July 2011 Archives

Don't forget to give your offshore centres as much resilience as those onshore

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SunGard Availability is opening two facilities in India that will provide customers with workplaces in the event of their own premises being unusable.

The growth in offshore IT services has meant that many Western businesses have business critical operations in low cost locations such as India.

SunGard Availability's new centres will be in Mumbai and New Delhi and will offer resilience to its customers that have operations in those regions, which include financial services companies.

With more and more large corporates, including major banks, moving IT and BPO offshore there needs to be investment in the infrastructures in chosen locations. It shows that an offshoring decision has to be well thought through. 

Big outsourcers might have to stump up cash quicker as government cracks down on late payments

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The government is going to crack down on late payments and encourage small businesses to report culprits.

See this article about it.

It seems it will pay particular focus on its own major suppliers to ensure they pay sub contractors on time. So the big systems integrators might find themselves being named and shamed.

Will there be an IT offshoring U-turn at Birmingham City Council?

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It appears that an elected body of people, Birmingham City Council (BCC), is listening to the people that elected them and reconsidering sending their jobs offshore.

It was reported in the Birmingham Post that the council was doing a u-turn on a decision to offshore IT jobs to India.

I have put in calls to the Birmingham City Council and the union, Unite, which represents workers at BCC, and it seems a u-turn might not be the final outcome even though there is a rethink.

BCC might just be going through the motions with the union.

If the council does do a u-turn I think it will be significant. When it was first revealed that BCC was offshoring IT I thought it might open the floodgates for local government offshoring. So if it abandons it could have the reverse effect.

Staff churn as well as cost and service levels will mean more UK jobs come back from India?

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Is a combination of factors making India less attractive as a centre for delivering services to the UK?

Jean Louise Bravard, director at sourcing broker Burnt-Oak Partners, believes the gap between offshore and onshore is closing.

He says there is currently a trend that is seeing UK companies bring work back onshore. He  says this is happening and it is related to the high turnover of staff in India. This causes increasing costs and reducing service levels, says Bravard.

"Staff churn is a continuing problem in India. Indian companies often have 10% churn every month."

He says the cost of replacing a worker can be 25% of the annual salary so it is costing a lot which will eventually be passed on to the customer.

He also said service levels will decrease because staff are constantly changing and have no time to establish relationships with the customers.

Additionally he believes that suppliers that are trying to win business with the UK government might feel they need to create UK jobs rather than send work offshore, which might also reduce the attractiveness of offshore service provision. "If you want to do business with the government creating jobs in the UK is a good idea."

There could be something in this. Last vweek banking giant Santander last week announced its plan to set up a UK call centre to replace one in Mumbai. This will create 500 jobs. The reason for doing this was the fact that customers had complained about service levels.

And in the previous week New Call Telecom which provides telephone services and broadband said it is leaving Mumbai and setting up a datacentre in Burnley because rental and Labour costs are lower.

Emerging economies might eventually make UK businesses second class IT services customers

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The UK gets a lot of focus from IT services companies for good reason. It is worth a lot of money to them.

Gartner says the IT services market in the UK will be worth about $77bn in 2011. This is massive when you compare it to India which Gartner expects to have a domestic IT services market worth $9bn in 2001. The domestic IT services sectors in China and Latin America in 2011, again according to Gartner, will be worth $12bn and $32bn respectively.

Suppliers may give the UK the royal treatment now but whether they do in the future probably depends on how big these emerging regions become. There might come a day when the UK is a third or fourth class citizen. You can imagine a service provider from India, China or Brazil believing a customer in the UK might not be worth the effort in the future.

The service providers are readying themselves for this type of scenario.

Capgemini, through its Brazilian operation, has signed a 13 year deal with Brazilian conglomerate ABC Algar group to support their company's operations in Brazil. Capgemini will run Algar's general accounting, account receivables, account payables, tax, human resources administration, payroll and procurement.

In 2010 Capgemini took a 55% share in Brazilian IT service provider CPM Braxis for €233m. The deal will give Capgemini access to the large Latin American market and offer it more options in terms of services for its international customers.

