http://www.sourcingfocus.com/index.php/site/newsanalysis en morgan@sourcingfocus.com Copyright 2009 2009-11-13T13:31:00+00:00 http://www.sourcingfocus.com/index.php/site/newsanalysisitem/public_sector_sourcing_success/ http://www.sourcingfocus.com/index.php/site/newsanalysisitem/public_sector_sourcing_success/#When:12:31:00Z Public sector outsourcing has been a much spoken about issue of late. It has been widely reported that 2010 will see government agencies needing to follow the private sector’s example and use outsourcing to both cut costs and better deliver the services the public expects. However, a report this week from Deloitte has questioned local councils’ ability to manage IT outsourcing contracts effectively. The research also claims that councils’ mega-outsourcing days are numbered. So where are councils’ going wrong and why does this mean the demise of large IT outsourcing deals? Interest in public sector outsourcing has piqued recently for numerous reasons. A perfect budget-squeezing storm seems to be encircling the sector and outsourcing and even offshoring look to be vital solutions. One of the biggest drivers has been the recession which has sparked a wave of prudency in the sector. The government’s huge debts from the banking bailout mean there are harsh budget cuts to come, whether Tory or Labour. Increasingly it seems, government agencies will be looking towards outsourcing as a method of maintaining services whilst cutting costs. Bringing in outside skills will also be an important factor in increased adoption. But it is lack of skill in outsourcing itself that Deloitte is looking at. The Deloitte report, ‘Taking Control of IT’, which is based on Deloitte’s experience of advising local councils, explains that local council IT departments’ have a tendency to outsource problematic technical functions which results in their outsourcing projects rarely being successful. Costi Perricos, author of the report, observes that councils have for “too long” viewed IT as a “black art that is better performed by external contractors”. The report emphasises that local councils need to change their overall approach to IT rather than hoping outsourcers can step in and solve all their technical problems. To those of us in the outsourcing industry this appears commonsensical in its essence. Greg Jones, Senior IT Sourcing Advsior, PA Consulting Group agrees that the report highlights an “oft-repeated mantra in the sourcing industry” which is that a company, public or private, should never outsource a problem. Jones explains that this is one of the most fundamental pieces of guidance that can be given. More accurately, he says, it should perhaps be read as “don’t outsource a problem you don’t understand.” However, Jones does not think this will spell the end for large ITO deals. He says all that is required is “a change of attitude and renewed emphasis on the business leading the transformation, and appreciating precisely why the deal is being pursued and what deliverables are being looked for.” This is not, however, a belief held by all in the outsourcing industry. Alistair Maughan, Partner at Morrison Foerster LLP, on the other hand anticipates that megadeals are generally coming to an end. He explains that there has been “much more focus on multisourcing and best-of-breed outsourcing projects.” He describes that outsourcing is a casualty of the recession with the typical outsourcing deal being “more about cost saving and surviving the recession than about strategic positioning.” Controversially Anwen Robinson, managing director of ERP software firm Agresso, thinks that local councils have been duped buy some outsourcing providers. He laments; “unfortunately many external consultants have seen local government as a bit of a cash cow and have delivered unwieldy, often unsuitable systems which subsequently demanded expensive support contracts to make necessary changes. You have to question whether or not they had the best interests of the customer at heart.” Although the Deloitte research has opened a can of worms when considering local councils and IT outsourcing, it by no means predicts the end of public sector outsourcing. It outlines that outsourcing still has the potential to “lower operational costs” and bring in much-needed “expertise and capacity to transform”. Local councils’ must remember that building an effective corporate IT capability is not the job of the outsourcer. Outsourcers provide a skill but the management of that contract needs to be kept within the council. Local authorities need to provide “vital input from its service areas into defining, training and testing systems” insists the report. The report has highlighted an important bugbear in public sector outsourcing. Outsourcing can be effective but only if it is not seen as the answer to all problems. Public sector bodies clearly need a new approach to outsourcing for 2010 and beyond. Only by acknowledging the mistakes of the past and working to understand how outsourcing can be, and has to be, a big part of the public sector going forward. 2009-11-13T12:31:00+00:00 http://www.sourcingfocus.com/index.php/site/newsanalysisitem/source_aid/ http://www.sourcingfocus.com/index.php/site/newsanalysisitem/source_aid/#When:15:23:00Z This week Time Magazine online published an article that asked ‘Could the information economy help narrow the gap between the rich and the poor?’ Apparently this is the implication of a new study which appeared in the journal Science. The research is a collection of data from 21 populations in order to look at how wealth gets trapped within certain families. An interesting conclusion resulted from this study. As wealth shifts from material goods like factories to intangibles like social networks and the ability to innovate, there’s more of an opportunity for a person who is born poor to work their way up and penetrate the once elite word of the rich. Similarly, someone who is born rich can just as easily lose their place in the economic food chain. For me, this study has a clear tie with the outsourcing industry, in particular offshoring. After all, the very nature of offshoring is the participation in the global economy by less developed countries. Information technology has resulted in gloabalisation which has facilitated the redundancy of time and space barriers. As such, relatively undeveloped counties are not as marginalized as they once where and can, sorry excuse me, and are supplying services to the once infallible developed nations. Farhan Mirza, Partner, AT Kearney, the global management consulting firm, agrees explaining: ‘the IT industry has in many ways been a great leveler to put many emerging economies on the map and give them a leg-up.’ He continues ‘the intangible nature of most IT services has enabled ‘location’ to be less of an issue, opening up this potential.’ Miraz says that by looking at foreign direct investment as well as IT exports from low cost countries, you can see significant growth over the last decade; ‘the availability of skilled IT labour, and attractive IT services from these geographies has qualified them on to the buyers shortlist.’ In essence IT has had a major role to play in making equality a reality. However, this news analysis is in no way claiming that global equality will ever be a reality. This an extreamly complex issue that one can not claim to know the answer to. There is also an insurmountable sum of arguments that support the notion that outsourcing/offshoring works to keep the economically stable countries in their authoritative position and the less developed counties in there place, dragging behind, never able to fully compete. This argument is formed through the actuality of offshoring being the consumption of cheap labour from poorer countries. Nonetheless, this argument is highlighting a problem without a solution. One can pontificate for generations about the exploitation of poor counties and how to bring them on par with the developed world. This pontification has been, I believe, a crime the developing world has been guilty of for far too long. Studies have proven that charity does not necessarily work. On the other hand India, which is famously one of the most prolific outsource providers in the world, has experienced robust economic growth. Countless studies have attributed this to globalization and liberalization of the Indian economy. This denotes that India’s participation in the global economy has had a positive impact on the country. Where charity has failed, economic participation seems to have prevailed. Outsourcing is not infallible in its approach nor is it the answer to social inequalities. It does however seem that it may be a step in the right direction when looking at global inequalities. A brave statement to make, I hear you gasp. A writer can only comment on the evidence that has been put before them. 2009-11-06T15:23:00+00:00 http://www.sourcingfocus.com/index.php/site/newsanalysisitem/the_wipro_effect/ http://www.sourcingfocus.com/index.php/site/newsanalysisitem/the_wipro_effect/#When:15:06:00Z Wipro released its revenue results for the second quarter last week. Perhaps not surprisingly it reported that its IT services revenue in U.S. dollar terms had declined by four percent to US$1.1 billion in the quarter against the same quarter last year. It also revealed that the company’s IT services revenue in Indian Rupees for the quarter was higher by five percent from revenue in the same quarter a year ago, because of exchange rate gains. These gains will have an obvious negative effect on offshoring contracts to the country. If one of India’s largest outsourcing providers is experiencing a plunge in revenues, what indication does this have for the omnipotent Indian outsourcing industry as a whole?  It is not only the fate of Wipro that has experienced ramifications from the all-consuming economic depression. Tata Consultancy Services, India’s largest outsourcer reported earlier this month a fall in revenue. Similarly, Infosys Technologies, India’s second largest outsourcer, reported a decline in revenue. It seems it is a fruitless pursuit when trying to avoid the recession’s unavoidable hold, even in an industry that’s primary focus is to cut costs and increase efficiency. Ironically it was the spectacular end of the dotcom boom which resulted in the rise of offshoring IT services to lower-cost destinations. Dr Roger Newman, European vice president, Mahindra Satayam concurred; ‘This gave real impetus to the Offshoring boom’. This recession, however, is not treating the offshoring industry so kindly. David Skinner, a London partner at Morrison & Foerster’s Global Sourcing group explained that ‘Indian providers have suffered an offshoring backlash from the USA and UK because some companies do not want to be seen to be exporting US/UK jobs to India’. He also highlighted the Satyam scandal as contributing to the negative view held by the West about offshoring. The apparent decline in offshoring processes to India has also resulted in the emergence of new sourcing trends. Converged solutions specialist, Intrinsic Technology Ltd (ITL), has seen a 40 percent increase in companies choosing to implement permanent home-working for employees. Dave Griffiths, head of the ITL Unified Communications Business Unit, commented on this trend: “Many businesses looking to avoid large overheads and promote green credentials are turning to homeshoring instead of offshore outsourcing as it offers improved manageability.” All though it seems that all of this doom and gloom is contributing to similar negative predictions about Indian outsourcing circulating the press, there is still a glimmer of hope. Technology Partners International (TPI), an outsourcing consultancy, reported earlier this month that there is pent-up demand in the global outsourcing market that has been deferring decisions in the economic recession. Providentially, TPI expects that the market will begin to improve over the next six to nine months. Skinner agreed with positive predictions explaining that ‘in ITO, India remains very highly skilled and well priced and so deals continue to be won there’. He continued, ‘Indian companies are also winning more Indian local work and trying to expand their operations in other countries such as China’. It does look as though the economic downturn has had an unavoidable negative effect on the Indian outsourcing industry. It has also resulted in the diversification of the industry and its offshorings. However, although change is inevitable, the pessimism that has plagued the giants of Indian outsourcing’s revenues will be short lived. The Wipro effect is just a spot in a vast ocean, an ocean that is gaining scope and depth. 