Outsourcing helps Serco buck the trend

Courtesy: http://www.ft.com/

Serco will prosper in a deteriorating economy through increased outsourcing of essential services, Christopher Hyman, chief executive, said as it reported an 18 per cent increase in profits for 2008.

The group, which runs London's Docklands Light Railway and the UK Atomic Weapons Establishment, saw revenue rise 11 per cent from £2.8bn to £3.1bn.

Near-20 per cent growth in Serco's civil government and defence businesses drove the rise in pre-tax profits from £114.6m to £136.1m. Earnings per share advanced from 16.98p to 20.49p. The total dividend rises to 5p (4.25p) via a 3.52p final.

The difficulties faced by the wider economy were not necessarily a disadvantage for Serco, Mr Hyman said.

The "flexible new deal" - a government programme to assist the long-term unemployed back into the labour market - would be a key area of outsourcing opportunity, he said.

Serco's prison and immigration businesses could also benefit from the political and economic climate as prison populations rise with the crime rate and border security issues raise pressure on immigration services. "Crime goes up during recessions and if you can help with recidivism then you can make a real difference in difficult times," Mr Hyman said.

"These are the soft issues around a tough economy where I hope we are an agent of change."

Serco shares closed 16½p down at 387¼p. Michael Donnelly, an analyst at Teathers, said that may have been down to a slight decrease in the company's free cash flow - which that could be spent on acquisitions or buy-backs - and an increased appetite for risk among investors.

"People are taking the view that the market is cheap and Serco looks expensive, but it still absolutely deserves the premium," Mr Donnelly said.

"Listen to the rhetoric coming out of government and look at the size of deficit we're heading towards and you know the demand for efficiency gains is always going to be there."

Outsourcing cannot be stopped, says Anand Mahindra

Courtesy: http://economictimes.indiatimes.com/

The outsourcing industry in India should not worry about the economic downturn or any protectionist move by the US as India provides quality products at lower cost, which foreign companies generally seek for, M&M group Managing Director Anand Mahindra said on Saturday.

During the inauguration of group's Light Engineering & handicrafts SEZs at Mahindra World City here, Mahindra told reporters that India and China are the emerging outsourcing hubs for foreign companies and the professionals here should be optimistic.

Reacting upon US President Barack Obama's plan to clamp down on the outsourcing industry, he said that the US cannot stop outsourcing works here as the country has got an advantage of 'quality', he said.

He said that the Mahindra group has initiated its new SEZs during recession to show its confidence in country's future growth.

On February 26, Obama in his maiden budget speech had said that the US government would do away with tax breaks for firms outsourcing jobs to overseas destinations, including India. At the same time, the administration would be providing tax relief to 95 per cent of American working families.

Egypt: Land of Pyramids, the Sphinx…and Outsourcing?

Courtesy: http://blogs.wsj.com/

India’s tech boom has inspired other developing nations to promote themselves as outsourcing destinations. The latest to try to cash in: Egypt.

Egypt seems like an unlikely place for Western companies to send tech work and open call centers, but Tarek El-Sadany, a government official in charge of helping to grow the country’s information-technology industry, says that the country is well positioned to do these tasks—literally. Egypt is only two hours off of Greenwich Mean Time, so daytime there corresponds nicely with the European workday. For US companies committed to outsourcing, Egypt can be a hop between the US and India.

Another benefit, according to El-Sadany, is that the weekend in Egypt is observed on Thursday and Friday. People typically work on Saturday and Sunday so companies won’t have to pay extra for those shifts—or get stuck with second class workers—as they might in other countries.

El-Sadany spent more than 20 years working in the US tech sector before returning to Egypt last year, most recently as the chief technology officer at Iris Financial Services. In 2005, while a vice president at Oracle, he opened a technical support center in Egypt.

In December, Egypt for the first time cracked the tech research company Gartner’s list of the 30 top countries for outsourcing. (The countries on the list aren’t ranked.) The list takes into account criteria such as the size of the talent pool, how proficient a country’s workforce is in other languages, and how committed the government is to its tech sector.

Egypt graduates more than 30,000 engineering students a year, and thousands more fluent in English, French and German. “Egypt from a cultural view is in the center of the world,” says El-Sadany.

But it’s the commitment to fostering a tech industry that sets Egypt apart, says El-Sadany. Egypt’s prime minister was formerly the minister of information technology and a professor of engineering before that. “When a country is in a military crisis, leaders come from the military,” says El-Sadany. The same holds true for IT: When a country is trying to boost its IT capabilities, it turns to leaders from that sector, he says.

