Outsourcing

Trends

Procurement

Technology

World view

More than money

Talk talk

Bird’s-eye view

Forecast from afar

Firms want more bang than buck

Great relationships are key to

The cloud is calling, but is it

We look at today’s outsourcing

from their suppliers | Page 5

successful contracts | Page 10

safe? | Page 13

hotspots | Page 15

business-reporter.co.uk

February 2012

Distributed within The Sunday Telegraph, produced and published by Lyonsdown which takes sole responsibility for the contents

Widen your horizons

Can your suppliers give you the edge?

A special report on outsourcing

Business Reporter 路 February 2012

an independent report from lyonsdown, distributed with the sunday telegraph

Business Reporter · February 2012

an independent report from lyonsdown, distributed with the sunday telegraph

Outsourcing – in this issue

So, where do we go from here?

3

£200bn

External factors from globalisation to the spread of social media are changing the face is the current value of the UK of outsourcing as we know it – but it’s all about partnership outsourcing market, which also accounts for 3m jobs and 8 per cent of the total economy P5

By Marc Beishon

Publisher Bradley Scheffer brad@lyonsdown.co.uk Managing Editor Lucie Carrington lucie@lyonsdown.co.uk Editor Marc Beishon Creative Director Martin Nolan studio@lyonsdown.co.uk Sub Editor Amy Dickson amy@lyonsdown.co.uk Journal Assistant Natalie Luketic natalie@lyonsdown.co.uk Project Manager Jonathan Baer jonathan@lyonsdown.co.uk For more information on any of our supplements please contact us: Telephone 020 8349 4363 Email info@lyonsdown.co.uk Online www.lyonsdown.co.uk

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Should outsourcing BY now be a mature and wellmanaged strategy for organisations in both the private and public sectors? Not really. Although many processes and tasks have long been subcontracted – book publishers and printers, for example – the type of complex, often large-scale deals we see today have only evolved over the past 20 years. Modern-day outsourcing – such as the massive IT infrastructure management deals that are now common – are the product of relatively recent moves to contain costs and focus on core business.

The latest strategic partnerships around IT or business processes – or indeed a combination of both – are mostly 21st-century events, and many also focus on core interests such as customer service.

The reasons to outsource are many and compelling – while cost is a big factor, so too are access to world-leading expertise, sharing risk, freeing up internal creativity and more – all of which make outsourcing one of the most dynamic current business models. While the recession put the brakes on for a while, the unstoppable rise of globalisation and the investment in subject-specific excellence by many consultants and suppliers has put many organisations at a disadvantage if they don’t outsource some of their functions.

The challenge is to make the right decisions about outsourcing, taking into account what has been learnt so far and recognising that new models and technology are rapidly making the older generations of outsourcing obsolete. Accenture has identified no fewer than six generations already for business process outsourcing, with the latest building on standard cloud systems and, inevitably, adding social media and collaboration. An allied buzzword is “crowd-sourcing”, where virtual groups and individuals collaborate on projects over the internet.

Technology underpins both functionality and reach, bringing in the world’s growing outsourcing hotspots, from Sao Paulo to Manila, Bangalore and Krakow, with vast new opportunities getting ready in Africa. A shortage of IT skills at home will certainly drive more business to the major offshore destinations, but there are also major plays for adding business value in fields as diverse as legal work and drug discovery.

But outsourcing doesn’t mean offshoring – the UK’s own local capacity is not far off a tenth of the economy, with

600

is the number of professionals certified by the outsourcing association, IAOP, with 600 more certificates pending P9

7

is the number of benchmarks Philips uses to select outsourcing partners, after shortlisting 10 prospects to three P10 Sao Paulo: fast becoming one of the world’s outsourcing hotspots as technology increases the reach of many firms

many expert IT and business suppliers vying to show off their superiority in delivering technology infrastructure, HR, procurement and logistics, not to mention customer service, some of which is coming back onshore, and some of which can’t be sent abroad in any case.

Much of the new thinking in outsourcing also revolves around how partnerships are structured, with organisations keen to bring much more flexibility and wider access to best of breed technology and suppliers in contracts. It’s putting pressure on internal procurement professionals to up their “right-sourcing” and negotiation skills, and naturally this is also fertile ground for consultants. The bad name that public sector IT outsourcing has gained, while only for a minority of such contracts, should ease as all parties get better at what works best – such as sourcing under a broad and flexible framework.

And there’s one public sector example that is perhaps the ultimate in focusing on core business – Fiji’s health ministry is thinking of outsourcing a mortuary at a hospital so it can improve healthcare delivery.

Contributors Marc Beishon is a technology, science and business journalist and editor covering IT and telecoms, sales and marketing, healthcare and general business for corporate audiences and consumers.

Marc has worked on IT and healthcare magazines and on New Scientist. Marc edits many of our Business Reporter supplements.

Karl Flinders is an IT journalist, and is currently services editor at Computer Weekly, where he

has worked for five years. His main areas are outsourcing and financial services IT. Paul Bray has written about almost every topic from business and technology to travel, education and food and drink, for many publications including The Daily Telegraph, The Sunday Telegraph, The Guardian, The Sunday Times, Britain’s Top Employers and Computing.

Mark Hillary runs aa Brazilian IT news site, IT Decisions, and is the author of several books on globalisation, including Global Services and Who Moved My Job? He is based in São Paulo.

Kim Thomas is a freelance journalist specialising in business and technology. She writes for national newspapers and business magazines, and is associate editor of CIO magazine. Her qualifications include a PhD from Aston Business School.

24%

is the proportion of firms that will increase their spend on cloud services this year, as they see the benefits of agile working P11

16

is the UK ranking in the offshore league table – up from 31 last year – despite the financial crisis. India takes first place P13

Supporters

Business Reporter · February 2012

4

an independent report from lyonsdown, distributed with the sunday telegraph

Industry view

Transforming a global giant

Post-sale operations as a multibillion-pound software firm aren’t easy. But an innovative partnership has freed one company to focus on its core competency Outsourcing deals HAVE traditionally been controlled by a mass of detailed key performance indicators, milestones and targets, every one of which has to be monitored and evaluated. A deal that was meant to liberate can feel more like a ball and chain.

When Microsoft put its outsourced operations under the spotlight, it wanted to do things differently. Instead of micro-managing a supplier, Microsoft moved to a bold and innovative management-by-outcomes model, judging its partner by overall business results.

Microsoft would be freed to do what it does best – develop and sell leading-edge software and IT systems. Everything after the sale, socalled contract-to-invoice operations – the often complex sequence of events that must be gone through before the signatures on the paper become money in the bank – can be outsourced.

“In any relationship you have to identify your core competency. We are a software technology company and when it comes to this business process we believe we can partner better than we can do it ourselves,” explains Kyle Christensen, senior director worldwide BPO operations, Microsoft. “We put together a project called FADA to see if we could create a different type of business relationship to transform our processes and help drive our business forward.”

Microsoft has traditionally used many outsourcing contractors to handle its contractto-invoice processes. However, the outsourcing operation itself had become complex and unwieldy, with no fewer than seven contractors working in various regions, each using their own processes, technologies and systems. Results were variable, customer and partner experiences were not consistent and managing the process was costly and time-consuming.

One of the major decisions was how many outsourcing suppliers should be employed, but eventually it was decided that appointing just

one partner stood the best chance of success, as Christensen says: “If you think about the amount of revenue entrusted to this project – more than $60 billion (£38 billion) in 2011 – there was a lot of internal debate around whether putting all our eggs in one basket was the right thing to do.

Continuity and risk management were carefully considered. But at the end of the day, we felt we wouldn’t be able to achieve all our objectives if we didn’t consolidate the processes with one partner. It just had to be the right partner.”

After an exhaustive tendering process, Microsoft chose arvato as its global operations outsourcing partner. “In many requests for proposal processes, the approach is very glossy slide decks talking about what the future might look like. But, arvato’s proposal was pragmatic and grounded; a well thought-out road map on how to get us to those business objectives. The leadership commitment from arvato alongside a flexible and collaborative approach helped reassure us we were making the right decision,” says Christensen.

This part of arvato’s relationship with Microsoft is significant – revenues in excess of $60 billion a year are being processed in a five-year, $200m (£126m) deal. More than a thousand employees in six locations around the world handle everything from order and query management, to technical support and compliance. The gains are considerable too – liberated by the managed service model, arvato has been able to make operational decisions that have brought cost savings of more than 20 per cent.

One of the prime movers behind arvato’s vision for the Microsoft contract is Debra Maxwell, global BPO director. She says: “We specialise in delivering the unglamorous, but essential, parts of Microsoft’s business. Some of Microsoft’s deals are so large, in the multi-millions of dollars, if processing is delayed on only a few contracts, it

can result in a significant impact on Microsoft’s figures.”

On winning the contract, the daunting global transition commenced. New organisational structures were established with a mirrored hierarchy across both companies, nearly 800 employees were successfully transferred to arvato, sites were rationalised and new facilities were established in low-cost locations.