2009-10-30T15:06:00+00:00 http://www.sourcingfocus.com/index.php/site/newsanalysisitem/where_did_all_the_grads_go/ http://www.sourcingfocus.com/index.php/site/newsanalysisitem/where_did_all_the_grads_go/#When:14:36:00Z 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. 2009-08-27T14:36:00+00:00 http://www.sourcingfocus.com/index.php/site/newsanalysisitem/it_spending_down_but_do_not_fret/ http://www.sourcingfocus.com/index.php/site/newsanalysisitem/it_spending_down_but_do_not_fret/#When:07:19:00Z Gartner forecasts released early this week will have confirmed what most CIOs knew and have been struggling with over the last year and a half. The recession has truly hit the IT industry with global spending down six percent to $3.2 trillion in 2009 compared to $3.4 trillion in 2008. When you put it in decimals the change seems small but it is highly significant. The collective fall in spending is the result of a lot of stress and wide scale efficiency initiatives being made by CIOs around the world. Prudence is forcing companies to look at cost cutting across the board and IT budgets have not escaped the spotlight. Gartner predicts IT spending to pick up slowly in 2010 but recent Ovum research provide a bleaker picture until 2013. In short, IT departments are likely to be under pressure for some time yet. “The full impact of the global recession on the IT services and telecommunications sectors is still emerging, and forecast growth in these areas has been further reduced significantly,” commented Richard Gordon, research vice president and head of global forecasting at Gartner. While no executives like budget reductions, it appears a forced reassessment of IT efficiencies could turn out to be a good thing. Richard Barker, MD of Sovereign Business Integration, an outsourcing company, sees the downturn as a wake-up call for IT. “The past decade has been defined by conspicuous consumption across the board. The cheaper goods have become, the more the nation has bought. And the IT department has been one of the biggest culprits in encouraging this ‘pile it high’ culture. Cheap servers, network bandwidth and storage have encouraged inept practices and allowed users to treat the corporate network as an extension of their personal online presence,” commented Barker. Of course, not all IT departments will have taken this approach, but where it has occurred this kind of profligacy will no longer go on unchecked. Those CIOs that have always erred towards prudence in their IT strategies, will happily continue down their well-planned paths. However, as budget reduction targets hit those less-prepared organisations, big changes will be necessary. So, what are the options for CIO’s to make the changes that matter? The experts sourcingfocus.com spoke to were adamant that indiscriminate cost cutting is not a sustainable approach. A slash and burn mentality may bring significant cost reductions now but will not stand a company in good stead for the future. “In past recessions, the ‘soloist’ CIO rapidly cancelled contracts, cut headcounts and really cut into the bone of IT. Companies quickly realised that this was damaging the core of businesses,” comments Myron Hrycyk, CIO of Severn and Trent, the utilities company. “IT is just too central to business for this approach to be viable now,” he adds Indeed, approaching cost cutting now that IT is so central to the way a company runs, is a highly sensitive task. It seems that the approach can no longer be to simply reduce overheads but must be more of a balancing act of canny expenditure and efficiency in operations. “CFOs and CEOs are facing a heightened challenge in identifying where to scale back and where to keep investing. This is particularly the case as stringent compliance requirements and cost of failure means cut backs in the wrong areas could be catastrophic,” comments Steve O’Connor, VP of IT transformation at BMC, an IT services provider. He adds, “As IT is the only integrated function underpinning the entire organisation, it is crucial for business success that CIOs can clearly demonstrate to the board exactly where IT investment is needed, and where the fat can be cut. By doing so the CIO is able to strengthen his/her position as a business leader and can ensure that the business runs as lean as possible, whilst still maintaining success.” With IT providing the backbone for most large organisations nowadays, it appears the CIO’s moment to truly shine has finally arrived. Clear, decisive and strategic actions could help consolidate his or her rightful place at the board table. Balancing act in mind, the opportunities for cost cutting are many and a large number of them fairly simple to enact. The budgetary pressures may actually provide an opportunity in disguise, allowing CIO’s to ultimately create a more efficient and effective IT-driven organisation. sourcingfocus.com asked the industry their top tips on how CIO’s can make positive cost cutting measures: Consulting costs: • “n good times, consulting companies made a lot of money from your company. Now it is time for them to share some of the pain. Request a ten percent to 20 percent rate reduction. Make it clear this is temporary – but also that companies who participate will continue to be long-term partners when economic conditions improve with the implicit understanding that not participating in the rate reduction will directly impact the long-term partnership with the consulting company.” Rich Murphy, Executive in Residence, Planview (and ex-CIO at Deutsche Bank). Applications: • “Retained support costs can often be reduced. We went to one supplier after realising we only used 60 percent functionality for one system. We proposed to pay them 60 percent of the existing retainer and they went for it.” Myron Hrycyk, CIO, Severn and Trent. • “Pull together an inventory of your