Outsourcing grows up

Many outsourcing deals are tantamount to strategic divestitures and joint ventures. Executives should start treating them that way.

Read the McKinsey Quarterly article, Pretty OLD, but interesting

http://www.mckinseyquarterly.com/article_page.aspx?ar=1582&L2=5&L3=4

About 3.3% US IT Budgets to be Spent on Offshoring in ‘07 – SIM

According to a study by the Society for Information Management (SIM), a Chicago-based professional society of IT executives, about 3.3 percent of the IT budget will be spent on offshore projects in 2007 in the US, while about 9.3 percent of the IT budget is expected to be spent on domestic outsourcing.

In addition, about 66 percent of the respondents stated that they will not spend their IT budgets for outsourcing in 2007. Many companies are planning to establish in-house IT support infrastructure and are expected to spend about 33 percent of their IT budgets for training IT staff. Most of the IT professionals favored domestic outsourcing over offshoring. The companies providing IT support to various firms located in London are expected to gain more business, including outsourcing of IT infrastructure and applications, from the capital.

Demand for Outsourcing Growing Slowly – EquaTerra


According to EquaTerra 4Q 2006 Outsourcing Pulse Surveys, the demand for outsourcing in the BPO and ITO market is growing at a slower pace as compared to the growing rate of earlier years. The organization reported that there has been a decrease of about 13 percent in the last quarter of 2006 as compared to 3Q 2006 and 4Q 2005.

Among the key findings, the non-traditional functions, such as document and imaging services, legal processing, knowledge process, and logistics services outsourcing increasingly depends on both supply and demand. Also, there has been an increase in the multi-provider outsourcing that allows the client to have the best for each of its process. However, the multiple services provider model can be ranked as complicated as well as expensive as compared to outsourcing services to the single services provider.

In addition, most of the clients outsourcing their processes underestimate the cost and complexity related issues while performing Outsourcing Management and Governance (OM/G) activities, including the governance organization’s staffing, the costs related to the third-party services, such as lawyers, advisors, etc., and the costs related to the software support for OM/G activities. The above mentioned reasons are often considered as one of the root causes for problems related to outsourcing.

According to Stan Lepeak, Managing Director – Research, EquaTerra, most of the outsourcing contracts awarded during the late 1990s and early 2000s were not structured properly, which used to create problems either for the service providers or clients.

Everest Research Institute Study Predicts 30% Finance & Accounting Outsourcing Growth in 2007

Finance & Accounting Outsourcing Market Surpasses $2 Billion in Expenditure in 2006 with 45% Annual Growth

The global Finance and Accounting Outsourcing (FAO) market is predicted to grow in excess of 30 percent in 2007 as the global infrastructure matures to enable F&A solutions that take advantage of low-cost offshore talent and robust supplier process offerings underpinned by F&A technology, according to a new report released today by the Everest Research Institute.

The global FAO market has grown by more than 45 percent since the beginning of 2005 and reached $2 billion in expenditures in the United States last year, according to the Institute’s Finance & Accounting Outsourcing (FAO) Annual Report 2006. The study reports North America-based contracts continue to account for over half of FAO revenues, with increasingly rapid growth in Continental Europe. Among the industry verticals, manufacturing and energy and utilities are leading the FAO adoption, capturing nearly 50 percent of the market. Retail and financial services are the most under-penetrated sectors with high untapped demand.

“Our analysis reveals that the number of multi-process FAO contracts signed doubled between 2004 and 2006,”

said Phil Fersht, vice president, BPO Research Group at the Everest Research Institute.

“We expect that existing buyer success stories, suppliers’ investments in further developing F&A process capabilities and a global footprint will drive growth in the near future.”

The FAO annual report for 2006 activity examines the global FAO market and provides insights, detailed analyses and implications for stakeholders along three key dimensions:
(1) market size and buyer adoption,
(2) transaction characteristics and value proposition and
(3) supplier landscape.

The report found that offshoring is now established as the key value lever in FAO with more than 80 percent of all contracts including an offshore component. While India has emerged as the premier offshore destination with the largest number of scaled FAO centers, Eastern European locations are also becoming an integral part of supplier strategy to support European operations.

Regarding supplier activity, the report suggests that the FAO industry is witnessing an increasingly level playing field. In 2006, Genpact, HP, Infosys BPO, and Xansa significantly increased their market share. Accenture, IBM, ACS, and Genpact currently lead the market on a capability market success matrix, but there is still an intense battle for overall market share.

“The leading suppliers are looking to expand their global delivery capabilities through the acquisition of both captives and existing shared-service centers,”

said Fersht.

“Moreover, we expect further acquisitions of smaller FAO suppliers from the global leaders, and increased partnering with niche suppliers to fill out capability gaps. Several leading FAO suppliers are also looking to broaden their offerings with increased bundling across ITO and procurement services.”

The Institute also reported that despite the phenomenal growth over the past few years, the FAO market is grossly under-penetrated across all regions and verticals, and there is still substantial opportunity for growth.