“We knew that getting the transition right was the critical success factor in a relationship of this scale and complexity. It was an early tester for our managed service model and we invested significant time in training everyone, from top managers down in both organisations, because the natural instinct of any organisation is to slip back into old ways of working,” says Maxwell.

Christensen adds: “This was one of the most complex outsourcing transitions within Microsoft and arvato delivered 12 successful transitions in 12 months – a real example of operational excellence. All of this, as well as doing the day job with a lot of moving parts.”

The progress continues now with the focus on innovation and transformation. Furthermore, ar vato has developed and introduced new platforms based on Microsoft technologies to replace a host of legacy systems, including a new ticketing system that logs all incoming customer queries, complaints and comments and ensures they are directed to the right person. In addition, a dedicated global transformation team has created plans to drive further change and continuous improvements into the business.

“Our partnership with arvato is already helping to transform Microsoft’s operations. Internally, it is creating consistent and predictable global standards for our business. And from an external perspective, it is helping us deliver a customer and partner experience that is best-in-class,” concludes Christensen.

Microsoft deal in figures

$200m $60bn five-year contract

annual revenues supported by contract-to-invoice partnership

20%

cost savings and improved customer/partner experience

4,000 15 unique processes

languages spoken by more than a thousand employees

6

locations: Dublin, Reno, Fargo, Monterrey (Mexico), Manila, Singapore

Business Reporter · February 2012

an independent report from lyonsdown, distributed with the sunday telegraph

Outsourcing

5

Notching up the added value Outsourcing isn’t just about saving money – for today’s businesses, it’s also about sharing expertise and increasing skills and flexibility

By Marc Beishon

Obama has called for jobs to return to the US

It’s said that when US President Barack Obama asked the late Steve Jobs about returning the manufacture of products such as the iPhone to the US, the Apple chief replied: “Those jobs aren’t coming back.”

It was a typically forthright response, but the huge growth in outsourcing and offshoring to markets such as China and India is well-established and low-cost economies will always have the edge in markets such as manufacturing, IT services and business processes such as customer service call centres and document processing.

Outsourcing is now a crucial part of most economies within country boundaries as well as offshore – and it has developed from having a rigid focus on cost containment to a more strategic and flexible approach to extracting business value. That’s reflected in some recent contract signings in a market that seems to be picking up again after taking a recessionary hit.

After a quiet start, the UK government is moving ahead with deals such as prison privatisation; local government is tendering for more large shared services contacts; and in Europe generally outsourcing has grown quite spectacularly.

For example, IBM is the prime contractor in a $2.6 billion (£1.6 billion) deal with La Caixa, a Spanish savings bank, to manage its IT infrastructure over the next 10 years.

According to consultancy Oxford Economics, the UK outsourcing market is valued at about £200 billion (or 8 per cent of the British economy), accounts for more than 3m jobs and is worth £115 billion to the gross value-added measure of UK output.

Eveything is up for grabs IT is, unexpectedly, the largest sector for UK outsourcing. IT and telecoms are also the strongest global markets for outsourcing, as demonstrated by deals such as BT’s with Unilever (see panel).

Oxford Economics also listed propert y services, office and admin, employment placement, and health and residential care as large outsourcing sectors. Surprisingly, perhaps, the call centre and customer care sector is relatively small – but is still worth about £1.5 billion.

Tr a d i t i o n a l l y outsourcing has been focused on non-core competencies, but the lines between these and core, strategic activ ities are becoming blurred as organisations push the boundaries of

Unilever has sited a major part of it’s IT and telecoms operation in Singapore, one of the Asian outsourcing hotspots

business process outsourcing (BPO).

In human resources, for example, BPO is evolving from static contracts for services such as payroll, benefits and recruitment to talent management, where external expertise is being brought to bear on more strategic issues, aided especially by a new generation of cloud computing HR systems.

The ability to enlist expertise that isn’t widely available internally is also evident in another growing BPO area – procurement. This has traditionally been a non-core outsourcing sector – everyone mentions stationery, for example – but Thames Water’s decision to go further shows how much value there can be in elevating it to a strategic level.

Head of procurement Simon Rutter says: “In the past, the stationery contract would be re-tendered regardless of whether it was a priority for savings. We changed to a more strategic analysis of where we should be devoting resources and to shortening the procurement lifecycle from decision to completing a deal, and we delivered much higher savings and better relationships with our internal stakeholders.”

Sourcing the supply chain Much of the impetus, he adds, has come from moving away from the legacy of being a public utility and meeting regulatory constraints.

“We also wanted to outsource the supply of equipment, maintenance, chemicals, professional services, telecoms and so on, which are all big issues for us,” says Rutter.

Thames Water has now signed a major deal with specialist supply chain sourcer Efficio for everything bar major capital construction procurement, in one of the first UK deals of its type. According to Rutter, the advantages are compelling.

“They understand our needs in minute detail and have much better data analysis and market evaluation skills than us for procuring operational items such as pumps.

Our operational people welcome their insight on suppliers.

“Their consultants have better negotiation skills – they are hiring high achievers, people from the best business schools. It’s just a fact that most organisations like ours can’t offer the same career path in areas such as strategic sourcing. And Efficio also drives project management harder and takes less time than when we did it.”

Twenty-one Thames Water staff transferred to Efficio as part of the contract and Rutter owns the relationship internally, reporting up to the chief financial officer.

“It’s vital that, day to day, people who are running our business see the benefits and

their buy-in is crucial.”

Such deals are growing quickly now, according to Neville Howard, senior partner in the technology integration team at Deloitte. Of 200 or so consultants, about three-quarters work in IT consultancy, which is an indication of the strength of demand for technology expertise.

With many deals now in their second or third generation, there is considerable challenge in migrating to another supplier.

“Just as much or maybe more than doing it for the first time,” says Howard.

With so much new technology and the opening up of new offshore markets, the outsourcing picture is looking challenging if only from being spoilt for choice.

Unilever’s global experience The multinational’s tie-up with BT has broken new ground in outsourcing and developed a truly global partnership One of outsourcing’s landmark deals is that between Unilever and BT. Over the past 10 years, the arrangement has helped drive outsourcing at Unilever, according to IT transformation manager Desmond Desouza, who works from the company’s office in Bangalore, India.

“The rate of change in IT and telecoms is so high that it is hard for companies to keep up,” he says. “We need a partner that can adapt technology quickly to help us get our products to market fast. In a global market too, much depends on local conditions and legislation, which also means it’s best to use one service provider that can manage local networks.”

The contract with BT is now in its third incarnation. “What’s changed is that we have made the contract much more open and flexible – outsourcing contracts used to be very restrictive,“ Desouza says. “For example, we don’t tie ourselves to narrow technology now – the contract is a framework that allows us to go to suppliers that can provide the best solutions, and BT then helps us run it. A good

example is our videoconferencing system from Telepresence.”

Another key point is that the contract operates on a truly worldwide basis. “It used to be the case that region-specific systems tended to evolve. Now we have one group in Singapore that’s responsible for the whole operation and which talks to BT in London about all systems that are cost-effective at local level, and we monitor service quality globally. This is much talked about in outsourcing circles but hard to do in practice.”

Over the last 18 months, he adds, Unilever has also grouped other operations such as financial services into a single organisation alongside IT, which is enabling the company to develop core competence in procuring outsourcing, although Desouza prefers the term “rightsourcing”. “We are selective about what we want partners to deliver and we have brought some functions back in-house, such as defining the overall architecture for our IT to avoid ending up with a patchwork of systems,” he says.

Business Reporter · February 2012

6

an independent report from lyonsdown, distributed with the sunday telegraph

Industry view

A personal touch from around the globe

Is banking reform an obstacle or an opportunity?

An intimate knowledge of the financial sector is being exploited by one company to drive efficiencies and create a competitive edge T he fir st dec a de of t his millennium has seen the financial services outsourcing industry mature, from searching for the world’s cheapest day rate, to a cost-efficient strategy that benefits from outsourced exper ts while still retaining knowledge in the business. In today’s highly challenging environment, financial institutions are looking to technology and IT teams to drive cost-efficiencies, co-ordinate compliance with new regulations, and create competitive edge through new products.

Established in Germany in 1987, GFT is a strategic IT partner for financial institutions and has spent the past ten years in the UK providing innovative IT services and supporting its clients in optimising their business processes. This industry knowledge meant that GFT could establish its technical centres of competence in Spain and Brazil to complement its local London and New York onsite consulting engagements, primarily in the capital markets of financial services.

Christopher Ortiz, managing director of GFT UK, says: “We took the decision early on that a combination of Barcelona and São Paulo would offer the highly-skilled local workforces, convenient time zones and cultural closeness which would most effectively serve London, Frankfurt and New York.”

This banking sector understanding led GFT to

develop its personal touch approach to outsourcing. Ortiz says: “Our personal touch method means there is a readily available pool of experts and consulting services for our clients to tap into, as and when they need them.