applications, their purpose, and the number of users. You can collect more information but start with the basics, which is easy and low-cost to obtain, and progress from there. This inventory of applications will allow you to identify duplicate, low usage, and low value systems.” Rich Murphy, Executive in Residence, Planview. Hardware and software: • “Normal cost reduction measures for hardware are to extend the useable life of the equipment and thus push off the replacement cost. While this works in many cases, it is not always the best alternative. What if the replacement hardware uses 50 percent less electricity requires little to no maintenance, can handle five times the volume, or runs two to three times more efficiently than the old equipment? The total cost may be lower if you decide on a replacement strategy. Plus, hardware providers are also impacted by economic forces, so you should be able to negotiate a reduced price.” Rich Murphy, Executive in Residence, Planview. • “Look at storage costs and policies, because technology changes in this area over the last few years provides a great opportunity for cost reductions,” Rich Murphy, Executive in Residence, Planview. Outsourcing partnerships • “We are no longer ‘soloists’, more part of a band. Work with partners to come to agreements on cost reductions. Our suppliers have an appetite for ensuring Severn and Trent gets the best value from its IT investments. They understand the long-term relationship is more valuable than their short-term margins. “There are possibilities for reducing blended rates, recalibrating contracts and account management costs. It’s also not unreasonable to ask suppliers to invest in proving the business case for new projects as they will benefit if deals come through,” Myron Hrycyk, CIO, Severn and Trent. • “Organisations also need to consider options such as pragmatic overhaul of procurement models, redefining “risk and reward” based approaches to managing suppliers, shared services and outsourcing,” David Roots, MD, local government, Civica. • “At Severn and Trent I have brought IT and procurement closely together so each can more easily adapt to the needs of the business. This is part of our vendor management strategy to enhance vendor relationships,” Myron Hrycyk, CIO, Severn and Trent. • “I’m a strong believer in multi-sourcing to create the strongest partnerships. The benefits to be gained far outweigh the extra management time involved in such relationships,” Myron Hrycyk, CIO, Severn and Trent. • “Hidden IT spend is an important area to look at. Those IT expenses that appear in different departments can add-up. CIOs need to get a handle on every IT cost across the organisation,” Steve Wathmought, MD, Xantus, an IT consultancy. Amid the gloom, there are clearly many opportunities for CIOs to make bold, business enhancing decisions that not only drive efficiencies but also create long-term effectiveness. And, while projections on the arrival of IT industry ‘green shoots’ vary, it is important companies are ready when they do finally arrive. “If there is one good thing to come out of the recession, it will be that organisations will become far more prudent when it comes to purchasing and managing technology. IT departments may be feeling the pinch. But a return to good, business based IT practices will not only enable organisations to address IT costs today but will stand them in excellent stead as the recession lifts and the economic outlook brightens,” says Richard Barker. Topics, ITO 2009-07-10T07:19:00+00:00 http://www.sourcingfocus.com/index.php/site/newsanalysisitem/green_it_a_cfos_best_friend/ http://www.sourcingfocus.com/index.php/site/newsanalysisitem/green_it_a_cfos_best_friend/#When:12:51:00Z Green IT has been on the radar of service providers and end users for some time now.  Increasing regulations involving carbon reduction, energy efficiency and environmental impact have meant that green IT has crept up the boardroom agenda and is now probably one of the most discussed topics amongst C level executives.  Analyst firms have recently been getting their teeth stuck into the issue and this week Datamonitor released a report entitled ‘Can green IT bloom in an economic downturn?’ CFOs are not keen on being put in a position where they have to hand over money in response to meeting government regulations, but would they change their mind if they could see that money making its way back into the coffers, with interest? Over the past few years, green strategies amongst businesses have predominantly been half hearted initiatives.  Organisations have been keen to appear to do something rather than to actually implement an effective strategy.  Greenwashing became synonymous with big conglomerates and corporations were found to be making outrageous false claims about carbon neutrality, green infrastructure and other green fingered exploits. Now however the paradigm has shifted.  Greenwashing has lost its impact as stakeholders and the public have wised up to the real issues at hand and are adept at spotting phoney strategies.  Of course, any investment in time or money into the green agenda is spurred on by increasingly tougher government (or EU) legislation and not some altruistic need to save the planet.  However, businesses are starting to explore whether there is a return on investment with initiatives which previously would have had CEO’s gritting their teeth as they watched their money go down the green drain.  Green IT has become one such area where investment may mean efficiency and cost savings for many firms.  The Datamonitor report has highlighted that organisations do not see green IT and cost-effective IT as mutually exclusive.  Here is why: The first area where savings are made is energy costs.  Greener technology means less energy is used and the dial on the electricity meter doesn’t spin as fast.  This may seem like a small saving, however when you consider the billions of pounds spent in keeping the world’s data centres running, a 10-25 percent energy saving means big bucks.  For vendors, investing into green IT may be one of the best moves they make in terms of winning new business.  