“The market is now experiencing an aggressive growth phase fueled by cost reduction from offshoring and the adoption of multiple accounting processes integrated within a single outsourcing provider,”

said Saurabh Gupta, senior analyst, and co-author of the report.

“Innovation in F&A is taking center stage as FAO is creating incremental value for new and existing buyers by creating both a business and strategic impact, supported by a streamlined, low-cost sourcing infrastructure.”

For additional information and samples from the report, please visit www.outsourcing-center.com and select the link, FAO Annual Report 2006.

Convergys has acquired AOL contact center in Albuquerque, New Mexico, from Time Warner. The call center employs about 800 employees. Convergys has already started its operations from the facility in New Mexico. The company aims to recruit more employees for the center from Albuquerque city and is also planning to expand its presence in the US by opening new call centers in the country. AOL has been planning to close the center as a part of restructuring. The company's business has been affected by losing most of its clients; and also helpdesk calls have been reduced to about half the number.

Yahoo! has announced its plans to open a research lab at Bangalore, India. The company plans to have R&D centers globally to deliver next generation of businesses. It also has centers in other locations, including four facilities in the US, one in Spain and in Chile. The company has already initiated the recruitment process to acquire scientists from diversified fields, including computers, sociology, economics, and other related fields, for the new center. In addition, it also operates an R&D center in Bangalore employing about 700 professionals, including developers and researchers.

BPO Salaries USA

BPO Manager in New York, NY $192,000
BPO Manager in Palo Alto, CA $184,000
BPO Manager in Boston, MA $165,000
BPO Manager in Los Angeles, CA $135,000
BPO Manager in Seattle, WA $134,000
BPO Manager in Boulder, CO $124,000

View Larger Salary Graph

Deloitte to Increase Indian Headcount


Deloitte Touch Thomatsu, a New York-based accounting services provider, has announced its plans to increase its Indian headcount from the present 7,500 to 12,000 professionals by 2010. According to Manoj Singh, CEO–APAC, Deloitte, the company is planning to invest about USD 50 million by 2010.

According to William G Parrett, CEO, Deloitte, the company has offices in about 13 locations across India and the company is investing in personnel, technology, and infrastructure sectors in the country and Asia Pacific region. The company provides various services, including audit, tax, consulting, and financial advisory services.

After the BPO and telecom consolidation, various small firms in the Knowledge Process Outsourcing (KPO) industry are expected to merge with each other by 2008. At present, the KPO industry is worth about USD 650 million, as compared to USD 400 million in 2005.

According to a Frost & Sullivan report, KPO is expected to be a USD 32.5 billion industry by 2014 and will employ about 4,00,000 professionals with a CAGR of about 63 percent. The industry employs about 10,000 professionals currently. The KPO industry provides services to various verticals such as financial services, retail, manufacturing, telecom, and healthcare services. In addition, the KPO industry is likely to have a shortage of skilled professionals in the next few years.

Westpac Drops Outsourcing Plans to India

The Australia-based Westpac Banking Corporation has dropped its decision to offshore about 300 administrative jobs to India from its Concord West-based transactions and unsecured lending operations center. The center processes dishonored checks, electronic payrolls, Internet banking, and deceased estates. According to a statement by Westpac, the offshoring proposal did not meet their financial and stakeholder criteria.

The bank also reported that offshoring would not save as much as estimated earlier. The outsourcing plan would have affected about one-third of the center’s 1,000 member staff. The Finance Sector Union of Australia had earlier stated that about 50,000 jobs of the industry’s 280,000 jobs could be offshored.

US HRO to reach USD 19 Billion

According to a report titled, 'Worldwide and US HR BPO 2006 Vendor Analysis: The Answer is in the Margin' by IDC, the HR BPO segment of US HR services will grow at a CAGR 16 percent to reach USD 18.9 billion by 2010.

It also reports that with the growth in the HR BPO segment, the obstacles for the new entrants in the market will also increase. However, the trend might change in the future with the entry of new Indian HR firms. The major reason for the growth of HR BPO services is that most companies, including the mid-sized companies, are aiming at global recognition. As a result, most of the firms are establishing their operations outside their headquarter country. Among the key findings, about 37 percent of the US HR services spend in 2004 was spent on HR BPO services and is expected to reach 46 percent by 2010.


via: GlobalOutsourcingNow

Source: Nelson-Hall study

BPO Sector in 3Q ’06 on the Rise – NelsonHall

NelsonHall, a US-based BPO analyst firm, has reported growth in the BPO sector contracts. The level of BPO activities is more in Europe as compared to North America. Europe showed an increase of about 36 percent, while North America reported a decrease of 26 percent, in the first nine months of 2006.