The French IT giant also put its roots down in China with the acquisition of Praxis Technology in Beijing. Praxis is a specialist IT and consulting company which specialises in the Chinese utility market. It offers business management consulting services, Enterprise Resource Planning (ERP) implementation and application and software development services.

Businesses are forcing Indian IT suppliers to cut their charges by up to 20%

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It seems companies in the US are squeezing their Indian IT service providers a little bit harder.

According to an article in the Economic Times in India large companies are asking Indian suppliers to reduce rates for back office and software work by up to 15%.

And it is not just US clients that are doing this.

Kit Burden, specialist outsourcing lawyer at DLA Piper says, this has been happening for some time in many major accounts for tier one Indian suppliers.

He said he recently represented a tier-one Indian supplier when it was attempting to win an extension to a deal that had been running for five years. "The starting point for the retender was a 20% decrease in the price." If you take into account inflation the real reduction is even more.

"It's not just US companies but across the board. All of the major buyers have been coming to the Indian suppliers and asking them to share thee pain by lowering their prices."

He also said a major retail bank in the UK suggested that lower process now might be an advantage to the suppliers further down the road when there is new business on offer.

But is it risky making short term gains through price reductions? Burden thinks it could be.
"It is questionable about how sensible this is. A good deal has to be seen by more than just the rate that you are paying," says Burden.

"If a project is questionable over a period of time the best people within the supplier will not want to work on it and the service level might deteriorate over time"

Is technology not sexy enough for Infosys?

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The IT services sector is changing. It no longer wants to be the IT services sector but the business services sector.

Infosys has decided to part with the word Technologies in its name to "more accurately reflect the company's evolution over the last 30 years from technology services to business-led consulting and solutions," it says. It's intials are no longer IT as well.
Infosys, as it is now known, is not alone in its efforts to become seen as a business consultancy. In May this year I spoke to Mark Livingston, who heads up Cognizant's business consultancy arm globally and is a former A.T. Kearny employee.

He said the company is searching for someone to run its business consultancy operation in Europe as it attempts to emulate the growth rates of its IT services business. The IT services provider has about 2,500 business consultants globally with all but about 400 in the US and India. The business, which is separate from its massive IT delivery capability, advises customers on business issues. The difference is it has contact with CIO rather than CEO s and CFOs.

Jean Louis Bravard, director at sourcing broker Burnt-Oak Partners, says the market has changed and service providers need to have more services capabilities.

He says there is particular pressure on the Indian service providers. "Because of things like increased competitiveness, the cloud and jobs moving back to the UK the Indian companies want to do more. The Indian companies are best known for app work, and although there is still a lot of this available they are offering customers more."

He says companies like Infosys are well positioned to become one stop shops providing everything from datacentres to business consultancy.

In May last year Wipro told me about its plans in the business consultancy space

Do you think IT service providers can offer business consultancy?

IT investment up, IT skills shortage up, IT outsourcing will follow.

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Following its success as a way of cutting IT costs during a downturn, the IT services sector will step in and fill the IT skills gap now being created by the recovery.

The Association of Professional Staffing Companies (Apsco) today gave some good news to IT professionals. Research sponsored by the organisation has found that IT job vacancies in the UK are on the up. In actual fact there were 28% more jobs in May this year compared to May last year.

All this is the result of businesses spending on IT again. The media, finance and retail sectors are leading the way, according to the survey. See the I wrote article here.

The problem is this is creating a shortage in skills and some IT professionals are getting multiple job offers while others are getting double digit paying increases when the switch companies.

This could be just the right environment for IT services suppliers to step in and create relationships with first time outsourcers.

According to Apsco businesses are now trying to become more competitive as the economy recovers and are investing in IT to this end. The problem is if there is a skills shortage some companies will be slower to implement their strategies and will therefore lose their competitive edge. Unless they outsource to IT specialists.

This could be the beginning of a wave of outsourcing by companies trying to implement IT projects to support their strategies.

With the number of UK IT graduates falling the skills gap could become permanent.