One sign the strategy is paying off: In December, Intel said it would open a production center in Egypt.

A gateway to legal outsourcing: Learning

Courtesy: http://www.cpaglobal.com/

The National Outsourcing Association (NOA) has predicted that education will be a critical factor in 2009 for ensuring that outsourcing professionals maintain quality and continuity in their industry. With the global recession taking hold, NOA director of professional training Yvonne Williams told IP Review Online that the UK trade group's outsourcing education scheme offers important benefits for the legal support services sector, including IP work and legal process outsourcing (LPO).

'About three years ago,' said Williams, 'we noticed that people were coming into outsourcing from all sorts of backgrounds, such as legal, procurement, IT and sales, and people seemed to be working in silos of specialism. Outsourcing is a very complex business, and the NOA thought that understanding of end-to-end contract management would help to improve the industry in general.'

The NOA rolled out its training over three strands: Gateway, which offers a high-level overview of the outsourcing trade, plus the more advanced Pathway and Diploma stages. 'We worked with our members to develop a training programme that we hoped would have a cradle-to-grave dimension,' said Williams. 'This would suit people who have just come out of university and are seeking a first job in outsourcing, or people who have been working in outsourcing for years, with no special training, and may be frustrated that they keep having to remind themselves of some outsourcing details.'

With such a diverse pool of personnel and partnerships involved, LPO poses a host of special challenges. In a realm where lawyers and non-lawyers must collaborate across time zones to fulfill the requirements of legal and corporate clients, monitoring individual processes is crucial. Following best practice – particularly at a challenging time for the world economy – enables all parties to make the most of their outsourcing deals. According to Williams, Gateway's content is of particular use to people with LPO career plans, as it will help them 'to understand the life-cycle of an outsourcing relationship and have that end-to-end knowledge. In relationship management,' she said, 'knowing what other people do is a very positive step in the right direction. We think people in outsourcing should be as flexible as possible.'

Course material relevant to LPO is likely to be developed as the sector itself becomes more visible. 'I think, as with any qualification, it grows by demand,' said Williams. 'If the LPO market proves to have particular requirements, we would tailor the certificate or make it more specific. Outsourcing training should be a moveable feast, able to react and adapt to markets as they grow. And ideally, the skill-set should be transferable from one sector to another.'

Williams said that the practical aspects of NOA training are key to raising efficiency in global business. 'What we are keen to do is make the qualification useable in the marketplace,' she says. 'It is work-based training, so people will be able to feed that work experience into their qualifications. If people understand all the processes involved in outsourcing and not just their little bit, it can only benefit all of us. With so many global companies looking to make cost-savings – especially now – outsourcing can help them keep their cutting edge.'

Infosys Expects Outsourcing Services to Recover in 2010

Courtesy: http://online.wsj.com/

Infosys Technologies Ltd. expects the outsourcing of information technology services to recover "sometime" in 2010, the Indian software exporter's chief executive said Friday.

"Clients are saying that IT budgets would be down this year, in some cases significantly," S. Gopalakrishnan told reporters on the sidelines of an industry event.

"Even where IT budgets are finalized, there is going to be a delay in spending as clients wait and watch the evolving [global economic] situation," he added.

Indian software companies earn most of their revenue from exports and their revenue growth has been hurt due to lower technology spending by global clients.

Nasdaq-listed Infosys earns about 60% of its revenue from the US and about 90% from exports.

Earlier this month, software industry body NASSCOM had cut its outlook on the sector for the current fiscal year.

It now expects the sector to grow at 16%-17% in the year ending March 31, compared with its previous estimate for a 20% expansion.

Infosys has earlier said it expects the next fiscal year beginning April 1 to be tougher, given the adverse economic environment in which its clients operate.

In a bid to control costs, Infosys is likely to give "minimum" wage hikes due in April, Mr. Gopalakrishnan said. "We are taking a look at lowering discretionary costs; travel costs are one of them."

Chief Operating Officer S. D. Shibulal, earlier in the month, had said that increase in wages for offshore staff are likely to be in single digits compared to 14%-15% in the current fiscal year ending March 31.

Offshore employees work for clients from the company's facilities in India.

Mr. Gopalakrishnan added that company continues to recruit, but "selectively."

"We will honor all our [campus offer] commitments [for the next year through March]," he said.

The company has made 18,000 campus offers for the next year through March.

Malaysia outsourcing position could be in jeopardy

Courtesy: http://www.intellasia.net/

Malaysia's position as a preferred outsourcing hub could be in jeopardy as investors turn to cheaper locations during these tough economic times, an industry official said.