The majority of public sector contracts have rules and regulations with regards to the green credentials of a potential third party supplier.  By investing in green technology, suppliers can make themselves as attractive as possible to green fingered government officials. Private sector end users are also not exempt from environmental regulation.  The Carbon Reduction Commitment is due to come into force in 2010 and businesses of all shapes and sizes will need to be aware of their emissions.  Data centre outsourcing will increase as end users look to cut back their carbon by outsourcing it to the greenest suppliers.  There is plenty of opportunity for vendors pushing a green USP. Cloud computing is frequently being considered as a green IT tool.  Companies are considering this virtualised route as a way of not only reducing the amount of old and inefficient servers they have, but also as a way of allowing employees to work anywhere and everywhere.  Working from home (hotels or pubs are also very popular) schemes are allowing businesses to totally streamline the amount of IT they have and in turn reduce their carbon footprint.  Vendors are offering bespoke cloud computing applications that allow work to take place on a huge scale, meaning thousands of employees are able to work seamlessly with one another without having to switch on the office lights.  Combine this with the reduction in emissions as a result of fewer workers needing to make the daily commute and cloud computing seems like an attractive green route. Of course, all this comes at a price. Initial investment into any new technology is costly and if done without careful forethought can cause disruption to business.  During times when IT budgets have been cut, the last thing on an IT manager’s mind would be to spend resources on helping the environment.  However, businesses need to thoroughly investigate the ROI opportunities associated with clean technology and properly implemented green strategies.  If people can show that being green can bring monetary benefit to a business then CFOs up and down the country will be prepared to listen to a proposal. Displaying ROI in green technology will benefit both the business and of course the one thing that tends to be ignored in all of this, the planet. Topics, ITO 2009-07-03T12:51:00+00:00 http://www.sourcingfocus.com/index.php/site/newsanalysisitem/sri_lanka_stepping_into_the_outsourcing_spotlight/ http://www.sourcingfocus.com/index.php/site/newsanalysisitem/sri_lanka_stepping_into_the_outsourcing_spotlight/#When:12:08:01Z Sri Lanka has had its name in the press a great deal over recent years, coming to a grand crescendo in the past few months.  The Tamil Tigers conflict has caused a vast amount of opinionated articles to be written, some neutral, but most cast a dark cloud over Sri Lanka’s politics and military activity.  However, the 25 year conflict appears to have reached a final conclusion and, while the rest of the world pick through the pieces of the aftermath, Sri Lanka is setting it’s sights on building the country into an outsourcing hub. In a bid to drum up business and support, Sri Lanka has this week launched its IT and BPO Industry Chamber into the UK market place.  SLASSCOM (yes, like NASSCOM but Sri Lankan) has the UK in its sights and has one aim in mind, to attract new investment into Sri Lanka’s BPO and IT industry. Big name Indian BPO companies have already setup operations in the country.  More look set to follow suit as organisations such as Genpact ready themselves to launch a Sri Lankan presence.  Tholons, the sourcing advisory company, has ranked Sri Lanka as one of the top 15 emerging outsourcing destinations in the world, so what makes Sri Lanka an appealing destination?  Well for one, they have a huge pool of UK certified accountants, all with cheaper salaries than their domestic counterparts.  Government incentives are coming thick and fast in the form of tax breaks, infrastructure investment and other tantalising perks and language skills are also of a high standard. One particularly unique angle being taken by Sri Lanka is its push towards making the country the destination of choice for SMEs.  SLASSCOM believe that SMEs can fare particularly well by using Sri Lankan services and, in a market where many outsourcing destinations look to fight over the scraps from the tables of large cooperates, an SME targeted push may be one of the more innovative and interesting opportunities available to Sri Lanka. However, the question remains, how much damage will the Tamil Tiger saga have had on promoting Sri Lanka within the UK?  India was notoriously in full support of the Sri Lankan government during the conflict and it would be realistic to assume that the conflict did little to the confidence of Indian companies looking to open up Sri Lankan venues. The UK market, on the other hand, is a completely different beast.  Organisations are already concerned about their public image.  Offshoring is considered a cardinal sin amongst unions and the public alike, however businesses grit their teeth and continue to offshore, or at least nearshore.  However, offshoring to a country that has just emerged from a very high profile and somewhat controversial civil war maybe a step to far.  The only recent example of outsourcing crisis management we have comes from Sri Lanka’s neighbour, India.  The terrorist attacks in Mumbai and the Satyam scandal had the potential to cause a devastating drop in confidence amongst offshorers.  However, the events seemed to have little impact on the industry at all.  India came out relatively unscathed (except of course those directly involved in the Satyam debacle) and it appears to be business as usual. Now this may fill SLASSCOM with hope, however they must realise that India is a highly mature outsourcing destination that has developed such a lucrative offering that it would be hard to see anything significantly rocking the boat.  Sri Lanka on the other hand is a new and evolving outsourcing destination and must position themselves exceptionally well in order to generate sufficient buy-in from UK companies. Sri Lanka is on course to be a key destination, especially in the finance and accounting market.  