Eastern Europe could benefit from a wave of first time offshorers

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Because I write about IT outsourcing I often forget that the proportion of IT outsourced is only a fraction of the work that is done in-house.

There is massive potential for growth with loads of greenfield sites. This is multiplied when it comes to offshoring.

I recently met an executive at an Indian service provider. He told me that the company he works at is seeing a lot of companies, many of which are mid-sized, considering offshoring IT for the first time. This comes after a few years of outsourcing to onshore suppliers.

With this in mind now could be the time that Eastern Europe shows its hand. Nearshoring to countries such as Romania and the Ukraine could be a happy medium for first time offshores.
Computer Weekly journalist Kathleen Hall has been looking into this. See this link for an article she wrote about Eastern Europe's IT outsourcing service capabilities.

But what has Romania got over India?

To give you a taster here are five reasons to outsource to Eastern Europe:

1. High skilled labour

The former Soviet Union had a strong educational emphasis on engineering and the sciences. As a consequence, many of the countries in this region today have a highly skilled workforce in areas such as computer science, but at much lower labour costs than the UK.

2. Cultural similarities

Some companies believe that Eastern Europe has a distinct advantage over places such as India when it comes to outsourcing because employees tend to take a more collaborative and less process-driven approach to projects.

3. Time zones

Eastern Europe covers a vast region, but most of the countries within it are just a few hours away from the UK in terms of time difference, making it easier to communicate within working hours.

4. Data protection

Eastern European countries within the EU could be a good choice for work which requires adherence to the Data Protection Act.

5. Growing labour market

While skills shortages remain a problem in the UK, growth in IT outsourcing in Eastern Europe continues to increase. In 2009, Romania was found to be the country with the highest growth of IT specialists, increasing by about 12% compared with 2008. Ukraine followed with over 9% growth.

More jobs return to UK as cultural differences put Santander off India

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I blogged earlier about a UK company that had decided to bring a call centre onshore to Burnley from Mumbai. New Call Telecom, which provides telephone services and broadband, moved its call centre when it found it would cost less to have its call centre in near Burnley rather than Mumbai.

But increasing offshore costs are not the only reason why companies are bringing call centres back to the countries that they serve.

Banking giant Santander, which has acquired several UK banks in recent years, has announced that it will create 500 UK call centre jobs in Glasgow, Leicester and Liverpool after customers complained that staff in its Indian call centres in Bangalore and Pune did not understand their needs.

Will the combination of language differences and cost increases in India make the UK the best place for corporates to have their contact centres?

Martin Hart, chairman of the National Outsourcing Association says a trend could be emerging:

"Santander has listened to its customers' demands and brought its call centre operations back to the UK. This is not just a matter of rising costs in India, but falling quality.

"Simple processes can be dealt with by interactive voice recognition - but more complex problems require the operative to have a solid understanding of the caller's culture. This is what helps good operatives open calls sympathetically, drill down to the heart of the problem, then find solutions. India's staff attrition rates are at an all-time high - people move on very quickly, for just a few rupees more elsewhere. This means there is no time for adequate cultural awareness training, so quality has dropped. NOA has been saying for years that cultural affinity is a must for successful offshoring. Santander's return to the UK proves how important this is to customer satisfaction.  Taking the cheapest option will never be a route to success, if the quality is not up to the mark.

 "As the costs of doing business in India fall into line with more developed nations, NOA suggests that companies considering outsourcing call centres to India ensure that their suppliers invest (and continue to invest) in intensive programmes of cultural awareness training. That way, they can retain business by competing on quality, not just on cost." 

How to set up an international company in the public cloud

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I blogged last week about how corporates are beginning to look at using applications in the public cloud.

But it seems the large companies of tomorrow might be a lot quicker to harness the public cloud, because many of them will be born using it.

Yesterday I was with someone that is about to launch a company that provides consultancy to hedge funds. The interesting thing about this is the fact that the company has been created by three people based in different continents using applications that are available in the public cloud.

For example the company has used free cloud storage service Dropbox as well as various Google Apps. The three founders communicate via Skype.

I can't mention his name or the company because they have not quite launched but he told me that collaboration was key. "We have been able to set up a company with three people in different continents."