"While we may fare well with infrastructure, political stability, human capital and financial security, the million dollar question is still 'Are we cost-attractive?'," Customer Relationship Management and Contact Centre Association of Malaysia (CCAM) president Leo Ariyanayakam said.

He said since January this year, the industry has seen global clients looking for ways to cut costs.

"In the past month itself, we have seen blue-chip companies that used Malaysia as an outsourcing hub migrate up to 80% of their back-office operations out of the country.

"In times like these, cost is pivotal to global companies operating outside their shores. Malaysia may not have the desired cost advantage today to drive global outsourcers to its shores without stiff competition from countries like the Philippines," Ariyanayakam told Business Times.

He said there are many areas that the government can help to make Malaysia attractive as an outsourcing destination.

They include:

• Subsidizing the cost of providing local human capital to the industry,
• Re-training grants to deploy displaced workers into the contact centre industry, and,
• Subsidizing real-estate cost so that immediate value and cost propositions can be made to outsourcing clients to retain their businesses in Malaysia.

"A national framework for retraining and skills enhancement needs to be accelerated to provide value-added job creation for all categories of workers, be they unemployed graduates, the recently retrenched or the under-employed.

"With this in mind, speed-to-market is of the essence and funds for the re-education of our workforce are urgently required," Ariyanayakam said.

He said the government could also increase the number of value-added jobs available by providing enhanced services to the public, through the provision of outsourced contracts to local firms.

CCAM has about 500 members and they comprise mainly those in the banking, finance, hospitality, telecommunications and entertainment sectors.

Ariyanayakam is also chief executive officer and group executive director of Sitcom (MAC) Bud.

TCS, Infosys & Wipro eye $3 billion UK outsourcing deals

Courtesy: http://economictimes.indiatimes.com/

At a time when the world’s biggest IT market — the US — is evaluating protectionist measures against offshoring of IT jobs, Indian companies such as TCS, Infosys and Wipro are preparing to bid for around $2-3 billion outsourcing contracts being fleshed out by the Department of Work and Pensions (DWP), the HM Revenue and Customs (HMRC) and the ministry of justice in the UK.

The UK’s state-owned departments are seeking help from the Indian offshoring industry for putting troubled government technology systems back on track and lower the cost of managing IT systems by 25-40%, experts told last week. The UK government’s IT spending is estimated to be over $36 billion every year, TowerGroup Europe research director Bob McDowall told in an interview.

Apart from the troubled National Health Services (NHS) modernization programme, which needs restructuring, HMRC will also seek to outsource more work, as the department plans to make it mandatory for firms employing more than 50 employees to file tax-related and other informations online by 2011.

“The UK government’s IT projects almost always suffer from scope creep, financial and time overrun of a significant dimension,” said Mr. McDowall. One of the reasons for the UK’s government departments to look for help is the scarcity of competent professionals for transforming the systems.

“Internal IT development resources are not of the strongest quality. Good people go to commercial organizations. Those that are outsourced to the UK-based providers are not always delivered on a more efficient, timely and cost-effective basis,” he added.

The UK’s national healthcare modernization programme, pegged at around $9.6 billion, is among some of the initiatives that failed to deliver. India’s biggest software exporter TCS has also been involved with the NHS project for the past few years.

The NHS project, which had over half a dozen suppliers, including BT, Accenture, TCS, CSC and Atos Origin, ran into trouble after an inquiry by the audit department revealed that the programme was running over two years behind schedule, and had run into several coordination bottlenecks between vendors and various departments.

“Some projects, including a current health sector project to establish a dynamic health record service for all individual registered with the UK National health service, have suffered significant criticism from the UK National Audit body,” said Mr McDowall.

While companies such as TCS have already started campaigning with the UK authorities for addressing the public sector offshoring opportunity, there could be political bottlenecks to deal with, apart from complexity of these contracts in terms of scope and scale.

“Even as we pursue these opportunities, we are apprehensive of different public sector dynamics, including resistance to change, political pressures and unwarranted interruptions,” said a senior executive at one of the top Indian tech firms pursuing these contracts. However, a good strategy for the Indian tech firms could be to include a substantial onshore component while structuring the contracts.

“I see a pragmatic approach for the major Indian outsourcers bidding for the government work is to provide a package on shore and offshore location for the projects supplemented by an offer of relevant IT training for some of the unemployed who would form part of the onshore servicing,” added Mr McDowall. Keeping a major chunk of work onshore will also help the Indian tech firms address concerns around data security, especially since it will involve sensitive citizen data.

Council debates ITC outsourcing decision

Students oppose ITC proposal; Hilton says plan will increase services, allow for 24/7 support

University students attending last night’s Student Council meeting debated the relative merits and downsides of the Information Technology and Communication office’s proposal to phase out student consultants later this year.