It is hard to ignore the fact that the likes of HSBC, Aviva and WNS have set up shop and Quattro are looking to expand their Colombo operations.  SLASSCOM are making their way over to the UK in the next couple of weeks and sourcingfocus.com will be there to find out a bit more about the destination which has a lot of people in the industry talking.  As always, any question suggestions are welcome. Topics, ITO, BPO 2009-06-19T12:08:01+00:00 http://www.sourcingfocus.com/index.php/site/newsanalysisitem/love_it_or_hate_it_the_latest_edition_of_the_black_book_of_outsourcing_is/ http://www.sourcingfocus.com/index.php/site/newsanalysisitem/love_it_or_hate_it_the_latest_edition_of_the_black_book_of_outsourcing_is/#When:10:16:00Z The Black Book of Outsourcing is revered and derided in equal quantity. The launch of the latest edition, the ‘State of the Outsourcing Industry’, last week was no different and brought with it news of trends both obvious and unexpected. Whether the report’s findings (compiled from an estimated body of 25,000 outsourcing end-users), provides a true bearing on the industry, is still a matter of argument. Either way, the report certainly provides some interesting points for discussion though. The first big revelation settled what has been a big source for debate over the last four months – the Satyam scandal. There has been much talk about the effects that the fallout has had on confidence in the industry. Most of this has focused on the fact that end-users will increasingly think twice when looking at Indian suppliers; or at least eye them with a more intense scrutiny than before. But the report shows that India has been quick to recover from any initial shocks with 81 percent of respondents having detected increased accountability in their Indian vendors since February 09. Likewise trust, transparency and other such complementary adjectives are attached to the stoic Indian vendors community. “The pure-plays have put a huge amount of time and effort into reassuring existing and prospective clients with regards to their own compliance and governance. This has worked well for the tier one players in India,” commented Steve Sutton, Vice President, manufacturing, retail and distribution for Capgemini.  But it may not be the upstanding qualities of Indian outsourcing vendors that has bolstered confidence in the country. The economic downturn, of course achieved some major coverage in the report. For Mark Richards, CEO of expw: consulting, the downturn is one of the core reasons for the lack of tangible damage India-side. “One suspects that the strength in the Indian outsourcing market has less to do with buyer confidence and more to do with restricted buyer purse strings. The Satyam issue could have been a big blow to Indian providers and offshoring in general but the global recession means that in the end buyers are willing to live with the risk if it means they are still able to invest in key strategic projects,” commented Richards. However, the recession did not feature for the reasons most would expect. Rather than encouraging an expansion of existing and new deals, a more visible result has been a drive towards renegotiation of existing deals. 17 percent of respondents were shown to be in vendor re-evaluation and 89 percent of these were ‘outraged by three main vendor positions forced during tough times: -unwillingness to renegotiate rates, -unwillingness to provide sameshore options and -unwillingness to improve service levels. The importance of renegotiating terms was a key theme and 47 percent of respondents reported overwhelming satisfaction with outsourcers that have agreed to address the three key issues. Of course all end users would love a push-over vendor that bows to all its demands. But the report and industry sentiment suggests that end-users want the opportunity to be able to discuss pushing costs down or at least altering the terms of agreements. Re-working or instigating new deals to create more rapid ROI was an important theme. But vendors are quick to state that trying to get too much ROI out too rapidly could result in service detriments. “A successful outsourcing or offshoring programme should provide dramatic ROI but companies making the move to outsource or offshore should be realistic about the time to deliver that return.  One is reminded of the old but very true adage: you can have it good, you can have it fast or you can have it cheap but never all three at once. Outsourcing Fast and Cheap rarely (if ever) delivers good results or ROI.  Good and Fast outsourcing programmes are never cheap – both examples show the challenge to using outsourcing as the means for a quick ROI,” commented Richards. Nevertheless the report found that many end users are looking for rapid ROI and ‘fast and ready’ outsourcing deals. 90 percent of respondents said that a 180 day or less ROI time frame was receiving immediate budget approvals in their companies. This trend to quick return has seen growth in the quick-win areas of procurement and accounts receivable but also in the slower-burn areas of payroll and HR benefits. Other reasons for the expectation and interest in fast ROI came from the ITO arena and the word on everyone’s lips: cloud computing and SaaS. 82 percent of ‘large market clients’, according to the report, were actively evalutating cloud and SaaS for their US$1Bn+ annual revenue companies. It seems certain that cloud and SaaS is to become a booming business. But whether traditional outsourcers are the natural providers of such services remains to be seen. “Cloud computing is not the death of offshoring/outsourcing but rather a new channel for companies making sourcing decision and it fills an important gap in the traditional options which all take much longer to implement and require much greater investments,” commented Richards. So outsourcing vendors may find cloud services a natural extension of their existing repertoire. But it is clear there is still much work to be done by many before consistent integrated services can be offered. Stuart Okin, MD of Comsec Consulting UK, believes cloud becoming mainstream is still some way off. “Cloud computing will revolutionise outsourcing, although it will take at least 10 years to become mainstream within larger enterprises. Although the savings are potentially huge, the challenges around business continuity, security and privacy are difficult to overcome.  