Guy Kirkwood's BPO Backchat
30 jan 2004
Although it is unconfirmed, it looks like Xchanging, the venture capital-backed, London-based BPO firm is going to sign its first deal in continental Europe. If true, it is widely anticipated that Xchanging will go for an IPO later in the year.
This would be extremely good news for the firm, and not only for the obvious reason; the company's business model relies on having ready-access to funds in order to jointly fund deals (on a joint risk-joint reward basis). An IPO would enable Xchanging to do more and larger deals.
In addition, the potential German deal means that the firm would then be successful in Europe, and this opens the door to pan-European deals in the HR, procurement and potentially the F&A space.
Let's keep our fingers crossed for the sake of pure-play BPO firms everywhere, for if this firm can grow in a sustainable and profitable manner, then the immature market in which we all operate will benefit.
29 jan 2004
Why should outsourcers always be harbingers of (my?)doom. Put a smile on your face immediately, courtesy of The Register
28 jan 2004
Following on from my suspicions about Xansa (see below), ACS has announced fiscal Q2 2004 revenues, for the period ending September 31 2003, of USD998m, an impressive increase of 26% from USD909m in fiscal Q2 2003. New deals for the quarter totaled USD141m of annualized revenue.
This means that ACS, which is still almost entirely focussed on the US market, is expecting 2004 revenues to up around USD4.2bn. I believe it is only a matter of time before the firm comes on a European shopping expedition.
27 jan 2004
I was again thinking about presentations and proposals. I have previously asked whether clients read them - well Jakob Neilsen may have the solution. He says:
Excessive word count and worthless details are making it harder for people to extract useful information. The more you say, the more people tune out your message.
Quite.
23 jan 2004
Atos Origin has approved the acquisition of SchlumbergerSema creating a EUR5bn European outsourcing and consulting giant. You would think that the combined talents of Atos (French), Origin (Dutch), KPMG (mainly British) and Sema (German and British), would be a powerful combination... oh I hope so.
But, a source this morning said that the firm is going to focus only 3% of it's efforts on consulting and 97% on outsourcing, I think this is a mistake. The ability to consult (emphasis intented) at the most senior levels of pan-European firms could still be the differentiator that the new business needs.
22 jan 2004
This comes under the heading... Huh??
Xansa has just announced that as part of its strategy to build upon its integrated IT and BPO strengths using its offshore model, the decision has been taken to withdraw from its current North American operations.
At the interim results last month, Xansa announced that it was exploring all options concerning North America and this withdrawal will represent the "optimum outcome."
Why for Pete's sake? I know that Xansa is a European business, but to lose the ability to talk to US corporates from an operation in the US, particularly if one of it's main strengths is offshoring with IIS, just doesn't make any sense... unless Xansa is gearing itself up for sale to a US-based business that doesn't need the firm to have it's own presence.
The closing-down process is slated to finish by May, perhaps we will know by then.
21 jan 2004
A LogicaCMG study, released yesterday, reveals Outsourcing could increase UK GDP by GBP16bn and close the productivity gap by 10%
The findings illustrate that UK companies have the potential to outsource 46% more than current levels by 2008. If they do so, the UK's historic 28% productivity gap with its main global competitors could be cut by 10%, increasing productivity levels by 2.7%. Overall, the study indicates that increased outsourcing would have a positive impact on the UK economy and that UK PLCs have an ideal opportunity to capitalise upon the benefits it would create.
This is a rousing piece which is worth reading in full.
20 jan 2004
Duncan Aitchison, MD of sourcing consultancy TPI, in a study reported that in 2002, the outsourcing contract volume in Europe was one-third that of the Americas and last year it was 68% per cent. TPI claims this trend will increase as Europe rapidly closes the gap.
The statistics also show that the BPO market still has some way to go before it justifies the current hype, although again Europe is showing signs of early adoption with an increase in total contract values in 2003 - up almost 50% on the previous year to EUR2.6bn.
