June 2012 Archives

Does outsourcing software testing make things better?

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I recently wrote an update article about progress being made in a software testing methodology.

The independent Test Maturity Model integrated (TMMi), as it is known, has five stages and the long and short of it is that the testing is carried out throughout the development process rather than when it is finished.

As a result a lot of money can be saved.

See this article about it

There is a growing proportion of suppliers going through accreditation. This supports a trend that has seen more and more companies outsource testing. According to analyst Nelson Hall, the global testing services market was $8.4bn in 2011, and although 2012 is expected to be flat, it predicts an average 9% growth every year over the next five years.

Suppliers are putting themselves through TMMi hoping to differentiate. TMMi accreditation, for example, gives tier two or three suppliers a chance to stand out against bigger competitors.

Customers are beginning to request it so suppliers are having to do the groundwork. "We have seen a trend for request for proposals (RFPs) to request the level of TMMi they want for a project," said, Geoff Thompson, chairman of the UK Testing Board and consultancy director at Experimentus.

Speaking to me last year IDC said that specialist software testers are increasingly in demand. Jennifer Thomson, software testing researcher at IDC, said that in the past software testing has been bundled with projects and often done at the end of the software development lifecycle, but businesses are increasingly contracting independent software testers to test throughout software development.

"There is a lot more interest in standalone testing across Europe because there is a focus on quality," she said. "When we started looking at software testing about 18 months ago, it was predominantly a process that was added at the end. It was often a reaction to a business requirement rather than a sound methodology."

Are we about to see a massive outsourcing boom?

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Outsourcing is set to see the fastest growth since the 1980s with the sector worth up to £5bn by 2015, say city analysts.

According to an article in the Financial Times over £4bn worth of tenders are being negotiated this year, according to the Official Journal of the European Union and supplier pipelines. There are lots of contracts involving prisons, police forces, defence and health up for grabs this year. Obviously this is outsourcing and not IT outsourcing, although there might be some in there.

Equities analyst at investment bank Jefferies, Kean Marden, told the FT that this is as exciting as outsourcing gets.  "We haven't seen a wave this big since the 1980s when they introduced competitive tendering for public services," he is reported as saying.

But is it that exiting for IT outsourcing?

The article doesn't really mention IT outsourcing specifically but I have had some positive reaction from the industry in regard to IT outsourcing.

Steve Cardell, president at IT services HCL-Axon, said:

"With the halt on public spending now being released, this step-change marks a fantastic time for outsourcing providers. This gives them the ability to benefit from the pent-up need to deliver transformation and efficiencies on reduced budgets for both central and local Government.

"We¹ve seen an increase in more complex, multi-sourced or second-generation projects since the Government opened up its procurement processes further to give niche providers the opportunity to deliver services. This new approach is fuelling much-needed innovation in the UK IT sector, creating lucrative opportunities for Indian offshore providers who have previously been excluded from the market. In addition to paving the way for new entrants, this renewed focus on innovation will also lead, crucially, to a more significant investment in IT skills from the UK Government."

Martyn Hart chairman at the National Outsourcing Association said:
"Pressure on the public sector to make cost reductions has made for a healthy pipeline for many outsourcing suppliers, particularly now that tender costs have been reduced through 'de-formalisation' of the bid process. Having learned to engage suppliers earlier in the process, expect more business process outsourcing, as the public sector learns how to get itself a better deal. Commoditised IT can save around 10% annually, but only accounts for 5-6% of government spend   - BPO can offer savings on a much grander scale. Expect those companies that offer both ITO and BPO services to be most coveted by City investors. And, to ensure Outsourcing Works, the government must invest the time to up-skill its people. Only through proficiency, experience and knowledge-sharing can the public sector maximise the cost and service benefits of this outsourcing boom."

Tell me what you think by leaving a comment.
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How is technology changing BPO?

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Business Process Outsourcing (BPO) has been providing businesses with a way  to cut costs for years, but current IT trends are shaking up the sector, putting CIOs at the forefront of planning.

A perfect storm is in progress as customers want to cut additional back office costs due to continued budget pressure, and at the same time suppliers are trying to create additional services and the revenues that go with them.

Technologies such as cloud computing, business analytics software, social media platforms and process automation software are being used within BPO to enable them to lower costs and be more effective.

Recent research from Accenture revealed that high-performing BPO relationships, those that deliver business value, use technology as a source of innovation and advantage, rather than just providing the infrastructure of delivery. It found that 40% of high performers consider technology provided by the service provider to be an important component of the BPO relationship, compared to only 27% of typical performers. A total of 56% of high performers believe it is important to gain access to technology in a BPO relationship, while 34% of typical performers agree.
"Effective technologies and architectures contribute to cost reductions and more efficient operations by streamlining the systems environment and reducing the number of systems involved, often standardising the technology environment on a unified, centralised platform," says Anoop Sagoo, products industry BPO lead at Accenture.