From an IT perspective, there are a number of emerging standards to help enterprises put in place redundancy, however, the game changer will be when a number of trusted brands come together to offer a combination of programmable environments with storage and processing services such as those being offered by Amazon and the traditional service providers,” stated Okin. As usual, the black book offers vendors and end users a lot of food for thought. It seems that 2009-2010 will be the making and breaking of many vendors. In the battle to retain clients, it seems that competitive contracts, appropriate ROI and investment in cloud computing will be key. One thing is clear though; the opportunities are still out there for vendors and buyers alike, even if they look a little different from before. For more things to think about, sourcingfocus.com readers can order the report here: http://www.theblackbookofoutsourcing.com/ 2009-06-12T10:16:00+00:00 http://www.sourcingfocus.com/index.php/site/newsanalysisitem/respect_your_elders/ http://www.sourcingfocus.com/index.php/site/newsanalysisitem/respect_your_elders/#When:07:00:00Z Big birthdays are few and far between for most outsourcing companies. The reason being that most of them are still so young. To reach just your tenth birthday by 2009 is a truly momentous feat in the outsourcing industry. Not for one outsourcing company however. Though lesser known than many of today’s outsourcing behemoths, LPM Outsourcing could be looked at almost as a father of the UK outsourcing industry having just celebrated a whopping 21 years in April. LPM, a UK-based outsourcer, started doing outsourcing even before the word was commonplace. Sourcingfocus.com got an invite to its birthday party and decided to find out a little more about LPM and the secret behind its longevity. Philip Davies, the LPM MD, stood out from the crowd in a private room above the popular celeb hangout, Ivy Restaurant. A six foot plus, articulate businessman and avid cyclist amid a room of diminutive financial-types is of course bound to make an impact. The financial types were there representing some of the company’s longstanding customers spanning from Cisco Capital to The Strategic Rail authority and a recent new client in the British Transport Police. The industry in which LPM operates is the outsourcing of leading and asset financing. What this basically boils down to is the management of the back office finance and premises management of companies around the world. This could be anything from the management of receivables for a large retail organisation to looking after the lease portfolio of a public sector organisation. But LPM’s services are not limited to larger companies, the offerings could also be of interest to the budding start-up or entrepreneur who cannot create or access the economies of scale that a dedicated outsourcer can. “Many customers come to launch a new venture but lack the experience to set up their own business. Either that or they don’t want to be involved in the back office,” said Mr Davies. That is all very well, but in the current climate, catering for new start-ups is unlikely to be a booming business. The ability for entrepreneurs to convince financial backers to invest in their ventures has decreased substantially as a result of the credit crunch. Those who have money are holding on to it. But this does not appear to worry LPM as they also maintain close relationships with many larger companies. “At the moment, the recession is good for our business. I don’t like saying it but it’s true,” said Mr Davies. Companies across the board are looking to outsourcing to cut costs and augment their businesses and many outsourcing providers are supposedly benefiting from this. However, the opportunities Philip was referring focus mainly on what could be seen as the scraps of the recession. LPM does a large amount of business in the portfolio run-out space, where they must ‘fire sale’ failed businesses’ asset portfolios making as much money as possible from the process. .  “Banks are withdrawing from asset financing, removing focus on new businesses and asking what can we do with distressed portfolios,” he said. The process of a run out basically involved picking up the remnants of the company and seeing what it can be sold off for. Doing this can be a testing affair, especially working with the remaining management staff to gather information. “You’re basically collecting information from people who you know have lost their jobs. You think, well the management has messed up, but you also have empathy for the humans who are left with other people’s problems,” he said. It is certainly a macabre business, but someone has to do it. So how did LPM come into existence? “When we started we were quite pioneering, the market wasn’t really known and it was a new idea to outsource. We started Five Arrows Leasing Group but wanted to focus on our new business so developed LPM as a separate business. We outsourced our back office to them but it worked so well that we bought the company,” commented Mr Davies. For its longevity, you could say LPM has a bit of a head start on some of the other outsourcers about today. Starting out in 1988 initially benefitted from the first recession just a few years into its existence. “In the early 90s many companies wanted saviours to come in, sort out the books and collect all the cash they can from distressed portfolios. Leasing and finance organisaions failing at this time let LPM become well-known,” commented Mr Davies. In the midst of the second recession to engulf UK business during LPM’s long existence, what thoughts does Philip have on its future and the outsourcing industry in general? “Our target market is going to change as time goes on. During the recession, insolvency practice is going to be a big area and there will be new opportunities from shareholders leaving markets,” he said. “Things will changes though from the more dismal recession-based customers