So the company is international form day one.

Here are some of the founder's comments about setting up a company by using the public cloud.

"We are in three different countries linked up via Skype and able to show each other our screens."

"Imagine trying to set up company processes and develop a web portal when you are on three different continents."

"The tools that are out there make it easier to do stuff."

"After working for years for large corporates I can't believe how easy it is to set up a company using applications available in the public cloud."

Let me know how your business has used public cloud based applications in the survey below.

Is social media and outsourcing a match made in heaven?

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Today I attended a presentation that looked at the role of social media in business and the role of outsourcing in social media.

I will give the background first and then the outsourcing angle.

Businesses can't avoid social media. It's everywhere. Employees at all levels and customers are using it all the time. The next generation of consumers and employees will think and breathe social media.

Legal firm Berwin Leighton Paisner today held a seminar titled: Social Media - A new direction for outsourcing?

A bit different to the usual seminar about how businesses can use social media? It focussed on how it will be delivered. More specifically how it will be outsourced.

The event was attended by representatives of the outsourcing industry in the form of major suppliers and a good selection of corporates, including major banks. So "grown up industries" are turning to social media.

The social media debate has gone from one which discusses should business harness it to one about how they should harness it? Now it is about delivering it.

Two years ago I attended a behind closed doors meeting at the Financial Services Club about the use of social media in financial services. There were mixed feelings about social media's role. Some said It's a blip, one said some of it is a total load of bollocks and others that it was bandwagon that cannot be missed. See the article I wrote here.

The general feeling today is that if you are not already using social media you are missing the boat.

Jonathan Brech from social media advisory company ISM Search & Social, says social media is here to stay although names such as Facebook, Twitter and LinkedIn might not. "Names might change but this media is here to stay."

He described how a company like Dell has used social media successfully. Dell monitors 22,000 social media posts every day, replies in 11 languages band as a result has seen a 30% reduction in posts negative about Dell. But he said Dell had an advantage in that it already sold direct to customers so already had a relationship with them.

Significantly, Brech said that social media tools can be harnessed by any company very quickly but it needs to be handled with care or it could blow up in their faces.

Furniture retailer Habitat famously made a huge mistake on Twitter when it made references to the unrest in Iran a couple of years ago to guide people to some of its sales offers. See the story about that here.  What has happened to Habitat since I am less surprised it sunk so low.

But it gets interesting in some very mature sectors. David Power, director at financial service consultancy Red House Limited gave an interesting presentation about how the Life and Pensions industry, which is as conservative as they come, will have to harness social media.

Retail is usually held up as the industry that will use and benefit the most from social media. But there are other industries that will be dependent on it.

Power said the Life and Pensions industry is currently going through major changes, which were instigated by government regulation. The government was not happy with Independent Financial Advisors (IFAs) giving their advice and taking a slice of the customer contribution for themselves, without the customer knowing how much.

The government's Retail Distribution Review stresses that Life and Pensions companies can't pay commission to IFA's but the customer will agree to pay the IFA a certain amount.

The result of this will be reluctance on the IFA's part to do in-depth consultation such as face to face meetings. Only the richest of clients will be able to afford a face to face service.

And the result of this will be a gap in the market that Life and Pensions firms will be able to fill online through social media. Most potential customers will buy direct after consulting others through social media. "It is not possible for Life and Pensions companies to ignore social media," says Power.

This brings me on to the outsourcing angle. Life and Pensions companies have outsourced their IT and Business Processes for years.

To set up and manage a social, media strategy and make use of all the communications information will require skills that sectors such as Life and Pensions will not have.

Meanwhile outsourcing service providers have built up their IT and BPO capabilities. These companies have become experts in business processes in certain sectors and they could apply their technology know-how to the social media challenge.

For example Infosys has already created a software package that harnesses social media for businesses.  I blogged about the iEngage platform, as it is know, last year.

As social media is taken up by grown up industries it might be time to industrialise the likes of Twitter, Facebook and YouTube.

Please answer the question below to give us some idea of social media use in business.

The UK smart metering project: a failed NHS project in the making? Continued.

