilst clients have reaped the rewards of outsourcing traditional IT, very few have managed to realise the benefits of the latest mobile technologies. Mobile email is probably the most common example seen within many businesses today, though the plethora of ‘off-the-shelf’ solutions on the market prevents outsourcers from providing any value in this field.

But there are other fields where off-the-shelf falls flat. More precisely, ‘field services’ workers such as maintenance engineers and delivery drivers who can benefit from mobile IT. Here mobile email is more a hindrance than a help. Can you imagine a courier typing out an individual email to record deliveries to the hundreds of addresses they visit daily?

There are a range of applications such as CRM databases that field workers access but IT departments struggle to ‘mobilise’. This is because IT departments’ experience with mobile technologies is limited, and field applications are more complex. Another challenge is the fact that most field service organisations have unique business processes, which prevent any radical changes taking place. This means technology needs to be designed around the workers, not the other way around.

Adapting highly complex technologies to extremely diverse working cultures is like eating soup with a fork. Nonetheless, there is a desire for mobility within field workforces. In a recent report from Aberdeen Group, 95% of companies said mobility was important to their field service operations.

Unlike previous technology cycles, outsourcers can still make an early impact and lead this new era of business transformation. As I’ve already alluded, most companies lack the experience to build or manage mobile infrastructures. And with a variety of new vendors to co-ordinate, outsourcing these relationships removes any potential management headaches.

During this period of uncertainty, the best path is to scale mobile IT on an as needed basis rather than shoulder up front expenditures in areas such as mobile devices. Outsourcing can again lend itself to this approach by allowing clients to adopt an Opex friendly subscription model.

’Mobile Sourcing’ can add an entirely new dimension to client value, and offer outsourcers better-protected revenues than simply competing at the commodity end of the market for desktop PC services.

Outsourcing end-users are looking increasingly immature in the way they manage their contracts. What justification do I have for this sweeping and stinging appraisal? The new PA Consulting report ‘Outsourcing – what lies beneath’ - that’s what. A quality report, from a respected consultancy, based on reasoned, systematic research – who can argue with that?

Some of the findings are stark and provide a real wake up call for those that have been resting on their laurels where outsourcing deals are concerned. The first and most surprising in the current financial climate, is that 31 percent of respondents were unaware what percentage of their outsourcing spend went into managing suppliers.

The lack of knowledge on outsourcing management spend was also mirrored when respondents were asked about the levels of outsourcing maturity. Only 16 percent assessed themselves as having a mature governance model for their outsourced services. The report is clear, although many companies are now old-hands at outsourcing, the way deals are managed and the amount of focus placed on the management process has not massively progressed.

These stats are worrying when looked at alongside an ongoing industry trend. Multi-sourcing, where multiple suppliers serve different parts of an end-user’s requirements, has been the talk of the industry over the last few years. Gartner’s ongoing research into outsourcing ‘megadeals’ continues to see the overall interest in multisourcing growing. But PA Consulting’s report questions whether end-users know the risks involved in splitting outsourced processes into continually smaller parts.

Jonathan Cooper-Bagnall, Member of PA Consulting’s Management Group, commented, “We are seeing more and more that multisourcing is a developing trend, making integration of services all the more crucial. However, many ‘tier one’ organisations have already had to invest heavily in teams of people to fulfil the integration role, simply through lack of an early identification of the need for service integration.”

There is a clear clash between the industry’s drive towards multisourcing and its overall understanding of what the concept entails. But the somewhat blind trend towards multisourcing is set to continue with 28 percent of respondents in PA’s report planning to split their outsourcing by vertical service over the next five years.

So what is driving this lemming-esque trend? Smaller vendors surely have to take on some of the culpability, after all the larger vendors will continue to push their full managed-service offerings. Multisourcing is attractive for smaller vendors who are generally high in service expertise but lack in-house management resources.

However, by and large, the biggest thing prompting end-users to explore outsourcing are the prospects of cutting costs. 75 percent of respondents said they would use competitive multi-sourcing in an attempt to drive down cost. The aim being to ‘improve competition, maximise supplier skills and expertise and, critically, drive down costs by achieving better contract pricing’.

But this is where the problem lies. A large proportion of respondents were largely unaware of what goes into the management of multiple contracts and consequently are going to have a steep learning curve.