In a world where IT platforms and projects’ scopes are often extremely complex, our offering means suggesting the most appropriate and cost-effective combination of business experts and IT consultants to get to the right solution and ensure intellectual property is preserved.”

Ortiz predicts that personal touch outsourcing will be important in 2012, as banks demand mobility and IT Infrastructure Library (ITIL) projects. “Clever implementation of a mobile offering could be a game-changer for retail and investment banks alike. Bringing the ITIL lifecycle together on a cloud-based platform will give financial institutions secure and agile IT management, where the costs can be managed more effectively, appropriately distributed and reduced across the business,” he says.

Outsourcing has come a long way since the early days of cheapest day rates. In 2012 it requires an innovative approach and a hands-on understanding of the financial services sector.

020 7776 7676 www.gft.com

The aftermath of the Vickers report will alter the financial industry forever. Instead of fearing the changes, firms should see it as an opportunity to enhance outdated ways of working Ring-fencing of retail banks from investment banks, the need to strengthen a bank’s lossabsorbing capabilities, and increasing competition in the industry to improve overall stability are the key outcomes of the Vickers report. Legislation is to be passed within the current Parliament (before spring 2014), with final implementation to be delivered by 2019. Changes to the financial services industry are imminent.

On first pass, the Vickers report will make many executives nervous as to the cost implications, as change often means investment. However, we strongly believe it is an opportunity for banks to redesign and re-engineer their operating models when responding to the upcoming legislation. Those that move first will gain the most advantage.

The implications for banks will be both structural and operational in nature, with RBS already announcing the divestiture of some elements of its investment banking business.

Core to the implications will be the need for banks to have a robust operating model in place.

Elix-IRR specialises in working with banks to design operating models across back-office support services, and aligning the support strategy to that of the business – after all, banks cannot excel in today’s economy without world-class support services (whether internal or bought

from third parties).

Creating an operating model that enables this involves analysing the process and technology landscapes across the back-office and consolidating, standardising and migrating processes to leverage economies of scale across the bank. At the same time, transforming governance, organisational design and service management to align with the targeted operating model will allow a bank’s support functions to empower the business and greatly improve operating margins.

The answer to realise this can be threefold – internally, with a partner, or a combination.

Each brings advantages and disadvantages in terms of capability, speed and business case. The sourcing solution to achieve the new operating model is probably the single most important decision banks need to make.

Rather than reacting to the legislation, why not proactively prepare for it? Use the Vickers report as an opportunity to move away from viewing support as simple line items of cost, and far more towards seeing support as a strategic enabler to your front office.

Stephen Newton and Graham Busby, Elix-IRR Partners LLP 0207 847 9577 www.elix-irr.com

Business Reporter · February 2012

an independent report from lyonsdown, distributed with the sunday telegraph

Industry view

7

Have your cake and eat it With friendlier staff and operating costs 40 per cent lower than London, there are many benefits that can be found north of the border Most of us have phoned a contact centre and felt oddly reassured at being answered by the lilt of a Scottish accent. An honest, hard-working, dependable race, we subconsciously think. They won’t mess us about or sell us something we didn’t want.

The sentiment is as strong, if not stronger, in the growing number of businesses that are choosing to outsource their operations north of the border. One in 30 of all Scottish employees works for one of Scotland’s 400 business process operations : that’s about 90,000 people, up from 56,000 in 2003.

Global investment bank JP Morgan set up its European technology centre in Glasgow in 1999, now employing about 700 software engineers.

“Visiting colleagues are pleasantly surprised at the variety of work done in [our] Glasgow office and the capability of the staff,” says Paul Murphy, CEO of JP Morgan Scotland. “What comes across most is the enthusiasm, commitment and quality of the staff.”

Scotland has a centuries-old tradition in financial services, with several of the UK’s largest insurance companies based there, including Scottish Widows, Standard Life and AEGON (formerly Scottish Equitable). Edinburgh is Europe’s fourth largest financial centre by equity investments, and Scotland’s financial and business services sector employs almost half a million people.

So when financial services companies began consolidating and outsourcing their customer services functions in the 1990s, Scotland was an obvious location. As traditional industries such as shipbuilding and steel making declined, contact centres soon became established as one of the region’s major employers.

“Companies quickly found they could get equivalent skills and experience for less than they were paying in London or other high-cost locations throughout Europe,” says Mark McMullen, international senior manager at Scottish Development International, the government body that helps attract new business to Scotland and encourages existing operations to expand.

Soon companies Capella Building at Atlantic Quay in Glasgow’s International Financial Services District

began to look beyond customer services. JP Morgan opened its software development centre in 1999, and in 2001 rival Morgan Stanley moved the support functions for its institutional securities services division to Glasgow – now the bank’s second-largest site in Europe, employing 1,100 people. Scotland’s attractive work-life balance and stable workforce were key factors.

More blue-chip names have followed, including BNP Paribas in Dundee and Glasgow. “We see Scotland as a centre of excellence in fund administration,” says Philippe Ricard, BNP Paribas’s global head of fund accounting and administration.

Scotland’s expertise now extends well beyond financial services. “The sector has moved considerably from pure services to providing added-value support,” says McMullen.

Computer giant Dell has more than 600 technical and customer support staff in Glasgow, and mobile phone operator O2 has more than 1,000. Online retail pioneer Amazon recently created 500 similar jobs in Edinburgh.

International outsourcing firm Ceridian employs more than 800. And Swiss banking software specialist Avalog recently announced plans for a 500-person software development centre in Edinburgh.

Scotland’s business process outsourcing sector now includes around 400 companies.

Some are global players such as IBM, Logica, Teleperformance, First Data, Capgemini, Vertex

and Sykes Enterprises. Others are indigenous companies whose success has seen them grow to employ hundreds of staff, such as HEROtsc, Response, Stellar and Indigo Lighthouse.

“Outsourcing companies in Scotland are very mature,” says McMullen. “They invest a lot in preparing, training and developing their staff, and their people respond to that. Even before the credit crunch attrition rates were running at 9 – 18 per cent, well below the industry average.”

Scottish contact centres do not just serve customers in English-speaking countries. More than 10 per cent provide dedicated foreign language services, and others can rely on staff’s language skills when required. Scotland is a surprisingly multilingual nation, thanks to its maritime history, wealth of migrant workers, and immigration from Italy, Poland, Germany and elsewhere. More than 100,000 Scots are fluent in other European or Asian languages, three-quarters of them graduates.

Scotland has 14 universities and its people are highly educated, says McMullen. “There’s also a strong work ethic,” he adds. “People understand the dynamics of the outsourcing industry very well, and know that, ultimately, they’re providing a service for the client and its customers.”

Retail group John Lewis consolidated all its customer service operations – 400 people in all – in Hamilton, 12 miles from Glasgow.

“The company was impressed with the skills, experience and work ethic of people

there, and also by their friendliness and ability to empathise with customers.

“You can rent a top-class office in Glasgow for about £27-28 per sq ft per year,” says McMullen.

“In central London it would cost nearer £70-80.

On a 30,000 sq ft office that’s a saving of nearly £1.5m a year.”

Wages can also be significantly lower. Contact centre agents in London can command £20,000 – 23,000 p.a. while in Scotland the figure is £14,500 – 17,000. “That’s more than half a million pounds a year for a 100-seat contact centre,” says McMullen.

He concedes that, while Scotland cannot compete with offshore destinations such as India on price or volume of available labour, this is more than offset by higher quality and lower risk.

The management overheads associated with an onshore outsourcing contract can also be considerably lower, compared with making frequent trips to the Far East. That may be another reason why more than one in five organisations now outsource some services to a domestic third-party provider.

There are some financial incentives for organisations locating in Scotland. Regional Selective Assistance grants may pay up to 15 per cent of the average worker’s salary for the first two years in certain areas of the country.

Training and retraining grants are also available.

However, says McMullen: “No one comes to Scotland just for the grants and incentives.

They’re merely the icing on the cake.”

The cake itself, of course, makes for particularly good eating. www.sdi.co.uk

Business Reporter · February 2012

8

an independent report from lyonsdown, distributed with the sunday telegraph

Industry view

Bridging the understanding gap To cut the risk of miscommunication, performance analysis tools can be used to outline a client’s scale, scope and goal of an outsourcing project Successful outsourcing is a partnership and, like any partnership, it only works well if both parties are talking the same language.

“When you have a large-scale outsourcing contract, so much of what one party thinks it’s getting and the other thinks it’s delivering is defined by their own understanding,” says George Davies, CEO of enterprise performance specialist MooD International. “If this understanding is different you get a gap in the middle, that gap can create risk and lead to a loss of benefits.”

The issue could be the scope of what is being outsourced, the processes by which this is delivered, the client organisation’s priorities, the way costs are incurred and billed, or how things change over time. Because these issues often remain hidden until after the contract is signed, the understanding gap to which they give rise may never be fully appreciated – or properly bridged.