Ilan Oshri, a professor at Loughborough School of Business, says IT is increasingly becoming part of the services as well as the platform through which they are provided.  "Businesses have been considering more functions for BPO, mainly because of the current economic conditions and because the suppliers [can now] provide BPO services much better than 10 years ago. Buyers are also expecting vendors to deliver high value therefore expect the vendor to work closely with them on improvements." At the same time he says it has become critical to buyers to consider alignment between IT and BP performance.

He says all of these trends are leading to a bigger role for IT in the BPO sector which is being driven by businesses and their suppliers. BPO suppliers are attempting to move beyond the provision of bodies or Full Time Equivalents (FTEs), by offering additional value add services through technology.

Because outsourcing relationships are like marriages both partners have to get something from it. Through additional technology based services customers will get more for their money, while supplier business models will change, with less reliance on providing human resources. This move by suppliers to what are known as non-linear growth models is a trend, particularly amongst offshore BPO suppliers who have relied heavily in the past on selling low cost labour.

"Many of the large vendors are now pitching the end-to-end value proposition to clients claiming that they are capable of introducing improvements across IT and BPO. IT is an enabler for suppliers and sometimes it is a differentiator.  Ten years ago, the little BPO carried out was pretty much detached from the IT function, " adds Oshri.

Mark Lewis, head of outsourcing at law firm Berwin Leighton Paisner, says the growing scale of the BPO market requires greater levels of automation through IT. He adds, "The main BPO providers can see IT as a way of achieving non-linear growth."  He says companies that have traditionally made their money by providing workers at a lower cost are changing to these business models. "Generally the Indian BPO providers have taken a while to catch up, but are now doing so rapidly."

Cognizant, which delivers services from India, is one such supplier. Paul Roehrig, a senior BPO specialists at the company says the integration of business process work and technology "has profoundly changed the business process service value for clients."

"New business process services are emerging that integrate human process work with collaboration and automation via technology enablers and automation platforms."

"We're also seeing next-generation technologies like cloud, social tools, and analytics much more effectively applied to delivery business process services," says Roehrig.

He says that ten years ago, many businesses were trying to outsource non-core processes primarily to cut costs. Although lower unit cost is still critical they now want more, he says. "Companies everywhere are grappling with the challenges and opportunities presented by the mega-trends of continued globalisation, new technologies such as emerging social/mobile collaboration, and a new mind-set for problem solving and dynamic process work."

"These themes are shaping a new kind of business process service, and there's growing evidence of a major market shift as next-generation business process services and solutions offer ways to modernise activities that underlie complex dynamic knowledge work."

Businesses intend to modernise processes in response to a continued economic downturn, says Roehrig. "Process virtualisation and externalisation is truly transforming how enterprise work will be conducted over the coming years."

Another transformational trend in business today is the importance of data and the technology that enables businesses to use the data they have. BPO can help businesess harness big data, says Sagoo at Accenture. "In the past couple of years, we've seen BPO moving away from large scale transaction processing largely associated with operational cost take out and process efficiency and moving towards being a driver of tangible business value," he says. "As such, BPO today is about mining the huge volume of transactional data that is being processed. BPO providers and their clients today are sitting on a gold mine of data and it's all about using the provider's industry expertise and insight, analytics and innovation to help a client tap into that information in order to operate its business better and drive business outcomes."

"The ability to undertake analytics on transactions, understand the insights and then identify opportunities to improve and add value to the client's business is what clients today expect from BPO.  Analysis of transactional data provides clients with actionable insight into their business operations," says Sagoo.
Suppliers are able to focus on services that improve the business due to the increasing use of process automation robots, which carry out the grunt-work. Businesses are using software that automates processes as an alternative to offshore BPO services. When workloads spike the business does not have to pay BPOs for more human resources.

Lewis at Berwin Leighton Paisner says using software to automate business processes is on the up and will cut people costs dramatically.  "Finance and accounting robots will replace people in the back office."

"There has been very little automation in BPO, mainly because of the amount of offshoring, but as offshore people costs increase automation will increase."

Mobile network operator O2 has deployed software, from Blue Prism, to automate business processes in an effort to reduce the cost of back office operations and cut its reliance on offshore recruitment to cope with spikes in workload. The company's back office has about 400 individual mini processes used to work around bigger processes to support new service offerings. Part of the business case for buying the Blue Prism licences came when Apple decided to change the size of the SIMs in the latest iPhone. With less than six weeks' warning, 02 had to have a business process in place to deal with changing customer SIMs. O2 said that before the automation software was acquired, there would have been a three-month spike in demand for 60 full-time staff in India to cope with this.