back to more positive run-outs, new start-ups and probably the public sector too,” he added. The recession as a whole was also seen as an opportunity not a threat for all outsourcing companies with one caveat. “The economic pressures of cutting costs will ultimately benefit outsourcing in the short and long term. But providers need to be clever in focusing their marketing strategies in order to reap the rewards.” It seems if other outsourcers want to survive the recession and reach their own longevity milestones they should take heed. Success in a recession is not a given – it takes insight, luck and clever thinking to really come out on top. Sectors, BFSI, Topics, BPO, HR & Payroll 2009-06-05T07:00:00+00:00 http://www.sourcingfocus.com/index.php/site/newsanalysisitem/global_sourcing_a_finger_on_the_pulse/ http://www.sourcingfocus.com/index.php/site/newsanalysisitem/global_sourcing_a_finger_on_the_pulse/#When:09:32:00Z Everest, the international research institute, has recently released its 2009 Q1 Market Vista report.  This report gives an overview of the global sourcing industry and highlights in particular the transaction trends within the outsourcing world.  sourcingfocus.com takes a closer look at the report’s findings and explores just where the outsourcing market is heading. The first thing that the report summary states is that the volume of outsourcing transactions has decreased by seven percent when compared to Q4 2008.  This can hardly come as a surprise as many organisations would have been reluctant to shell out the initial investment associated with new outsourcing deals, instead opting to review their internal strategies first. Anand Ramesh, research director at the Everest Institute, commented on the dip in transactions, “There is a significant amount of caution about new spending or new initiatives.  Organisations are in a wait and watch mode.” The actual cash value of transactions also dropped by 16 percent.  Does this clarify the theory that end users are taking a cost is king approach to outsourcing?  Suppliers might be having to offer lower rates in order to entice new business.  In turn, end users who are renewing their contracts will inevitably be looking for a reduction in price.  Martyn Hart, chairman of the National Outsourcing Association warns end users of the risks associated with excessive bartering, “The recession will prompt end users to pin suppliers to the ground on price, heavy bartering will be taking place at contract negotiation meetings across the world.  However, suppliers will make up their money somehow, probably through pricey change requests and we may find end users regretting their initial price busting tactics.” Mr Ramesh also pointed to the fact that organisations are taking a piecemeal approach to outsourcing, “Organisations are hesitant to sign long contracts.  They are not putting their eggs in one basket and are [instead] engaging in smaller transactions for small ACV.” As a result Mr Ramesh believes that multisourcing is increasing.  Big transactions mean big upfront costs, something which no organisation is very keen on doing.  Despite a slump in transactions, the outsourcing industry is growing.  The amount of transactions are up from Q1 in 2008 and all involved in the market can rest assured that there will be a continued upward trend.  Mr Ramesh believes that by Q4 of 2009 the market will be significantly more positive. One area of particular interest is the large amount of outsourcing activity within the Banking Financial Services and Insurance (BFSI) sector.  Transactions within the BFSI sector have grown by 40 percent compared to Q4 2008, this indicates that an extensive review of resource allocation is taking place within the sector.  All those involved in financial services outsourcing have certainly had to look at efficiency.  Large mergers and acquisitions within BFSI will mean a duplication of roles, higher overheads and costly IT infrastructure.  It is therefore understandable that outsourcing within that industry has grown. Within the BFSI sector, ITO was reported as being by far the largest growth area with a 38 percent increase in the number of ITO transactions.  This has amounted to a massive 120 percent increase in ACV for ITO transactions in the BFSI space, bearing in mind, this is only an indication of deals for which contract value was disclosed.  BPO however was reported as staying pretty much the same as the previous quarter.  2009 was supposed to be the year for BPO. Research from organisations such as the London School of Economics predicted BPO to be racing ahead, even overtaking ITO in speed of growth.  Well if that is the case, then the Market vista report shows BPO as a late starter, because in Q1 of this year the value of BPO transactions was down by US$530 million.  This did not surprise Ian McGowan, a Director at ADEC, a provider of BPO solutions, “Revenue losses in the banking sector last year and the Lehman Brothers collapse would have had a direct affect on BPO.” While BPO appears to be stalling, the report points to an increase in captive investment, with areas such as the Philippines enjoying particular growth.  “This is a clear indication of large global corporates investing in captives rather than third party suppliers. There is more risk involved, however results can be seen within 12 months”, commented Mr McGowen. So, this report brings a mixed bag for the outsourcing community to digest.  There are certainly no signs of a long term slowdown, however there appears to be significant changes in end user strategy.  Suppliers will need to be wary of cost, which in this economy is a given.  However, vendors will also need to be prepared to deal wtih smaller, quick turnaround contracts, rather than mega-deals.  Captives look set to gain more traction in 2009 and locations such as the Vietnam and Turkey will also be looking ahead with great optimism. The recession has not significantly slowed down the industry, it has just catalysed a change in strategy.  All those involved in outsourcing should take note and prepare for a dynamic 2nd half of 2009. Sectors, BFSI, Topics, ITO, BPO, Mergers & Acquisitions 2009-05-22T09:32:00+00:00