Student Information Technology Consultant Seth Kaye spoke out against ITC’s proposal.

“The physical support that we offer here on Grounds and in libraries like Clemons and Alderman ... can’t be solved over the phone,” Kaye said.

Kaye also noted that the introduction of new computing systems at the University, such as the Student Information System, which will replace ISIS, will result in an influx of help requests. He also added that there is no reason to eliminate student consultants if it will not help balance budget cuts.

“We’ve been hearing from the start that this is not about budget cuts, which seems like a dig at our service,” Kaye said. “Why would they be outsourcing us especially if it’s not to save money? It’s ridiculous if we are doing a good job.”

Kaye also noted that the availability of student consultants is a prime example of student self-governance at the University.

“I think we all know how important that is here,” he said. “How great is it that U.Va. students can help support other U.Va. students in terms of [technological assistance]?”

With the proposed changes to outsource student consultants, ITC would not be able to fulfill its goal of making computer service and assistance available around the clock, he said.

“Twenty-four/Seven support is something we can easily do at U.Va.,” he said, adding that he also is concerned about the level of personal support that could be lost if the service is outsourced. “Clemons is open 24/7 and we can offer an e-mail support system that’s available 24/7.” 

James Hilton, University vice president and chief information officer, however, said outsourcing will cost the same as operating an ITC help desk and ITC will still be able to achieve 24-hour computer service and assistance even if it outsources. Outsourcing also would provide the proper documentation of inquiries and common problems to track quality control, which he thinks will be an advantage for students in the long-run, he said.

Matt Fifer, vice chair of Council’s Academic Affairs Committee, said he believes the change will primarily affect the student body.  “Students are going to bear the brunt of that, so I anticipate that service requests are going to explode,” Fifer said.

Academic Committee Chair Marisa Roman expressed concerns similar to those of Kaye about the elimination of on-Grounds student consultants.

“If I’m computer illiterate,” she said, “I can’t have someone on the phone to help me — I need someone to actually do it for me.”

Hilton, noting that plans are still moving forward, said he remains interested in hearing student input about the issues raised last night.

“I will always listen,” Hilton said. “I’m happy to meet and talk to people.”

Source: http://www.cavalierdaily.com/

Outsourcing sector unfazed by Obama warning

THE COUNTRY’S burgeoning outsourcing industry has nothing to worry about despite US President Barack H. Obama’s repeat of a vow to end "tax breaks" on American firms shipping jobs offshore — there’s no such incentive and tweaking tax policy won’t stop multinationals from going overseas.

Courtesy: http://www.bworldonline.com/

Mr. Obama is following through a populist campaign promise to force American companies to keep jobs in the US, saying in his first presidential address before the joint session of US Congress: "We will restore a sense of fairness and balance to our tax code by finally ending the tax breaks for corporations that ship our jobs overseas."

But experts say this is all part of old Washington rhetoric as there is really no direct tax incentive awarded to US companies who transfer jobs to other countries. What the US tax code has is a decades-old provision that allows American companies to defer income tax payments on offshore profits until they are repatriated back home, and Mr. Obama wants to eliminate this.

John D. Forbes, chairman of the legislative committee of the American Chamber of Commerce in the Philippines, pointed out that outsourcing firms are all subject to the host countries’ tax laws.

The head of accounting firm Isla Lipana & Co., Tomasa H. Lipana, echoed this, saying the government of the parent company only taxes profits earned in foreign countries if they remit profits as dividends to the parent company.

Mr. Forbes said: "Obama is more concerned in raising the competitiveness of the Americans in the long term than initiating protectionist trends."

"Though there may be members of his party that have protectionist tendencies, but he is still the president and he is fine."

The Philippine outsourcing industry believes changing American tax policy won’t take away from the advantages of outsourcing, which has allowed multinationals to save money as a result of cheaper labor, and be close to their markets.

In any case, the US has long been losing jobs to other countries even before the crisis, particularly in manufacturing where it is no longer competitive.

"It’s not really surprising since it has been part of the platform of Obama ever since," said Oscar R. Sañez, head of the Business Processing Association of the Philippines (BPAP).

"I don’t think we will really be affected because we are doing better in terms of cost advantage to other outsourcing countries like Canada and Ireland."

Dina R. Salonga, Philippine Software Industry Association director said outsourcing growth would be difficult to stem.

"Even if Obama’s plan materializes, it will still be a matter of economics, like [opening in locations] where companies can save more," she said.

"There are many considerations for this business to just stop, not just tax breaks."