“We find that the fundamental problem is often a misalignment of expectations, with the supplier not listening carefully enough and the client not being sufficiently realistic,” says Peter Scott, a partner at outsourcing advisers Alsbridge. “Clients also fail to consider how the service provider is going to deliver on the contract, and to keep checking to ensure that it does.”

What both parties need is a way of defining the various elements that make up the client’s operations, identifying the dependencies between them, and how the assets deployed are delivering against the business outcomes that are committed. Technology to enable this already exists in the form of outsourcing performance management.

Already well established in supply chain and logistics management, outsourcing performance management solutions such as MooD’s Smarter Decisions solutions portfolio is now being applied to major outsourcing contracts in both private and public sectors. What makes them ideal in an outsourcing environment is their ability to model the client’s actual business

operation – the business components that constitute that environment – for example, processes, projects, risks and issues, systems, assets and very importantly the relationships and interdependencies between them. This enables managers on either side to have a dayto-day business view on what is happening, the latest status, and to find the root cause of any problems.

“An outsourcing performance management solution straddles the gap between client and supplier,” says Davies. “At the outset of a project, it helps the client to define the scale and scope of the project. The work often starts before the outsourcer is chosen, clarifying the supply chain, highlighting the implications of possible changes and judging how these will affect business outcomes.

“It then provides a way of examining the performance of the contract so that it becomes clear how this is – or isn’t – contributing to the organisation’s business goals and commitments.

Traditionally, the only information the client gets is what the supplier tells it, which fails because there’s no independent assessment and no collaborative environment for decisionmaking concerning the future direction of the service,” says Davies.

As relationships in the outsourcing supply chain become more complex, managing them without technology becomes even more difficult. Nowhere is this more apparent than in the Ministry of Defence, which has implemented MooD for managing supplier relationships to support military operations in Afghanistan.

“We’re tr ying to create an extended organisation where industry has a far greater responsibility for delivering availability rather than just delivering kit,” says Brigadier Alan Clacher, head of the Logistics Networked Enabled Capability Programme. “Unless you’ve got a common lexicon, a common taxonomy, then that whole task becomes impossible. Here, MooD has been pivotal in bringing together the wider industry community and delivering better

contracting for availability.

“MooD has been critical in delivering operational effectiveness and driving out unnecessary costs, resulting in significant benefits and savings. Also, risk is better managed and the quality of our data has improved.”

It is not just the client side that can reap the benefits. HP Enterprise Services (HP ES) provides outsourced IT services and infrastructure to the power systems giant Rolls-Royce, using MooD software to manage contract governance and reporting.

“MooD has been able to link business outcomes in a clear and insightful manner with the defined activities that drive them,” says Debbie Law, account operations manager at HP ES. “The manual effort of data collection, interpretation, analysis, clarification and presentation has been reduced.”

One of the things that make outsourcing performance management so powerful is its ability to provide a top-down, business-led view that can be approached from any business angle.

“We don’t spend months creating a massive database, we start with the business issue, then quickly find and deliver the right pieces of information to enable business people to monitor and manage it,” says Davies.

“Tools such as MooD’s are very important in providing a means of driving and steering the value obtained from an outsourcing contract because they provide a single source of information,” says Alsbridge’s Scott. “Without this, all you get is a random stack of PowerPoints and meeting minutes and you don’t really feel in control, which often means you can’t press the supplier to deliver all the benefits that were promised in the original contract.”

Scott adds: “Use of outsourcing performance management to handle outsourcing contracts is still in its infancy, so there is real competitive advantage to be gained by organisations that implement it well.”

01904 717300 www.moodinternational.com

How to manage outsourcing Outsourcing performance management such as MooD Smarter Decisions consist of three layers: The top layer provides a business-led visualisation of the domain being managed.

This is achieved through tailored views giving an up-to-the-minute picture of how the outsourcing contract is performing. These views are designed to address the specific business challenges at each stage of the delivery lifecycle. Problem areas can be highlighted using a classic traffic-light system, enabling managers to drill down through a ‘red’ sequence until they reach the root cause of the problem.

The middle layer defines the dependencies between the key business components and activities. For example, ‘This team is responsible for signing up new customers using this application on this system in this call centre, and x amount of business will be lost per day if they stop’.

The base layer defines the components

and activities that make up an organisation’s operations, such as people, processes, projects, systems, applications, buildings, infrastructure, assets and risks.

Data is derived from existing systems including HR, asset management, problem and incident management, and risk management.

Through such an approach you can create a direct link between activities and business outcomes, understand the effect between linked business elements, and it is also possible to perform ‘what-if’ analysis. For example, ‘If I change this process, what resources will I need and what will be the effect on dependent processes?’

In line with our focus and drive in the outsourcing market, and with our key partners, we are expanding our focus to include security performance management, through outsourcing operations performance, into multi-supplier integration and financial shared service centres.

Business Reporter · February 2012

an independent report from lyonsdown, distributed with the sunday telegraph

Outsourcing

9

Got the knowledge?

Managing outsourcing from the inside requires a new breed of professional - but what expertise will they need?

By Kim Thomas Now that OUTSOURCING has grown to become a fundamental part of the UK economy, those tasked with the important job of negotiating and managing an outsourcing contract must, you might imagine, be highly qualified and experienced professionals.

In fact, you’d be wrong.

Currently there is no standard, universally accepted career path for an outsourcing professional, and those doing the job come from a variety of backgrounds.

Many have risen through the company’s procurement or HR functions and, while highly skilled in those roles, have no particular knowledge of outsourcing.

As Steve Walsh, head of enterprise HR services at BAE Systems, says: “There are probably not as many organisations as there should be who look at it as a genuine standalone role.”

This lack of experience can be a handicap for those tasked with managing a complex clientprovider relationship. Walsh, who had previously worked as a project manager and made the switch to HR six years ago, believes that his commercial background gave him an extra insight when working with outsource providers.

“I can recognise whenever there’s a dispute between the service provider and our organisation that it’s not always the service provider to blame,” he says. Whereas professionals who have always worked in HR “often don’t have the necessary skills to step back and understand what’s reasonable”.

Procurement professionals can find themselves similarly at a disadvantage because, says Jag Dalal, managing director of thought leadership for the International Association of Outsourcing Professionals (IAOP): “They are trained to procure against a set of requirements, not to question the requirements themselves.”

Given the importance of the role, it may seem strange that organisations don’t put more effort into nurturing and recruiting people with the right mix of skills. The reason, however, is that too many still go into outsourcing with the

principal aim of cutting costs and little recognition that they need a long-term strategy.

“Most clients aren’t very smart clients,” says Anthony Hesketh, associate professor at L a nca ster Un iver sit y Management School. “They go to outsourcing providers and say, ‘Who will take our troublesome HR function away from us?’”

So what qualities should an outsourcing professional ideally have? The consensus is that the job requires the ability to take a view that is both long and broad.

As Clive Longbottom, founder of IT analyst Quocirca, puts it for his area: “The new outsourcing professional has to be able to bridge the gap between the needs of the business and the services offered by an outside entity.

“They need a full understanding of what the organisation’s business strategy is now and in the foreseeable future, and must also have a working understanding of emerging trends in the technology field.”

Eoin McCoy, a board member of Aspire, a Polish association for outsourcing and offshoring, believes that the outsourcing professional should have a

he says. “So someone across the enterprise can look at it and say, ‘We cannot give more work to the vendor you requested because we’ve already given it too much or we’re overexposed to it in that particular location or it doesn’t have the right terms and conditions’.”

Dalal believes that the tide may be turning in favour of increased professionalisation.

Some organisations, such as Proctor & Gamble and American Express, he says, have created separate outsourcing departments that sit outside the procurement function.

The emergence of recognised qualifications could also help to change attitudes. Both the IAOP and the UK’s National Outsourcing Association have developed sets of qualifications, broadly equivalent to each other.

The IAOP’s certified outsourcing professional qualification covers 10 skills that together take in the outsourcing process from end-to-end, from “defining and communicating outsourcing management practice” to “ pr ov id i ng out s ou r c i ng governance”.

Acceptance of the qualification may be slow, however. So far, the IAOP has certified about 600 professionals

The consensus is that an outsourcing professional requires the ability to take a view that is both long and broad clear understanding of how the outsourcer can improve existing processes.

“Mov ing work is only successful when you view the outsourcing as part of a transformation,” he says. “It’s about taking a model, breaking it up into its fundamental parts and putting it together again by giving the right processes to the right skill sets.”

The ability to weigh up risks and benefits is crucial – some organisations increase their risk by using only one provider or allowing business units to make their own outsourcing decisions.

Sarvesh Singhvi, who has 16 years’ experience in outsourcing as both customer and supplier, argues for an enterprise-wide strategy. “Outsourcing should be a centrally managed function,”

(with 600 applications pending), split almost equally between people who work for providers, those who work in an advisory capacity and those who work for client organisations.

L a n c a s te r Un i ve r s it y Ma n age me nt Sc ho ol’s Anthony Hesketh believes that recognition of the role will come about when clients move away from their current short-term mindset. They need to invest in professionals by developing a recognition of the skillset required, providing the necessary training and adjusting salaries upwards to attract the best talent, he says.