It is benefits like that which could put the CIO in a leading role in the business. As a result of the CIO's visibility across the organisation they well positioned to understand the various business processes and interdependencies. "They can play a key role in the outsourcing relationship, helping to elevate the role of IT to a business enabler and source of competitive advantage," say Sagoo at Accenture
He says planning and selection of BPO services and providers is an area where the CIO will need to play a key role. "The CIO's role will increasingly deal with information rather than technology, fulfilling the original vision of the role.  As technology becomes more transparent and cloud architectures re-shape and simplify delivery infrastructures, the CIO will need to be more focused on understanding and supporting the needs of the business by ensuring availability, accuracy, consistency, and timeliness of information to users and processes across the business." 
Professor Oshri agrees that CIOs are getting a bigger role. "Sourcing decision is no longer a stand-alone decision about the IT component, but rather moving towards an integrated sourcing approach in which executives will need to consider how IT can be aligned into BP and how can IT improve BP performance.  The CIO is central to such discussions within the firm and with the firm's supplier network."

"CIOs are increasingly becoming the business technology change agents within the enterprise," says Roehrig at Cognizant. "The role of the CIO is evolving from the caretaker of the systems of record to the person who unlocks value at the intersection of process and technology. The CIO of the 21st century will be instrumental in helping unlock process-aligned business value.

IT enabled BPO is a huge sector and dwarfs the IT outsourcing sector in turns of spending. But as businesses attempt to take advantage of new IT trends the, IT element of BPO relationships will grow at the expense of people. Technology trends such as cloud computing and big data are supported by technologies such as social media and smart devices to create new services to compliment BPO.
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Why are shared services being taken up more than normal outsourcing?

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Some interesting research from KPMG last week revealed that while demand for outsourcing is increasing it is the shared services element that is growing the fastest.

According to KPMG research into outsourcing trends, over half (52%) of organisations in North America, Asia and Europe increased investment in shared services during the last quarter. This compares with 37% that have seen increased demand for traditional IT outsourcing, and 27% for business process outsourcing (BPO).
I suppose a lot of this is the result of more public sector organisations sharing back offices? The public sector does account for a large portion of the outsourcing spend in the UK after all.
I asked Mark Lewis, head of outsourcing at law firm Berwin Leighton Paisner, what he was seeing.

He said he is not surprised that shared services take-up is growing faster than traditional outsourcing. But he says it is the private sector that is driving it because large multinations are creating internal global shared services.

These large companies are creating platforms to support things like HR and finance centrally with a global business service. Rather than have a different service for every region they can share them across the globe. This cuts costs and importantly allows the business to retain control of vital operations.

There are different ways of doing this. Companies can keep the global business service in-house, outsource it to a supplier or have a hybrid model.

Lewis says most large companies prefer to keep it in house. "It is a growing trend and is being used by many global businesses because it is ultimately more cost effective. It is easier to integrate, coordinate and more efficient than having it provided by an external supplier," said Lewis. "It makes a lot of sense in the public sector to outsource to a supplier but in the global business sector there is more insourcing." As a result there is a huge potential market for outsourcing these global services.

Perhaps shared service outsourcing is growing fast because big businesses are increasingly getting suppliers involved to cut costs.

Also this week, Cabinet Office minister Francis Maude  talked about mutuals in the public sector. These mutual will run the back offices of government departments and be owned by three groups: the staff, the government and a private company that will run the service.

The first one is already being set up. The My Civil service Pension (MyCSP), which will administer public sector pensions, is the first example of a new way the government will work with suppliers.

MyCSP was announced earlier this year as the first example of a government body spun out into a mutual and partnered with a private sector company. MyCSP will administer 1.5 million civil servant pensions, and will be owned by three groups: the 475 staff, the government and a private company that will run the service.

Back in November Katharine Davidson, director of strategy in the Cabinet Office Efficiency and Reform Group (ERG), said the My Civil service Pension (MyCSP) mutual currently being set up will be the first example of a new way the government will work with suppliers.

Maude reiterated this yesterday. Speaking at Intellect's World-Class Public Services conference he said mutualisation will be the future model of public sector services.

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How is technology changing BPO deals?

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I am currently writing a feature about the changing role of IT within BPO deals. A large part of the massive BPO sector is IT enabled and with the onset of cloud computing and increasing use of business analytics to get value from "big data," IT will become even more important.

Successful BPO deals are already using IT to cut costs and allow them to get more out of the data being collected, but there is a lot more possible.

Cloud computing and data analytics are two technology areas that are currently offering businesses the opportunity to get more out of BPO.

Accenture recently told me that software-as-a-service (SaaS) means businesses can introduce the applications used in BPO agreements without the need for large upfront payments and as a result the early parts of BPO agreements are usually loaded with costs associated with technology.

In the past, a business would have to buy licences and install heavy-duty business applications as part of a BPO deal, but today they can sign up to cloud-based services and easily scale up and down the number of users.

Technology is also providing increased value from BPO relationships. The use of the latest business analytics software enables businesses to get more from the data being handled within BPO relationships.
Give me your thoughts on IT's role in BPO either by leaving a comment on the blog or filling in this questionnaire.