Now, more than ever, businesses are outsourcing IT to
reduce the expense of running large IT operations inhouse. A new
study of the outsourcing market in the UK from sourcing
advisorEquaterrashows that outsourcing is
increasing in popularity among major UK organisations.
The UK study examined £8bn worth of contracts, which included
330 of the biggest UK contracts from 125 of the top IT spending
organisations in the UK. Of those surveyed, 63% are looking to
outsource more this year, compared with 54% last year. The report
states, "Sourcing or the use of third-party business and IT
services in general, and the outsourcing model to access those
services in particular, has become an established and commonly used
business tool.
In its Outsourcing Service Provider Performance and Satisfaction
Study 2008-09, Equaterra found no indication that economic
conditions will have a significant
negative impact on outsourcing demand in the UK market.
It expects that
economic conditions will further drive demand for outsourcing
as UK organisations more aggressively seek means to reduce costs,
defer or limit future investments, and realign operating models to
lower revenue levels. According to the report, 80% of those
surveyed cite further cost savings as the principal driver for
increasing existing levels of outsourcing, while 25% would
outsource more to gain greater financial flexibility.
There is price pressure from within the business for IT to
extract more value from existing contracts. Equally,
outsourcers are under increased pressure to demonstrate greater
value for money and the ability to listen and understand the pain
points end-user IT departments now face.
Customer
satisfaction
So which supplier has been rated the highest?
InfoSys gained the top spot
for customer satisfaction this year (75%), followed by
Cognizant
(74%) and Capgemini
(73%). The level of customer satisfaction among Capgemini's
customers increased 11% from the previous year, which
Equaterra'sLee Ayling believes is probably down to some major
restructuring by the outsourcer. "Capgemini has built a near-shore
centre in Poland to help it compete with Indian outsourcers, which
allows it to compete on price. It also has major contracts,
including Aspire [HMRC], which has also helped it to boost its
customer satisfaction levels."
BT was the worst performing outsourcer in terms of customer
satisfaction, with a 10% drop on 2006 levels to 50%.
Equaterra notes in the report that the
Indian
offshore providers are continuing to compete successfully with
the main global providers. "They are also achieving relatively high
levels of satisfaction, although respondents' satisfaction with a
few Indian providers has declined since last year, with Satyam down
15%, TCS down 8% and Wipro down 4%."
By contrast, satisfaction with three of the global providers has
improved since last year's study. In the report Equaterra states,
"The gap between the traditional players is closing. It seems that
the Indian providers are losing their traditional advantage against
the global players and there is more choice for customers the world
is becoming a more level playing field."
The location
equation
That said, if the Equaterra figures are indicative of UK IT,
then heads of IT are quite specific on the types of services and
skills they choose to outsource to India, and those contracts
offered to European and global IT services companies.
For instance, heads of IT appear more comfortable outsourcing PC
support services (or end-user management) to European or global
providers, rather than using an Indian outsourcer. "Given the
nature of PC support, if your supplier does not have the
capabilities to support end-users you will hear about it," Ayling
warns. Either some Indian providers are not be as strong as
European and global providers or there is a perceived weakness in
their ability to deliver high-quality PC support services.
Multi-language skills is one area where India may be less
capable, according to Ayling, in spite of the fact that India has
traditionally been associated with high-calibre, multi-lingual
graduates.
According to Ayling, India is better with technology and English
than other languages, but in central Europe, language skills are
foremost, followed by technology skills. But this is changing.
Eastern European providers are catching up with India in terms of
technical skills. "Businesses began moving outsourced business
processes to Eastern Europe and the
skills have grown to meet capabilities. Now you can get IT
staff like Cisco certified engineers. This was less easy a few
years ago," he says.
Such multi-lingual skills can become strategic for global
businesses. Heads of IT with a long-term strategic vision may be
looking at multi-lingual shared IT centres to support end-users
globally. "In the UK, multi-language skills come at a 20% price
premium, but if you run a multi-lingual shared support centre with
German, French, Spanish and English, you can support users across
most of the world." Ayling believes Eastern Europe is well placed
to provide lower-cost multi-lingual IT skills needed to operate
such shared services centres.
India is still low cost, but this situation may change. "While
India is still pretty much a low wage region, salaries are rising,
with an average salary inflation in 2007 of 12%. We may find parity
between India and Eastern Europe over the next few years."
Areas of
improvement
For 2009, Ayling recommends CIOs focus on ensuring that their
contract is the right size for their organisation.
"Given that at least 20% of IT outsourcing contracts will be up
for renewal in 2009, CIOs need to focus on driving value with
limited investment by looking at innovative ways to partner with
the right outsourcer to deliver high-quality IT services." This
does not necessarily have to be wholesale change. It should not be
necessary to go through the expense and disruption of switching
outsourcing provider.
Instead, Ayling urges CIOs who have a contract up for renewal
this year to look at the portfolio of services they receive from
their outsourcers and identify areas of improvement. "Benchmark
your contracts and extend the 80% part of the contract that works
and leave out the 20% that does not work." It is all about focusing
on the bits that work and make them better. Any services that have
not met expectations can then be passed on to another provider.
Governance in
outsourcing
In the 2007-2008 study, Equaterra found that governance in
outsourcing was poor and was having a negative impact on results.
"This year's findings do little to alleviate those concerns.
However, our research shows that companies are attuned to this
situation," the report states. 77% of respondents say that they are
either already improving sourcing governance processes, or are
planning to do so.
According to Lee Ayling, strong governance in outsourcing can be
the difference between a successful project and a costly failure.
He says, "Even a small reduction in the benefits from a contract
can amount to a big capital cost, given the significant size of
some of these outsourcing contracts."
Of the heads of IT questioned in the Equaterra study, 50%
admitted the governance of their existing outsourcing contracts was
weak or average. As such, Ayling recommends IT heads bolster their
internal outsourcing governance teams. "A small investment in
governance can make a huge difference to the success of the
contract." Now is probably the best time, he says, given the
fluidity in the labour market. "Due to the job cuts in financial
services, there are plenty of people looking for work, so perhaps
it is worth hiring relationship managers, performance managers and
financial managers who have expertise in outsourcing contracts."
Equaterra has found that 39% of heads of IT surveyed are willing to
employ new staff with governance expertise.
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