“Clients and providers have to make smarter investments in terms of what they’re doing to build their executive capital that looks after those particular deals.”

Business Reporter · February 2012

10

an independent report from lyonsdown, distributed with the sunday telegraph

Outsourcing

Sharpen up your negotiating skills Successful outsourcing depends on forging great relationships – from selecting suppliers to monitoring their performance

By Paul Bray Outsourcing has BEEN part of business for so long that one might expect it to be largely troublefree. Yet things still go wrong: cost savings and service improvements are not realised, promised innovations fail to materialise, rifts appear, and dissatisfaction emerges on both sides.

Often the seeds of success or failure are sown in the boardroom. “Deciding whether you need an outsourcing relationship, and how many, is a strategic decision that someone in the C-suite should be making,” says Sabimir Sabev, who leads the shared services and outsourcing practice at CFO advisory firm Novo Altum. “The higher up the decision is made, the more robust and aligned with business strategy it is.”

A decade ago, organisations were setting up webs of local, stand-alone outsourcing contracts.

“That’s a risk the CFO should guard against,” says Sabev. “The CFO needs to become the champion of

Risky business: drug wars (above) and the Arab Spring (below) are just some of the disturbances that have shaken the outsourcing world

Potential conflicts of interest should also be considered, especially if the service being provided will deliver significant competitive advantage business outsourcing. Otherwise you risk setting up multiple contracts that create duplication, inconsistency and waste.”

Do your research “Before selecting suppliers, it’s vital to do some top-level market research,” says Peter Ryan, leader of the business process outsourcing services team at analyst firm Ovum. Doing this, he says, lets clients learn the relative merits of particular suppliers while also understanding the commercial pressures they face.

It is increasingly common for large organisations to follow a multi-stage selection process similar to the one employed by Philips, according to Sabev (see panel). “Conducting parallel negotiations with more than one supplier helps to maintain competitive tension and keep up the pace,” he says.

Proper due diligence is vital, says Bassim Haj, senior vice-president and chief information officer of Yara, a global agro-chemical company employing 7,300 people in more than 50 countries.

“We request a list of references that are similar to our own organisation,” says Haj. “We pick two or three and have a half-day workshop with them.

It’s a very good way to get them to open up.”

“The supplier’s financial stability is a major issue, especially now,” says Iain Monaghan, partner and outsourcing specialist at law firm Pinsent Masons. Determining this may involve checking published credit ratings and sight of the supplier’s accounts. If the supplier is a UK subsidiary of a foreign conglomerate, potential clients may also obtain guarantees from the parent company.

The supplier’s trading history should be examined, adds Monaghan, including disputes, court cases and security incidents (issues such as data protection remain the responsibility of the

Shot in the dark: when it comes to outsourcing,managers must know what they are buying and why

client organisation even if outsourced). Potential conflicts of interest should also be considered, especially if the service being provided will deliver significant competitive advantage.

“Risk management relating to the delivery location has become very important in recent years,” says Ryan. “Egypt has become a major outsourcing destination so the Arab Spring shook the outsourcing world.” Other concerns range from Pacific tsunamis and labour shortages in India and the Philippines, to Mexican drug wars and even the possibility of Scottish independence.

Focus on outcomes not inputs Rapid turnover of managers at the outsourcer can be a cause for concern, adds Ryan. “Some suppliers have churned a good proportion of their executive team in the last 12-18 months.

Others have been stable for 10 years, making them a very low strategic risk.”

The contract itself should focus on outcomes, not inputs, says Haj. “People tend to specify the ‘how’, when they should be specifying the ‘what’ and leaving the supplier to work out the how.”

According to Ryan, “One of the most important things to get right at the outset is the pricing model: is it usage-based or outcome-based?” This may depend on the client’s attitude to risk and the kind of relationship it wants with its supplier.

In many ways signing the contract is the beginning of a process. “The main thing that goes

wrong with outsourcing contracts is management, especially lack of high-level governance,” says Monaghan. Issues are bound to arise, but with sharp-eyed management and a healthy supplier relationship they can be nipped in the bud.

Governance needs to take place at a number of levels, says Haj. Every month the client’s contract managers and stakeholders should meet the

supplier to discuss the details of what services have been supplied, which service level agreements have been met or missed, and so on.

Separate meetings should be held every three to six months to discuss the requirement for recurring factors such as service changes and technology updates, while long-term strategic alignment is dealt with at half-yearly meetings between board directors on both sides.

Maintaining these distinctions helps to ensure that short-term service delivery and long-term strategic needs are both fully addressed, says Haj. Outsourcing success depends in large part on the human relationship between the two parties, forged during the original negotiations and cemented by practice. “It’s important to build a good relationship with the service provider and have a channel to the person at the top,” says Haj. But Monaghan believes the contract itself should not be filed and forgotten. “If you don’t take it seriously, the supplier won’t,” he says. “If you make changes and improvements, change them formally so that the contract still reflects what you’re doing in practice.

“And don’t silently waive underperformance in the hope that things will get better. Make sure it’s minuted in governance meetings and that remedial steps are agreed and implemented.”

Outsourcing, the Philips way Careful planning and knowing exactly what’s wanted are key to Philips’s outsourcing success For global consumer products, healthcare and lighting giant Philips, successful outsourcing means following a tried-and-tested set of procedures.

Philips always begins by creating a strategic business case for outsourcing. Is the process mature enough to outsource? Is the outsourcing market mature enough to take it on? Can a service provider provide the function better and cheaper than keeping it in-house?

A specially created team then researches the market and draws up a longlist of eight to 10 suppliers which are invited to participate and sent a request for information, outlining the opportunity, scope, headcounts and timelines.

Three suppliers are shortlisted and Philips holds workshops and discussions with them to build the solution and pricing models, and to assess their competence, experience and cultural fit. Philips uses

seven yardsticks: solution quality, process capability, strategic fit, relationship and culture, employee experience, deal structure (including price), and company strength.

The detailed request for proposal is created at this stage, then finally two suppliers are selected and full contracts are negotiated with each supplier before the final selection is made. A full risk assessment and due-diligence test is also performed on both, including a detailed assessment of their capabilities through site visits and checking references.

“We appreciate that you can’t formalise every detail in the contract, so this focuses on our musthaves,” says senior director Jan Aernout. These include liability, data protection, governance, change procedures, exit strategy and key performance indicators.

Business Reporter · February 2012

an independent report from lyonsdown, distributed with the sunday telegraph

Outsourcing

11

Taking one step at a time Cloud computing is helping outsourcing firms become increasingly agile, but their clients are treading carefully

By Karl Flinders IT has long been leading the way when it comes to outsourcing. According to research from Oxford Economics, about 20 per cent of the total £207 billion outsourcing sales in the UK in 2009 were made in IT and data-related services, larger than any other outsourcing category.

And this percentage is set to grow as companies buy on-demand IT services such as infrastructure and business applications “in the cloud”.

While outsourcing IT is an established practice, cloud computing means a considerable stepchange for those involved, though it offers a wide spectrum of new services and flexibility.

With business agility increasingly important to leaders, the potential for cloud computing is huge – from straightforward applications such as data storage up to high-level business support for functions such as human resources.

Flexible commercial models, offering payas-you-go contracts as well as instant access to cutting-edge technology, are striking a chord with today’s boardrooms. Research by ComputerWeekly.com recently found that more than 24 per cent of enterprises plan to increase their spend on cloud services this year.

Pursuing a 10-year vision Email and storage, which can be delivered as a service and charged for per gigabyte, have already moved to the cloud across many industries. This is a low-risk way of getting IT resources without upfront investments for capabilities that, to be on the safe side, are usually overspecified.

Loughborough School of Business’s Professor Ilan Oshri believes 2012 will be another step in the maturity of the cloud for IT services.

Meanwhile, analysts at Gartner have predicted that 20 per cent of all businesses will own no major IT infrastructure by the end of this year – with SMEs prominent among that 20 per cent.

However, according to Oshri there is still a reluctance to put more mission-critical parts of the business in the cloud, usually as a result of security fears and the fact that some services cannot be standardised and shared. “Cloud is a 10-year vision for big companies,” he says.

So cloud outsourcing growth looks set to be gradual rather than explosive and not at the levels of usual IT outsourcing and business process outsourcing growth – IT outsourcing grew 6 per cent a year on average between 2003 and 2010, while business process outsourcing grew about 8 per cent between 2006 and 2010.

Much of the initial growth is from service providers offering cloud-based alternatives to existing services. For example, infrastructure in the cloud was chosen by personal loans firm International Personal Finance (IPF) to replace an existing outsourcing agreement when it needed a more flexible IT infrastructure as it expanded.

The result was a £10m three-year contract with Fujitsu to provide its infrastructure in the cloud, charged on a pay-per-use model.