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I blogged last month about the UK smart metering project and the fact that UK consumers are not really behind the project

This sounds like a recipe for failure, especially when you consider that fuel costs will increase in the short term and unless citizens are educated about energy efficiency and have  efficient and smart devices, the smart meters will not lead to any savings.

The Government's Smart Metering Implementation Programme (SMIP) aims to have smart energy meters in 30 million homes as well as businesses by 2020. It is part of the UK Smart Grid project and will require substantial contributions from the IT sector.

I likened the project to the NHS National Project for IT (NHSPfIT). Mainly because that was a huge IT project that ultimately failed. Some say it was too big to succeed.

The National Audit Office (NAO) has now reported on the project and its comments made me feel like reiterating my feeling that the Smart Grid project could be as difficult as the NHS NPfIT.

This is what Margaret Hodge MP, Chair of the Committee of Public Accounts, had to say:

"Smart meters could help us all cut our energy consumption but government's track record on delivering large programmes is patchy at best. At the moment the estimated cost is £11.3 billion, but all our experience suggests that this budget will be blown.

Also, for the money spent to provide value, we all have to change the way we behave. It is not clear how the Department will stimulate this behaviour change. And, as technology changes, the Department will have to be properly flexible to respond with up-to-date technology for the smart meters. These uncertainties can drive up costs more than planned.

We will keep a close eye on project progress, and would urge the Department to address the risks identified in this report."

Agency Worker Regulations could boost IT outsourcing

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In October new rules are coming in that will give temporary staff, employed through agencies, the same pay rights as permanent staff after only 12 weeks with an employer.

Agency Workers Regulations 2010 (AWR) will come into force on 01 October. It gives rights to workers that are supplied by an agency but directed by the business where they work. As a result workers at an outsourcing service provider who work at customer sites will not be included because they are directed by the service provider and not the company where they are actually working.

You can read more about it here.

This might create a bit of a headache for businesses that will be obliged, on request, to show how much permanent staff are earning. Lawyer Yvonne Gallagher, who is head of employment at Lawrence Graham says that businesses that do not want to go through the red tape might outsource, rather than hire through agencies, to overcome it.

"At the moment organisations that use agency staff can effectively wash their hands of any management responsibilities for the staff. The agency deals with them.

"But as a result of these changes the companies that use agency workers will face requests from individuals and agencies about pay and benefits.

"Those that use a large amount of agency workers might find that outsourcing rather than using agency staff gets rid of this problem."

David Bloxham director of recruitment agency GCS says the AWR law brings the UK closer to the rest of Europe in terms of using agency contractors.

He says that service providers in particular areas might benefit as employers attempt to get around the law.

He says because the law expects agency workers to get the same pay as permanents it will not affect many IT contracts because they often get higher pay than permanent staff. "It is the contractor's decision whether target involved in AWR."

As a result Bloxham does not believe IT contractors working on things like large SAP projects will be affected. But he says lower level IT such as help desk, service desk and some testing could see businesses outsource to avoid the extra work involved in AWR.

Could offshore cost advantages be reducing as Burnley becomes as cheap as Mumbai?

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A UK company has moved its call centre from Mumbai to Burnley in Lancashire to save money.

According to The Daily Mail, New Call Telecom which provides telephone services and broadband is leaving Mumbai and setting up a datacentre in Burnley because rental and Labour costs are lower. Although the Daily Mail is not best known for promoting the benefits of offshore services, the story does bring home the challenges facing businesses when considering offshoring.

As developing economies grow they create more wealth which is more widely shared. Things become more expensive and exporting cost advantages disappear.

This could either mean lots of offshored work is brought back onshore or businesses might start looking for new locations that are cheaper than established offshore destinations such as India. China for example.

This also raises questions over the claims that businesses only offshore to cut costs. India is not cheaper according to many when you take into account the cost of travel, relocating key workers and communications bills for example. So why is so much work offshored to India then?

According to a consultant I spoke to last week there are more and more businesses offshoring for the first time at the moment. He said many businesses doing so are those that have outsourced in the past but never gone offshore.

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