19 jan 2004
IBM's announcement last week that it managed to achieve a USD2.7bn profit for Q4 is, on the surface, excellent news. But, if one drills-down through the figures (I really ought to get a life!), the results make some less-spectacular reading:
IBM's software revenue increased 12% to USD4.3bn. Hardware, which includes high-end servers and mainframes, also rose 12% to USD9.1bn. The company's Personal Systems Group, responsible for its PCs, saw revenue rise by 16% to USD3.5bn. But Global Services' revenue increased by only eight per cent to USD11.4bn in the fourth quarter. If you account for the weakening of the dollar over the same period, the total increase only amounts to one per cent.
With IBM's much vaunted take on BPO (known rather sensibly as Business Transformation Outsourcing (BTO)) sitting in Global Services, does the firm have the commitment necessary to do big BPO deals in Europe - we will have to wait and see.
16 jan 2004
The thing I like about
Nelson Hall research, is
that it is based on facts. ie, all of the firm's figures are
based on deals actually signed, rather than projected. The
following graph therefore is probably as accurate as it is possible
to be:
My assumption, based on my own research and nothing more than "gut
feel", is that 2003 will have seen an increase in the
F&AO
and HRO
TCVs to match the
size of the mid and front-office deals seen in 2002. We will have
to wait until the figures are compiled.
14 jan 2004
Normally The Motley Fool is a good place to gauge the mood of analysts, but in an article about Accenture's "move" into outsourcing by Tim Beyers, he almost entirely misunderstands the history of outsourcing.
"The consulting businesses of Accenture and competitors BearingPoint, Computer Sciences, and IBM have been driven by short-term projects. Outsourcing gives Accenture a predictable stream of revenue for several years. That's not to say outsourcing is some sort of magic business elixir, but it's easy to understand why Accenture would want to grow this part of its business."
Outsourcing is not new to the likes of IBM, Accenture and CSC. These are the organisations that developed the idea of IT outsourcing and these are the firms that are going to eventually build the BPO market to be a factor larger than ITO.
I predict that in five years time, the firms listed will all be BPO firms that do some consulting, not the other way around.
12 jan 2004
In an excellent opinion piece, Bob Evans, the editor of Information Week, talks about the politicisation of outsourcing in the US:
"If protectionism would solve the problem and lead to things like "full employment," I'd be all for it. If government-mandated limits on what level of profit businesses can make would make those companies more competitive and successful and lead to higher employment, I'd bang the drum loudly. No matter how painful it is to see the impact on some American workers as the global economy unfolds, we cannot attempt to create a future that's a frozen image of a past that's just not compatible with today's round-the-clock, round-the-world economy."
I'm hoping that this is one American import that Europe will not be wanting. But, I have a horrible suspicion that the politicians sitting in Brussels will not be able to help themselves.
Protectionism is defended by two major arguments. The first is that protectionist policies save jobs in domestic industries. This argument reasons that if a domestic industry is forced to compete against a foreign country that provides services more cheaply, such as India, then that domestic industry will have to lay off hundreds or thousands of workers in order to stay competitive. Entire communities whose livelihoods depend on the service or industry will be decimated by poverty.
The second argument, a corollary to this one, is that eventually, left to compete for too long against India, a domestic industry might collapse completely, leaving the protectionist-prone country dependant on foreign operations. This, the argument goes, could be devastating as it would find itself unable to provide a badly needed resource.
So the question, when times are tough for a particular industry, is not, "Should we save these jobs?" It is, "Should we save these jobs at the expense of other jobs, or should we let economic efficiency decide where people and resources are best employed?"
Domestic protectionism always has a domestic cost. Most of the time, however, the costs of protectionism go unnoticed, because protected jobs in one industry are concentrated and easy to see, while the costs throughout the economy are widely dispersed, over a hundreds of industries and millions of consumers.
In the case of the steel tariffs George W Bush introduced in March of 2002, the cost was an estimated USD732,000 in higher prices for each steel job saved, according to the Cato Institute.
If offshoring becomes the next industry that the US and Europe seek to repress, it's my opinion that this protectionism will cost the domestic economies much and achieve little.