Previously, IPF’s IT infrastructure had been hosted in a Fujitsu data centre but the cloud makes it easier and more cost-effective to increase its capacity, as well as saving about 25 per cent on the service charge immediately.

This year could see a major turning point in corporate attitudes to the cloud, according to

Mark Lewis, an outsourcing lawyer at Berwin Leighton Paisner. He believes 2012 will see standard public cloud offerings, such as Google Apps or Amazon’s on-demand storage, taken up by big companies – “But only after the major cloud providers facilitate data protection compliance and acceptable levels of data security.”

Warwickshire County Council recently announced plans to move to cloud-based Google Docs, an alternative to Microsoft with applications such as email, videoconferencing, word processing and spreadsheets. The council hopes to save £250,000 a year on licensing costs, but will also benefit from better availability because the cloud system can be accessed from any device, anywhere.

Local government pioneer Head of information assets Tonino Ciuffini says the authority will use the cloud for the bulk of its work. Ciuffini says: “We will only use public cloud for non-sensitive information. The 5

Much of the initial growth is from service providers offering cloud-based alternatives to existing services per cent of staff who deal with more sensitive information will continue to use our internal secure mail.”

An IT application such as this is a pioneering step for many organisations, but necessity is also driving other large organisations to consider cloud options. For example, when marketing intelligence provider SkyIQ was set up by Experian and BSkyB in 2010, it had to create an IT service management platform in six weeks without any relevant in-house experience. It chose a cloud-based ITSM service from ServiceNow, a company set up in 2004

solely as a software-as-a-service operation.

Sean Harley, director of technology operations at SkyIQ, says the company’s decision to use a cloud service was based on a need to get a foundation platform up and running fast.

Investments made by software giants including Microsoft, Oracle and SAP suggest they are expecting a move from on-premise business applications to the cloud. Last year saw Oracle launch its Fusion platform strategy, SAP started to make ground in the SME market with its Business ByDesign, while Microsoft introduced Office365. All these cloud offerings are likely to be considered by any business refreshing its software as part of regular practice.

So the cloud looks set to go through its adolescence this year as businesses learn its limits and try out new things. Growth looks set to be slower than outsourcing trends in the past but developments in technology and contractual frameworks will take the cloud well beyond its initial base camp.

What applications are going in the cloud?

Storage/backup

71%

Email

62%

Document management

59%

Collaboration

56%

CRM

53%

Productivity applications

44%

Internal intranet Hosting internal applications Speciality applications

40% 31% 10%

Source: SMB Technology Adoption Trends, Comptia July 2011

What is cloud computing?

From straightforward email access to outsourcing multiple business processes, moving to the cloud can offer tailored opportunities to any business Cloud computing can take many forms but there are essential characteristics that are common to all applications. Whatever the model or approach, it involves delivery of services over a network that can be accessed by a variety of devices – not just PCs but also by netbooks, tablet computers and smartphones.

It involves rapid elasticity – the ability to scale up or scale down computing resources – and virtualisation (keeping servers busy by reallocating resources).

Importantly, cloud computing models are self-provisioning, so a customer can use services

without assistance from the operator.

According to the Computing Technology Industry Association (CompTIA), there are three service models. Software-as-a-service (SaaS) which includes email, Salesforce.com and Google Apps.

Platform-as-a-service (PaaS) is a framework for developers to run their own software, and therefore can be used for in-house applications. This service is particularly useful when SaaS solutions don’t meet the particular business needs.

The third model is infrastructure-as-a-service (IaaS) – and is simply the access to computer servers.

CompTIA has also reported four deployment models for cloud computing. Examples of a public cloud include Google and Salesforce.com, whereas a private cloud involves on-demand just for one company and its partners.

A hybrid cloud is a mix of public and private, while a community cloud is shared by a like-minded group.

So why do organisations move to the cloud?

Reducing capital expenditure and other costs is currently the number one reason for moving to cloud computing, CompTIA says. But the desire to add new capabilities that aren’t available otherwise is also a driving force.

Other factors are the speed with which it can be rolled out, simplicity, subscription pricing, an end to conventional software licensing, and lower energy use.

Crucially for outsourcing, cutting internal IT staff numbers, while a factor for some, is not a major reason for cloud, suggesting that these workers may be better deployed on activities that really help the business.

Business Reporter · February 2012

12

an independent report from lyonsdown, distributed with the sunday telegraph

Industry view

Boost your assets with a helping hand The mortgage lending industry is in the doldrums, but the UK’s major banks can ease the burden if they’re open to exploring outsourcing options Challenging times require robust yet flexible solutions, and few sectors will face more challenges during the coming year than the mortgage industry.

A sluggish housing market, low levels of new lending, funding challenges, rising repossessions and increased scrutiny by the regulators will put further pressure on lenders and their depleted resources. Many face the quandary of being caught between the need to cut overheads and shed assets while handling spikes in mortgage administration activity.

Many lenders can struggle to find the manpower to manage these multiple, competing priorities without outside help, says Andrew Jones, CEO of HML, the mortgage outsourcing specialist that manages around £43 billion of mortgage assets for more than 50 clients.

“This year we expect to see demand for our services from lenders who are looking to divest themselves of assets, reduce costs, employ overflow collections resource to supplement their own staffing through peaks in activity, get support for new lending, and access more rigorous forecasting tools,” says Jones.

Asset trading (when one lender sells a ‘book’ of existing mortgages to another lender) is a classic example.

“In December, we completed the migration of 15,000 prime mortgages from the Bank of Ireland to our mortgage administration platform, facilitating a sale of the assets,” says Jones. “The buyer wouldn’t have had the manpower to move the mortgages to their own system quickly enough, but we were able to complete the migration within the seller’s required timeframe. The whole project from inception to completion took just four months.

“We have a dedicated team that handles mortgage migrations and we’ve completed about 70 deals in the past two years, far more than our nearest competitor,” says Jones.

And it’s this expertise – being able to move mortgages from any platform in record time, and take over the administration of large numbers of mortgages by moving its own resources around – that has earned HML its position as the market-leading provider of services to companies and investors who want to trade assets.

Alongside a reduction in domestic mortgage lending, the credit crunch brought with it greater scrutiny of the mortgages that are currently being traded.

This led to an increase in demand for back-up, or standby servicing arrangements, so the traded mortgages could maintain their existing investment grades. It also allowed HML to consolidate its position as the leading provider of standby servicing in Europe.

But it’s not just asset trading where HML is able to provide a service that lenders may find useful over the coming year. “Some lenders face a backlog of borrowers in financial difficulty that need help,” says Jones. “We can take that extra workload on an ad-hoc basis, covering the activity the lender doesn’t have the resources to deliver. “ W e have more than 300 people with arrears management experience so we have the scale to do this. We’re like a tap that the lender can switch on and off at will.”

The tap analogy also works well when you consider the drip, drip impact of additional regulatory activity on existing IT systems.

The Mortgage Market Review, published in December by the Financial Services Authority, introduced new regulations and

HML’s 2012 regional repossession forecast that means administrative and IT systems will need updating. A major lender may have 20 or more such systems, many stemming f rom mergers and acquisitions, and relating largely to legacy mortgages.

“Lenders can decide to switch off their legacy systems and move the mortgages to our system instead of shouldering the cost of continuing to invest in, update and maintain these,” says Jones.

“Because we only have one system that’s shared between all our clients, we can make changes far more efficiently than a lender with multiple systems.”

During the recent years of financial uncertainty, HML has been working behind the scenes to prepare for the challenges ahead.

“We’ve spent the past few years with an internal focus, getting our own cost base and resources right to support our existing clients and welcome new ones,” says Jones. “Now we’re very confident in the value of our propositions to the market. We successfully transferred two new clients on to our system in the last quarter of 2011, adding more than £2 billion worth of mortgages to our mortgage administration platform.”

Training and development has also been a major focus, with HML working closely with the National Outsourcing Association (NOA) to put its employees through diploma courses.

“Historically, outsourcing hasn’t been seen as a specialism, but we believe it’s a discipline that requires very specific skills and capabilities,” says Jones. “One of our employees even won the NOA’s Award for Academic Achievement for a dissertation on managing the cultural challenges that can arise when one company outsources parts of their mortgage administration to another.”

This year HML also plans to continue its expansion into the savings and unsecured lending markets, building on the work it has done over the past 12 months. “There’s a lot of similarity between these markets and mortgages in terms of skills, systems and regulations, so our expertise is very transferable,” says Jones.

01756 776 729

Andrew Jones

www.hml.co.uk

Data is another area where HML has an unparalleled amount of market intelligence to offer its clients.

In December the company published its annual regional repossession forecast, which concluded that UK property repossessions are set to rise by around 7 per cent during this year – as 2011’s high level of mortgage arrears is aggravated by the worsening economic situation – before starting to fall back in 2013.

HML’s is the only forecast to break down repossessions by region. It predicts that about 37,700 UK properties will be repossessed during this year, with Northern Ireland seeing a repossession rate of 1.08 per cent – four times higher than southwest England.

