Guy Kirkwood's BPO Backchat
31 jul 2003
Deutsche Bank could outsource about half of its 10,800 IT and business operations jobs by the end of 2005, Die Welt reported yesterday (article in German).
Deutsche Bank has already outsourced around 5,000 jobs. Die Welt said the bank was considering outsourcing its human resources operations to Accenture. Deutsche Bank is looking to outsource certain jobs and transfer others to countries with lower labour cost, such as India and counties in Eastern Europe. They quoted banking sources as saying that around 70% of Deutsche Bank employees are located in high labour-cost cities such as Frankfurt, London and New York and that it was looking to reduce costs.
I think this news marks the beginning of a wholesale change in banking operations in Western Europe and the US. For so long banks have been cushioned from the need to cut costs and rationalise. Changes were made to increase profitability and to rationalise infrastructure, but outsourcing large parts of the back-office should radically improve operations and reduce costs.
30 jul 2003
IBM Business Consulting Services (BCS), which consists of the old IBM consulting business and the acquired PriceWaterhouseCoopers business, is putting together its plans for BPO in Europe. In the meantime, it is good to hear that the Strategic Outsourcing business (SO) is still winning large IT deals. The USD1.1bn ABB deal announced today should give BCS the time it needs to create a strong team and with it a strong offering. It is also, of course reassuring that IBM can still compete effectively after several bruising encounters with HP this year.
29 jul 2003
Investment analysts may not have had the best name in the past couple of years, but even they can recognise the opportunities to make money from outsourcing. The Motley Fool has been looking at the outsourced payroll market in the US and Selena Maranjian likes what she sees in ADP and Paychex. (This is a longish quote but worth reading).
"What's so attractive about these businesses, exactly? Well, think about it. High switching costs make for protective moats around both. Once you sign up with one of these firms and get them processing your payroll (or perhaps providing some of the other services they offer), you're rather unlikely to switch to another provider. Inertia is one reason, but common sense is another - switching would be a headache. And once you've got customers locked in via high switching costs, you're more able to hike your prices over time, as they're not likely to bolt at the slightest increase.
Profitability is a second advantage. These are not the most expensive businesses to run. Once they've got their systems up and running, it just doesn't cost that much more to tack on additional customers. They don't have to keep building new restaurants or stores, or buy more rubber to make more tires to boost sales.
Growth prospects are another. As Paychex notes in a presentation, outsourcing payroll services makes a lot of sense for smaller companies because it means they don't have to stay on top of hundreds of tax law changes and be at risk of penalties for non-compliance. They can instead trust the pros to take care of their needs. Paychex also estimates that only 15% to 20% of its target market is outsourcing payroll - in other words, there's lots of room for growth."
What has Selena just said? BPO equals common sense for the client community, profitable business for the suppliers and huge growth potential - I could not have put it better myself.
28 jul 2003
Following on from yesterday's blog about BPO in India, (see below), I took a look at a pre-released copy of the next issue of Business Week, which is due out on 4 August. They refer to the explosion of BPO in India but also say that progress is starting to spread across China.
"After emerging as the world's hottest manufacturing hub, China is joining English-speaking countries such as India and the Philippines as a key destination for outsourced service jobs."
So far, China's role is largely focused on providing back-office support for financial services, telecoms, software, and retail companies in neighboring Asian countries, as operators can easily talk to people in Hong Kong and Taiwan in their own languages. The country also has plenty of Japanese and Korean speakers. But China is making inroads as an outsourcing base for English-speaking nations because of the influx of Western multinationals who now are bringing back-office work to the country.
27 jul 2003
Is India's BPO industry hype of reality? The answer to this will not be known for some time, but an article in The Financial Express by Sibabrata Das is a good round-up of the current position. Das says:
"There is a deep commercial interest among big global companies to explore offshore BPO from the country. Cost-saving is the biggest driver. One of the main proponents to outsourcing is General Electric, which had started operations here in 1997. Why? GE is saving about USD270m, which is 8-9% of its IT budget, by outsourcing to India. It plans to increase that to USD400m by 2003."
GE is just one example of a successful transition to offshore BPO. If US and European outsourcing and BPO pure-play suppliers do not want to rapidly become sidelined, a trip to India to meet and set up joint ventures with the incumbent players there, must be on the agenda, now.