The major reasons for this increase in the BPO market include the outsourcing of HR, F&A, and procurement services. The value of about 36 percent of BPO contracts depended on the types of the services provided by the company in the quarter ending September 2006, as compared to 24 percent in the corresponding year-ago period. The BPO contract value for the back-office services has increased by 36 percent, as compared to the decrease in the industry-specific services contract value by 28 percent by the end of September 2006.

The BPO contract value of outsourcing HR, F&A, and procurement services accounted for 40 percent in North America, as compared to 31 percent in Europe by the end of September 2006. The manufacturing and retail BPO contracts accounted for 27 percent by the end of September 2006, as compared to 13 percent in the corresponding year-ago period.

Source: GlobalOutsourcingNow

India And U.S.A.: Top Destination for R&D

source:globalservicesmedia

Top 100 Outsourcing Deal Value Down to $67.9Bn - IDC

More Globally-Scaled Deals, More Network and Desktop Outsourcing, and Reduced Combined Deal Value.

The tenth annual IDC study of the top 100 worldwide outsourcing deals reveals fundamental changes in the outsourcing marketplace, including an increase in deals with more global reach, an increase in the number of serious competitors, a dramatic rise in network and desktop outsourcing, and a reduction in combined deal value. These developments demonstrate increased competition and customer demand for greater provider capabilities, and create pressure for outsourcers to alter their business models in order to successfully compete and expand in the coming years.

The total contract value (TCV) of the 100 worldwide outsourcing deals decreased by 3.1% from $70.1 billion in 2004 to $67.9 billion in 2005. The study finds a reduction in the number of both megadeals and deals ranging from $500 million to less than $1 billion TCV. However, the number of deals with less than $250 million TCV has seen a dramatic increase from eight in 2004 to 23 in 2005. The study also finds that the number and value of business outsourcing deals declined in 2005, while the value and number of IT outsourcing deals increased. Within IT outsourcing, the share of network and desktop outsourcing deals climbed substantially from 14.6% of total IT outsourcing deal value in 2004 to 32.4% in 2005.

The study found that while six players captured 54% of the top 100 contract value in 2004, it took just five players to capture nearly the same amount (53.5%) in 2005, with IBM Global Services leading the way, followed by EDS, BT Group, CSC, and T-Systems.

Source: IDC Press Relase

ICICI OneSource Launches New BPO Facility in Argentina

ICICI OneSource, an Indian outsourcing services provider, has announced the launch of a new BPO facility in Buenos Aires, Argentina. This is the fourth overseas delivery center for the company. Apart from the overseas centers, the company operates 10 delivery centers in India.

The company will initially use the center to provide back-office transaction processing services to one of its US-based telecom clients. It is expected to leverage the new center to add Spanish language capabilities to its services portfolio. The new center has a capacity to accommodate 400 employees, and is a part of the company’s strategy to capture a pie of the telecom outsourced services market, which it expects to grow at a CAGR of 10.7 percent in the next five years. At present, the telecom vertical contributes about 30 percent to the company’s revenues.


Source: GlobalOutsourcingNow

Watson Wyatt has won a GBP 1.2 billion mandate with the Whitbread Group. Watson will provide investment advisory services for a pension plan of the group.

According to a Capgemini survey at the IDC Midwest Conference, outsourcing results in a substantial return on investment. Around 85 percent of the respondents stated that they managed to save at least the expenses which they had incurred on outsourcing, with 26.4 percent reporting their savings quantum to be about twice the size of their investment on outsourcing. In terms of investments, around 60 percent of the respondents reported having spent up to USD 50 million on outsourcing, while 18 percent of the respondents reported having spent up to USD 100 million.

About 9 percent of the respondents had invested between USD 100 million and USD 200 million, while an equal percentage of respondents had invested more than USD 500 million. Cost reductions, increased productivity, along with opportunity to redeploy the resources for executing core functions were identified as the prime underlying drivers of outsourcing decisions.

About 94.8 percent of respondents stated that outsourcing helps in augmenting the shareholders' value. About 70 percent of respondents stated that the US is their preferred choice for outsourcing.

International Technology Alliance (ITA), has won a ten-year, USD 135.8 million contract to provide research services for the US Army Research Laboratory and the UK Ministry of Defence.
ITA will provide research and development services to investigate advanced technology for secure wireless and sensor networks. The alliance will work towards enhancing the effectiveness of military establishments by contributing to their capabilities pertaining to the collection, interpretation, and distribution of battlefield information among themselves.

According to a study by Boston Consulting Group (BCG), Multinational Pharmaceutical Companies (MPCs) are increasingly exploring India and China as they are seeking various offshoring options for their R&D function.
The upcoming trend is attributed to the improving regulatory and competitive environment in the two countries. Amongst the findings, almost all the top 20 MPCs have outsourced their chemistry work to China.
The report states that the MPCs wishing to establish successful offshore R&D operations in India and China should adopt an integrated strategy, as against the ad-hoc strategies which are currently being followed by some of the companies operating in the domain.
The offshoring strategy should be flexible enough to incorporate the changes in the R&D capabilities of the two countries.