HML’s clients get access to much more detailed data, says CEO Andrew Jones. “For example, if a client is considering buying a mortgage book, we can model the tendency to default on the mortgages in it.”

Region

Forecast %

Forecast No.

East of England

0.35%

3,111

East Midlands

0.31%

London

0.42% 4,661

North East

0.38% 1,635

North West

0.31%

Northern Ireland

1.08%

Scotland

0.40% 3,636

South East

0.31%

South West

0.25%

Wales

0.38% 1,820

West Midlands

0.40%

2,452

3,663 2,988

4,226 2,265

3,742

Yorkshire & Humber 0.38% 3,510 UK

0.37% 37,709

Business Reporter · February 2012

an independent report from lyonsdown, distributed with the sunday telegraph

Outsourcing

13

Passport to a plentiful partnership Now that more emerging economies have the infrastructure to support global services, executives can look further for outsourcing partners

By Mark Hillary INDIA STILL DOMINATES the top outsourcing destinations, followed closely by China. Indian firms such as Wipro, TCS and HCL have emerged as global giants to rival the established western players. And they have the great advantage of low-cost operations. But other countries are developing vibrant markets.

Take Brazil, which is a rapidly emerging destination for investment and outsourcing.

With $165.7 billion (£104.9 billion) spent on ICT in Brazil in 2010 and just $2.4 billion (£1.52 billion) of that exported, the country is developing a reputation as the place everyone wants to enter. This is hardly a surprise given the large-scale infrastructure projects linked to the 2014 FIFA World Cup and 2016 Rio Olympic Games. But companies are also tapping into the Brazilian flair for creativity.

Nigel Storey, global services commercial marketing manager at healthcare business Johnson & Johnson, oversees many of the product-related websites developed by his company to help support their customers. He doesn’t build those interactive sites in-house but works with technology firm Ci&T in Campinas, Brazil. Storey particularly likes working with

“Sri Lanka has recently popped on to the radar and is being promoted as a niche location” – Ryan Ci&T because of its agile philosophy: delivering improvements quickly and regularly.

“Last year we had a couple of major product launches and Ci&T provided us with support in the pharmaceutical sector. It delivered multiple websites in a timely fashion which met the needs of our different audiences: healthcare professionals, the patients themselves as well as requirements by the Food and Drug Administration (FDA) from a communications standpoint,” says Storey.

He believes that the business and social culture of the outsourcing partner are factors that contribute to the success of the relationship.

“There are some characteristics of the Brazilian team that are phenomenal, especially when it comes to innovation and accountability – they are very creative in finding solutions to ensure that they own tasks and take everything to fruition,” says Storey.

Firms are also looking beyond India when it comes to outsourcing business processes,

according to Peter Ryan, lead analyst for business process outsourcing (BPO) research at Ovum.

Changing markets “While India has been the offshore destination of choice for a long time, other countries that are seeking to take on more process-related work,” says Ryan.

“Sri Lanka has recently popped on to the radar and is being promoted as a niche location for a multitude of BPO possibilities. In Latin America, countries that would once have been inconsiderable (including Nicaragua, El Salvador and Colombia) are impressing with talented labour pools, low input costs, and political and economic stability.”

Sri Lanka, for example, is making a play for finance and legal BPO, and is said to have the world’s second largest pool of UK-qualified finance professionals (after the UK itself).

“This is not to say that mature offshore centres are going to fade away. What is clear is that offshore outsourcing is no longer a limited market and vendors – as well as their clients – have more choice than ever,” Ryan says.

For most of the past decade, the central and eastern Europe have been touted as natural successors to India. The region is closer to European customers, with good infrastructure and plenty of educated people.

The UK online gaming firm Betfair has entered this market. Employing more than 700 people in technology development centres in Malta and Romania, it aims to find the right resources for its operations – although in this case it has gone for offshoring rather than outsourcing.

Tony McAlister, Betfair’s chief technology officer, explains the benefits of his team in Cluj, Romania. “It gives us access to a talented workforce. The Cluj-Napoca area has a high standard of technology, higher education and

is widely seen as Eastern Europe’s answer to Silicon Valley.

“And, because the Cluj office is new and has such a tightly focused remit, it has given us the opportunity to build a technology culture from scratch. The office was built to become a local leader and attract the best talent, and since 2007 it has become a hotbed for some key areas that support our main office.”

Time to get personal Smaller companies have much to gain from shopping abroad – wedding photography agency

SnapKnot, for example, has found willing partners in a variety of locations. Founded in the US in 2010, the firm’s website provides a one-stop-shop for couples seeking a wedding photographer.

Co-founder of SnapKnot Mike Rheaume explains how he found the talent needed to build the technical side of his business.

“Traditional geographic borders have become almost irrelevant in terms of the quality of IT work available. We have worked with teams in Ukraine, Russia, the US and now Bangladesh.

And we continue to find that the primary criteria for good technical development – experience, quality, communication, efficiency and cost-effectiveness – are attainable via online outsourcing.”

Rheaume believes that offshore outsourcing has moved beyond the selection of a country in which to do business and beyond the selection of a company. In his view, it doesn’t matter where people are located so long as you feel you can work with them – it has become personal.

Cost has always been the main driver for those seeking to outsource work across the globe, but the availability of talent and the ability to scale were never far behind. What has changed is that more international locations now have the infrastructure, the people and the stability of democratic governments. There are many places in the world where IT and IT-enabled services can be delivered and entire continents, such as Africa, are potentially open for business.

Tools such as oDesk, which allow companies to auction the work – finding skilled people regardless of location – are enabling companies such as SnapKnot to find its partners. The old norms of a request for information and a pitch with PowerPoint are irrelevant in the small- to medium-sized market, which is where many of the emerging markets are going to excel.

The network society that was prophesised in the 1990s is becoming a genuine reality, creating job opportunities in the most remote regions with no real requirement beyond Internet availability. Nobody is yet challenging the dominance of India for both IT and business process work, but the idea that it will remain the first choice location is under much pressure.

Offshore league table

Bangalore, number one city for outsourcing

Estonia risen in league table

• Asia rules the top 10 with the leaders once again India, China and Malaysia.

• Latin America continues to serve the US market well and is expected to grow in importance.

• The Middle East and North Africa had become increasingly attractive because of their proximity to Europe and vast talent pool. But the uprisings last year may have put paid to some of that growth.

• Many European countries were badly hurt by the financial crisis but Estonia, Latvia and Lithuania saw their rating climb – and the UK moved up from 31 to 16 in the league.

• The US is the top customer for outsourcing services, accounting for 63 per cent of global IT outsourcing spending, but it also ranks 18 as an outsourcing location, thanks to a combination of talent and accessibility.

Source: The Global Services Location Index, A.T. Kearney, 2011

Business Reporter · February 2012

14

an independent report from lyonsdown, distributed with the sunday telegraph

Industry view

Focus on core competence, Experience customer outsource commodities service the way you want it Handing over the burden of distracting back-office functions can allow companies to focus on the areas that will bring the greatest benefits

Outsourcing is so well established among major financial institutions that it creates little comment. But there are many start-ups and niche players, such as pay-day loan specialists, branded banking operations of retail companies and UK branches of foreign banks that could derive great benefit from selectively outsourcing parts of their operations.

“We’ve been providing specialist back-office services to all the major UK retail banks for more than 25 years,” says Rod Edwards, managing director of Parseq, a UK-based niche BPO (business process outsourcing) supplier.

“The functions that we have been providing to the large banks are also required by smaller organisations. But they wouldn’t dream of going to the expense and effort of building, for example, a new payment system and updating it as legislation and regulations change, or an account receivables system with all the automated equipment required to read cheques and remittances, or match BACS payments. They leave that to us.

Smaller players and start-ups can share in these benefits and gain extra advantage such as reduced time to market, Edwards believes.

“We’ve set up inbound and outbound contact centres in less than three months, and complete back-office operations in less than six months.

If companies did this from scratch, it could take a couple of years.”

An outsourced operation is highly scalable.

“When a new bank or institution launches it often has no idea what volumes to expect,” says Edwards. “With strong marketing and aggressive interest rates it may receive a huge volume of applications, and if it can’t open and service accounts quickly enough it can suffer significant brand damage. We have the capacity to absorb these spikes of demand.”

A new financial institution may never need to invest in its own systems, property or people to perform its back-office and customer-facing operations. “An organisation such as Parseq can provide all of the key processes for a ‘virtual bank’, including its contact centre,” says Edwards.

Above all, outsourcing enables the management of the new company to focus on what really matters. “If you’re an entrepreneur setting up a pay-day loan company, you want to focus on things such as marketing, branding and risk management,” says Edwards. “Routine back-office functions are just a distraction. The secret of successful outsourcing is to identify what differentiates you from the competition, keep that in-house and outsource the rest to a specialist.”

This is why major banks and other financial services firms are prepared to share the services of a company such as Parseq, adds Edwards.