25 jul 2003
Exult have just announced their latest quarterly results. Revenue for the second quarter was USD122.5 million, an increase of 21% over the same quarter last year and 7% up over the first quarter of 2003. The Company's second quarter gross margins were 10.8%, an increase of 920% from the same quarter last year and 90% up from the first quarter. The operating margin is also up to 3.4% versus a loss of 5% last year.
This is very good news, particularly as Exult has expanded operations into Canada, continental Europe, India, Asia Pacific, and Latin America and acquired PricewaterhouseCoopers international BPO operations, successfully transitioning 550 employees.
Jim Madden has much to be proud of as Exult show the way for emerging BPO operations in all geographies. If he can engineer another European deal by the end of 2003, we can expect to see more deals from Exult's competitors and that in turn will raise the whole market.
23 jul 2003
Offshore outsourcing is the fastest growing IT industry segment, growing at a compound annual rate of 29 percent, according to Gartner. But, certainly in the US there are some political questions being asked about how many US jobs this is going to cost. This is short-sighted and protectionist. We all know that the US specialise in both of these areas, but the opportunities for corporations to increase their EBITDA (and off-shoring is a sure-fire way of achieving this in a short timeframe) are too strong to deny.
22 jul 2003
IDC have just released their annual review of the US outsourcing market for 2002. They have found that the major suppliers are increasingly building their business around industry silos. Within the six IDC checked: in financial services, IBM Global Services is a clear leader. In manufacturing, EDS and IBM Global Services clearly lead. In retail, IBM Global Services and EDS dominate again and in energy and utilities: CSC leads the pack, followed by SAIC. In Government and education, CSC leads, but IBM Global Services is close behind. Finally, in healthcare: while IBM Global Services and EDS dominate, Perot Systems is the third largest.
There are no obvious surprises here, but as BPO and on-demand computing become more prevalent, the threat to the established players becomes more acute. The question is whether these large firms can adapt and flex to reflect the changing market, or whether they will lose out to the smaller and more agile emerging competition.
21 jul 2003
Is Sema for sale? We should find out tomorrow when Schlumberger announce their Quarterly results to the SEC. In any case, the surprise dumping of the Fusion Alliance by the Inland Revenue in the race for the outsourcing contract may have had something to do with the uncertainty. Fusion, which consisted of BT, CSC and SchlumbergerSema, was considered by many to be one of the main contenders along with the EDS-led consortium. The fact that Fusion has been dropped in favour of a CGEY-led bid is even more surprising given the latters derth of experience in running large public sector deals. Could it be that rumours of CSC buying Sema from Schlumberger scuppered their bid? Again, we will have to wait until tomorrow.
20 jul 2003
Bob Evans is the Managing Editor of informationweek.com. He recently wrote an article for Computing saying that outsourced services were the way to go. Interestingly, at the end of the article he mentioned a new potential job title: CMSO. "Or, to those not in the know, chief managed services officer." Although not called by this title, John Patching, formally of CSC and IBM is doing this job, successfully from what I hear, for Deutsche Bank.
Senior executives from the supplier community can save corporations that have outsourced a King's Ransom by leveraging their knowledge and experience to reduce the pain (and therefore the cost) of large deals. If these individuals can save even 1% on a multi-billion Euro deal, they will have paid for themselves twenty times over. Now there is an investment worth making.
19 jul 2003
Contrary to rumours of a slow-down in the UK consultancy market, last year the total fee income of the top consulting firms grew by some 20%, according to the latest figures from the Management Consultancy annual league table. This takes the total fees of all firms on their list to a record high of GBP5.2bn, a significant increase on the GBP4.4bn figure for the previous financial year. Splitting out outsourcing consultancy is never easy, but Management Consultancy's list can be found in pdf format here.
These figures should bring comfort to all those in the outsourcing market who are persuading recalcitrant "C" Level executives that outsourcing is a sensible and cost-effective solution to updating and improving their business processes.
18 jul 2003
I have mentioned the NOA before, but they have an interesting piece by Denise Colgan and Elias Mazzawi of Cap Gemini Ernst & Young. They look at Transformational Outsourcing:
"Where traditional outsourcing sweats assets, Transformational Outsourcing changes the business paradigm to something smarter, more flexible, and more streamlined."
If you look through the flowery consultese, this piece is in my opinion, spot on.