Graham Beck, Senior Sourcing Advisor for PA Consulting, commented, “In a single-source relationship where gaps in integration occur, the supplier will usually step up to the mark. But in a multi-sourced set-up where there are interface problems, no supplier is likely to take up the slack.”

sourcingfocus.com met with the PA Consulting team at the report launch to discuss the issues. The feeling was not that multisourcing is an inherently flawed concept, but that users need to be fully appraised of what’s involved before doing anything. The management extras that full-service suppliers provide, both paid and unpaid, are not easily visible from the outside. If an unprepared end-user decides to jump headlong into multisourcing, these hidden management activities could become all too visible, all too quickly.

As we all know, business process outsourcing (BPO) has taken off in recent years and now we are seeing this form of outsourcing overtaking ITO in growth. The BPO sector has evolved into a vibrant and competitive market and we have seen many new players from all corners of the globe enter the fray. Contact centres are synonymous with BPO and contact centre vendors provide the most customer centric service of the entire outsourcing industry.

As a result, contact centres have a love/hate relationship with the public (more hate than love usually) and end users tend to do as much as they can to hide the fact that they outsource their contact centres (especially if that service is offshored). As the outsourcing industry changes shape and technology advances, contact centre providers are evolving and adjusting their service offering. So, how are contact centres changing? What has technology done for the contact centre industry? And above all, what does all this mean for the millions of customers than engage with contact centres every day? sourcingfocus.com spoke with various industry experts to find out.

Chris Hancock, Managing Director of GasboxDMG, a high tech contact centre service provider believes that there is a “diversity of opinion in the business world on what contact centres can do.” Mr Hancock goes onto highlight that some use contact centres to provide “support in the most cost effective way possible”, this type of cost centric service lends itself to offshoring and is the type of service that first springs to mind when the words call centre are mentioned. However, Mr Hancock also identifies a modern, more sophisticated, contact centre, one which “best develops a relationship with the customer” and in turn can “determine the customers emotional attachment to the organisation.”

The contact centre has certainly evolved from low level outbound sales, such as the famed dinner time double glazer (although he still seems to call). Simon Gresswell, Director of ProtoCall One, believes that contact centres have become more intrinsic to a client’s business, “We are offering more. We are using different media to interact with our customers and we are finding that customers are expecting contact centres to have the information they need.”

Technology has obviously been key in the evolution of the contact centre and vendors are incorporating multi-channel communication into their service offering. As a result, innovative technology such as automated self service or voice recognition are being rolled out and, according to recent research from BT and Nortel, this is not to the detriment of customer service. The study found that 71 percent of US and UK consumers would be happy to receive a call that used voice recognition to inform them that their plane, train or bus will be late while 80 per cent would look favourably on automated calls that informed them of the time of delivery of goods to their homes.

Ruth Rowan, Head of Global Propositions and Marketing, CRM at BT Global Services believes that this form of automation is becoming more accepted, “Automation has been one of the success stories of the last few years. The research looked at 1000 consumers and found that customers were happy to interact [with automated services] where appropriate.”

This was echoed by Mr Gresswell, “ProtoCall One’s SMS offerings tend to be of an outbound nature such as SMS for travel alerts and other useful information.”

Mr Hancock believes that contact centres have become “much more diverse in the way they communicate with people. In the early 90’s it was purely voice-led communication. Now contact centres can use any number of communication channels including web-chat and instant messaging.”

However, despite this automation and plethora of technological advancement one fact remains, when a customer needs something a little more than information, voice wins every time. The BT and Nortel research revealed that 53 percent of UK respondents are happy to check timetables through voice recognition but only 23 per cent felt happy enough to use the same interface for actually purchasing tickets. We may all just want a quick automated service that allows us access basic information fast, but we want to speak to real people when we have anything more serious to address.

Customer service should be the first thing on the boardroom agenda, although it rarely is. But, the cost savings associated with automation are just too good to be ignored. According to Ms. Rowan and the BT/Nortel research it costs £6.50 for an agent to handle a base level inquiry, compare that to £0.70 for an automated interface and you would be pushed to find a financial director who doesn’t leap at the opportunity.

It’s clear that the contact centre has evolved into a more sophisticated offering. But, voice still remains intrinsic to a call centre’s service. SMS, web chat and instant messaging all add to the customer experience however they need to be implemented intelligently to work well. We are still a long way from a voice-free service offering as human contact is simply just too influential on customer satisfaction.