They want their back-office functions executed professionally and securely, but accept that these are largely commoditised and they achieve their differentiation through other aspects of the business.

In the early days of outsourcing there were many large, single-supplier deals, but things are changing now. “In the past few years we’ve seen a trend towards using a combination of specialist, best-of-breed outsourcers,” says Edwards.

“Companies like ours offer an identikit set of component parts that our clients can assemble in the way that brings them the greatest benefit.”

Parseq, previously known as Documetric, is the new name for a UK-based, technology-led BPO company with decades of experience.

01709 448000 www.parseq.com

The best contact centre specialists can turn the challenges of social media into advantages. By monitoring and analysing every customer response, consumers get what they want most – great service

Matt Sims and Alistair Niederer of Teleperformance - shaking up customer experience

The boom in social media has revolutionised the way we communicate, yet the vast majority of businesses seem unable or unwilling to join the conversation.

“Companies that want to increase customer loyalty have to embrace social media,” says Alistair Niederer, UK CEO of Teleperformance, the global leader in customer experience management.

“But statistics show that only 16 per cent of companies are looking at what customers are saying about them on social media sites such as Twitter and Facebook. Many don’t know how to get started or can’t decide who should take responsibility.”

The two key challenges of social media are also the things that make them so powerful if handled correctly, says Matt Sims, Teleperformance’s executive vice president of business development.

“Firstly, they’re immediate. Customers choose the channel that best suits their needs at the time, and they use social media when they want answers quickly. Using our social media manager tool, we’ve been able to respond to posts and tweets within two hours: that’s the kind of service consumers expect today.

“Social media is also ‘one-to-many’. A tweet can be picked up by millions of people within seconds and so can a company’s response. And Facebook can have enormous reach. A major retail client of ours started with 60,000 ‘likes’ on Facebook: after 18 months with social media manager it had more than 230,000,” says Sims.

Teleperformance is a pioneer in “buzz monitoring” – reading and analysing what is being said about its clients and their sector in various social media. It can also even classify mentions as complaints or compliments.

Are consumers grumbling that a product is too expensive or wishing it had different features?

Do they regret that the company has no web chat facility or Facebook page? The company might never have known that it was losing out, or why.

Depending on the client’s preferences, Teleperformance teams of customer experience advisors may quickly respond to a post or tweet.

If it was a complaint it can be nipped in the bud before it snowballs. If someone requested information they – and all their followers – know how efficiently the company can respond. If a competitor is having a bad day, the company may be able to gain some advantage.

“Business insights are a big part of our offering,” says Sims. “In collaboration with the client, we build a glossary of terms to look out for, and use it to monitor all kinds of media and customer communications. We almost always come up with new learnings or recommendations that can enhance the customer experience.”

These business insights cut across all communications channels to provide a comprehensive view of the customer base.

Social media should not stand alone, but be part of an integrated, multi-channel experience, Niederer believes.

“All companies should offer customers as wide a choice of channels as possible, with each giving the same immediacy of experience,” he says.

“Customer experience advisors are highly trained to offer multiple channels of engagement, from web, email and social media to voice and letter.

“Adding social media to the customer channel strategy provides the opportunity to listen to customers better and engage them at a new level.

This enables companies to retain customers, increase loyalty, and build and grow their customer base.”

0845 730 0152 Email: marketinguk@teleperformance.com

Business Reporter · February 2012

an independent report from lyonsdown, distributed with the sunday telegraph

Industry view

15

Firing on all cylinders Cost management is a priority for every business. Procurement outsourcing can offer a number of benefits, including visibility and control of costs Top business performance improvement through procurement outsourcing offers a compelling way for a CFO to punch beyond the realms of finance, argues Matthew Eatough, CEO at Proxima, an end-toend procurement services provider, whose clients include BG Group, BDO, British Airways and WM Morrison.

“For example, during the budgetsetting process it’s difficult for a CFO (chief financial officer) to challenge budget-holders from a position of real insight into underlying cost drivers for suppliers, innovation coming from the marketplace and so on,” says Eatough. “Often what happens is an annual ritual of dispute between the CFO and the budget-holder. This rarely leads to a meaningful discussion about the underlying value for money, how to stretch the impact of limited funding, or how to achieve broader strategic goals.”

Cost management is clearly part of the finance agenda and, to manage costs effectively, Eatough argues that there must be commercially minded procurement capability in the process, working strategically with finance and budget-holders to maximise the impact of expenditure.

“Procurement is like an internal consultancy

Improving business performance by making procurement deliver more

that spans all functions and inf luences people across the organisation, from the top down. The challenge is that procurement is complex. It spans vast areas of spend, such as IT, marketing, professional services and HR. It requires numerous skill sets, such as influencing, negotiation, change management,

leadership and communication,” says Eatough.

“And it depends on your ability to efficiently run a multitude of processes, such as manage tenders, deal with suppliers, track savings and match purchase orders to invoices.

“Typically, suppliers devote more time and expertise to maximising the value they get out of an organisation than the organisation invests in maximising the value it achieves from suppliers, therefore organisations often lose out. So when the CFO is dealing with functional heads who are experts in their own field, the ability to talk their language is paramount to enable trust and allow the CFO to influence their area of responsibility.”

Eatough says procurement outsourcing is attractive to a CFO given the nature of what it can deliver.

“We see procurement as an undervalued and underdeveloped business resource. What surprises people is the size of the achievable return on investment – far greater than other types of outsourcing, and it’s a major untapped opportunity for many large organisations. In 2011 we delivered more than £40m of cash for a FTSE 100 client – cash which went straight to the bottom line. Another client has estimated that their profit margin would be 20 per cent lower without the influence of procurement.”

Eatough often refers to making organisations

Bringing a business back to life Medium-sized firms could feel the benefit of 20 years’ experience to help in change management and strategy execution When Kevin Borley, director of The CIO Partnership, first visited his new client he found the hi-tech engineering firm in a bit of a quandary.

“They had recently completed a reverse buyout of their parent company and jumped from $20m turnover to $200m,” he says. “The IT team were used to running a small company, with no real idea about how to manage the effects of growth, transition and process change in a sizeable, multinational business.

“Suddenly they had technology spread across several countries and lots of intellectual property and security issues, but they weren’t even sure how to formulate a strategic plan. And they’d spent two years and $2m on a new ERP (enterprise resource planning) system that still hadn’t been installed.”

The company’s IT manager was out of his depth – unlike Borley, a former chief information officer (CIO) of Syntegra and associate analyst at Bloor Research. Situations that leave mediumsized firms floundering are commonplace to him, which is why he and business partner Richard Rose founded The CIO Partnership.

“We provide part-time CIOs with a minimum of 20 years’ experience of leading technology strategy and ser vice delivery, to assist medium-sized firms in strategy development, transformation and business improvement programmes where technology and process are central to change,” says Borley.

“We’ve got the ex-CIOs of First Direct, ICI, Rothschilds, Rank and Lloyd’s of London, and people who’ve had senior roles at McKinsey, Bloor Research and other leading consultancies.”

He stabilised the fragmented infrastructure, brought in colleagues from The CIO Partnership to address security and other specialist issues, and canned the ill-starred ERP venture, saving the company thousands of dollars a month. Then he turned to strategy. “The board were afraid the rest of the organisation didn’t share their vision, so we identified some key change points in the business and how to get the organisation on-side,” says Borley.

“That’s the point of a CIO,” he says. “CIOs are problem solvers, people with a unique grasp of both business and technology, who can understand an organisation’s strategic plans and create an IT strategy that will make these happen.

It’s something you only learn from practice and experience, and it can be difficult to acquire in a medium-sized organisation.”

CIOs have their own ideas, says Borley. “One question I ask all my clients is, ‘What are your core competencies?’”

Core competencies usually come down to three things: first-line support, supplying key business and process intelligence, and managing third-party suppliers.

Everything else can usually be outsourced, Borley believes. But the advent of ‘utility’

computing, w it h services procured on-demand from a matrix of suppliers, increases both the opportunities and the risks, m a k i n g it more important than ever that a company has someone with CIO experience to guide it.

Un d e r B o r l e y ’s guidance the engineering firm is firmly back on its feet. “There’s been a massive improvement in productivity, the organisation is much slicker, management have the right information, and they’re making much more effective use of their outsourcing partner,” he says.

0845 658 6939 www.theciopartnership.com

Strong procurement performance is about collaborating to influence attitudes and behaviours

leaner, fitter and stronger. For a CFO, this translates into greater visibility over what spending activity is going on in the organisation, and improved control over this activity in terms of cost management, updated and managed policies, streamlined procedures and better budgeting controls. The benefits go far beyond cost savings. Procurement outsourcing promotes cross-functional working and a unified culture, Eatough adds.

“It’s about enabling change, enhancing m a n age me nt cont r ol a nd de l ive r i ng extraordinary, and often unexpected, results.

That means providing organisations with a procurement solution that enables them to change the way they think and operate. It’s this change that ultimately delivers business success,” says Eatough.

020 3465 4500 www.proximagroup.com