Traditional outsourcing is about sweating assets to produce savings, stablising processes and thereby generating profit for the supplier; transformational outsourcing, which could be ITO or BPO led, creates flexibility from which savings can be made. It is encumbent upon the suppliers to improve the business process, make it more efficient and thereby make the savings that produce their profit. Of course, this makes the proposition harder to articulate, harder to sell and ultimately harder to deliver. But, who said it was going to be easy.
17 jul 2003
A short blog today as I am working on July's BPO Notes. It will have something to do with old news which I found at archive.org. It should be ready for the weekend, but if you want to take a look at previous articles (which have been published in the US and Europe), they can be found here.
16 jul 2003
For information on the IT outsourcing market, silicon.com is incisive, well-researched and has analysis rather than just regurgitating press releases. This article by Andy McCue, analyses the latest TPI report, which shows that:
"...deals [are] down 40 per cent from EUR34.6bn last quarter to EUR20.8bn this quarter. Broken down by region Europe's is the healthiest picture with a drop of just EUR0.2bn to EUR2bn, with the UK accounting for almost half of that market."
These figures make it even more important that the BPO market starts to see some lift over the next few months, or the question must be, "will BPO really ever take off?"
15 jul 2003
Major outsourcing suppliers' perception of outsourcing advisory (consulting) companies has changed. When the likes of TPI and Morgan Chambers first appeared on the market, the outsourcing suppliers saw them as an unecessary barrier between themselves and their clients. The thought of filling out hundreds, perhaps thousands, of questions was deemed a burden at best, an excuse to bill the client more, at worst.
But since we have seen an increase in BPO deals, and in a market that is still immature, these same consultants are seen as a stablising force, helping to establish baselines and reducing the time to qualify and close deals. One of the best consultants in this market is Mark Hodges, formally with TPI, who has set up his own consultancy, Equaterra. I recommend you take a look at the site, it has some interesting and innovative ideas on the full outsourcing lifecycle.
One other company worth investigating is the UK-based Optimos (optimal outsourcing). They specialise in fixing deals that have broken and have overseen dramatic improvements working simultaneously with clients and their suppliers - no mean feat.
14 Jul 2003
I was thinking over the weekend about EDS's problems and at least some of them are due to the way that most workstations are set up. They are generally insecure, prone to crashing and ultimately frustrating for the users to use. This of course is not peculier to EDS, it cuts right across the IT world.
With IT budgets being slashed, or at least put on hold, perhaps now is the time to look at improving the interface between a corporation's data and the users of that data, and ultimately their customers. This can be done at little or no cost, all it requires is a bit of research and replacing some of the applications that we take for granted, but do not actually do a very good job (mentioning no names).
For more information, it is worth visiting tinyapps.org, which is a goldmine of small, fast, secure and mostly free alternatives to the software you are probably using right now. I have also gone into this in more detail on one of my personal pages.
13 Jul 2003
The woes of EDS are summed up nicely in an article in the UK's Daily Telegraph which appeared yesterday. Edmund Conway writes "Trying to get through to Bill Thomas, the UK managing director of US computer giant Electronic Data Systems, is even worse than being stuck on one of the company's notorious helplines listening to the Beatles' Let It Be.". The well-publicised problems with most of EDS's Government contracts may be about to become much worse, with the huge MOD deal in the offing. Is it time for the UK Government to say "enough" to Bill Thomas and his team? We wait and see, but I predict that EDS will be bought before the end of 2003.
12 Jul 2003
The trouble with outsourcing advisory bodies is that they are generally focused on a geography. One news service that is usually the first to get information on deals and breaking news regardless of where that news comes from, is Nelson Hall. Another site for information on outsourcing, at least for the UK is the National Outsourcing Association (NOA) which holds monthly meetings for those thinking about outsourcing, suppliers and consultants.
11 Jul 2003
This is the first post in a blog on the BPO markets. Readers might want to also visit sharedxpertise.org where there is a list of articles published on BPO and outsourcing by Guy Kirkwood, one of Antiphon's directors.
The purpose of this blog is to provide commentary and analysis on what is happening in BPO from the perpective of a supplier to the market. This is not meant to be a sales pitch, merely a collection of thoughts and pointers to articles and news.
Please feel free to email me with any comments, criticism or suggestions.