9 jan 2004
85% of US firms will outsource at least one component of their
HR functions by 2005, according to
Gartner Dataquest. And in a
related
article
from the Outsourcing Journal comes this chart:
It clearly shows the pickup in both numbers of deals and in
value.
8 jan 2004
The British government will not adopt a protectionist view towards the BPO, according to Mike O'Brien, Minister of State for International Trade and Investment and Foreign and Commonwealth Affairs.
O'Brien was addressing the the session on "New Economy: New Paradigms" at the Partnership Summit 2004 organised by the Confederation of Indian Industry. He stated that the British government was of the opinion that BPO was a fact of economic life and companies in Britain had the freedom to decide where to locate their operations. He also pointed out that while the media had created a lot of hype about the loss of jobs due to BPO, it had not at all focused on the number of jobs created by inward investments in UK.
Mr O'Brien should be applauded for this statement of support - let's see that the UK Government stands by this statement this year, it will hopefully encourage private industry to follow suit.
7 jan 2004
Today's lesson is "extend and expand."
As CSC announced just before Christmas, it has extended it's deal with Swiss Re by another 10 years. What's most interesting, is that the BPO element of the deal is now larger than the IT piece.
The new contract extends and expands an outsourcing agreement between CSC and Swiss Re that began in 1995. CSC currently delivers end-to-end insurance processing in the US for approximately 2m life and health insurance policies managed through Swiss Re Life & Health's Admin Re line of business.
Under the new deal, CSC will provide policy processing services for Swiss Re in the US as well as for a quarter of a million Zurich Life policies recently acquired in the UK; providing customer service, claims processing, and audit and regulatory compliance support as well as application development, conversion services, help desk services and network, server, desktop and mainframe computing.
Is this deal the start of the march for BPO dominance from the ITO companies? If these firms can extend their reach beyond their natural IT space, then I think the answer is, yes.
6 jan 2004
The BBC today broadcast research showing that when the NYSE rises in the first five trading days in an election year, in all but two years, the markets have risen dramatically since 1950.
So, what does 2004 hold in store? I think the outlook remains upbeat for the outsourcing sector, relative to that of the rest of the services sector (consulting etc), largely on the back of the public sector in the UK and, increasingly, the financial services sector across Europe. Analysis from Ovum predicts a GBP7bn public sector market size within two years, with government spending outstripping the private sector by up to 30 times. In addition, Datamonitor predicts financial services firms across Europe will spend over USD12bn on outsourcing services by this time next year on the back of growth in BPO, a market, we must remember, that was worth some GBP3.5bn in 2001 and is predicted to be worth over GBP10bn in 2005.
3 jan 2004
Just before Christmas, Andy McCue of silicon.com interviewed Kevin Lloyd, the CTO of Barclays; the firm that is offshoring to Accenture to the tune of GBP450m.
Lloyd admits the reasons for outsourcing to India are becoming increasingly compelling and difficult to ignore for all financial services companies and says there is a "capability and skill that exists globally" that firms have to tap into.
"Certainly if you look at the buoyancy of the outsourcing markets in India, which is where my experience is limited to currently, it's a very interesting and exciting time for them. They are doing some fantastic things out there. Just about every option I've looked at varies in some way or another in the way in which it is being delivered but what is consistent is the quality of the capability and the service levels."
Barclays has already outsourced desktop services to EDS in a USD350m deal earlier this year and the Accenture contract signals its intentions not to go down the 'mega-deal' outsourcing route, throwing all its eggs in one supplier's basket.
"It is difficult for any [supplier] organisation to deal with all capabilities. If you take the whole of Barclays business for IT and ops, to find an organisation that could cover the whole of that panoply of events and be the best in its field at all those things would be difficult. I'm not sure there's very many companies out there that could absorb the whole scale and spectrum of a Barclays total outsource in one go. It would be quite folly to consider outsourcing in that way anyway."
It is worth reading in full.
1 jan 2004
Last month's blogs have not suddenly gone out of date, if you missed any, they are worth reading. Also check the archive.