Frank Holz, head of the group Outsource2Philippines, likewise said translating Mr. Obama’s statements into legislation would be hard.

"How would that translate into official policy or legislation is a big question," Mr. Holz said.

"But to the extent that he thinks he could limit companies in lowering costs through outsourcing is wrong. It is ill-advised. You can’t force companies to do things that are not in their best economic interests. Well maybe you can as president but it’s not a good idea."

American companies account for 82% of outsourcing operations in the Philippines, according to the BPAP.

Despite the global slowdown, the $6-billion local outsourcing sector is expecting growth of 30-40% this year, and an additional 110,000 new jobs to the existing 400,000.

"We are not bothered by this," Mr. Sañez said.

"[Mr. Obama] probably will continue to press on this platform but I think companies will still continue outsourcing as they are all under pressure to restructure their companies by reducing costs because of the crisis," the BPAP chief added.

900 new jobs as outsourcing firm doubles its Northern Ireland workforce

Northern Ireland’s economy has received a major boost with 900 jobs set to be created in a multi-million pound investment, the Belfast Telegraph can reveal.

The £19.5m investment is in stark contrast to the economic downturn which has claimed thousands of jobs across the province.

Privately owned outsource contact and call services centre Gem will start recruiting within the next three months. All the new posts are to be filled by 2012.

The multi-million pound investment will double Gem’s workforce from 900 to 1,800.

Invest Northern Ireland has contributed £5.5m to the expansion project.

Gem’s CEO Philip Cassidy said: “I’m very pleased that Gem is in a position to create new jobs given the current economic climate.”

The new posts will include customer service agents, sales agents, technical support and managerial positions.

Mr Cassidy added: “The new staff will handle accounts from within the financial services, technology and retail sectors.

“These new posts will provide employment opportunities at all levels, including management, so we will be encouraging graduates to consider a career with us.”

Gem has three sites at Lanyon Place and East Bridge Street in Belfast and Claremont International Business Centre in Londonderry.

However, the additional 900 jobs will be located in new undisclosed locations across Northern Ireland.

Gem was last year named in the Belfast Telegraph Top 100 Companies after increasing its turnover by 34% to £17.5m and doubling its pre-tax profits to £1.2m.

The company started out with 30 employees in 2000 after Mr Cassidy identified a global market opportunity for the provision of outsourced email handling services.

Source: http://www.belfasttelegraph.co.uk/

SDL profits jump, CEO sees hope with outsourcing during downturn

Courtesy: http://www.forbes.com/

British technology group SDL Plc exceeded market expectations on Tuesday with a 49 percent jump in 2008 pretax profit and its CEO said it would benefit from new outsourcing deals during the economic downturn.

Chief Executive Mark Lancaster said the group would be partly shielded from recession by steady income from its translation services -- which provide about 67 percent of its revenue -- as more companies turn to outsourcing to cut costs.

'We will continue to see companies in 2009 outsourcing the whole (translation) problem -- it's a nice problem for us. More businesses will move the whole outsourcing to us,' he said.

SDL, which provides software services to Microsoft, posted profits before tax and amortization of 25.6 million pounds ($37.3 million) in 2008, beating a consensus forecast of 25 million pounds.

SDL reported a strong net cash position of 31.2 million pounds at the end of 2008 and said it had seen growth across both its technology and services segments, aided by its acquisition of US translation company Idiom in Feb. 2008.

'That (acquisition) gave us technology growth of 59 percent,' Lancaster said in an interview. 'We have quite an ownership of the supply chain now.'

The group, which also develops multilingual technology for Dell, HP, and Philips, said revenue grew 35 percent to 158.8 million pounds in 2008 but warned that cost-cutting among its clients could hit growth in 2009.

'With the continued deterioration of the worldwide economic climate, 2009 may well be a challenging year,' he said.

'I'm not going to tell the analyst we'll get 35 percent growth this year; it will be less than that ... What we're seeing is delays (on orders) of 2-3 months, but they are still buying,' he added.

The UK-based company, which does most of its business in the United States and Europe, has seen a 'strong positive' impact from currency movements, as sterling has weakened against the euro and dollar.

'Only seven percent of our business is in the UK so at the moment (currency) is actually super for us,' he said.

SDL recently expanded its business, buying Idiom for 13.6 million pounds, and paying 36 million pounds for Amsterdam-based Tridion, a web management business, in May 2007. Lancaster said future acquisitions were possible.

'I'm not saying we are going to acquire something tomorrow because we're not,' Lancaster said. 'But there is a lot of potential in e-commerce and multimedia -- all of those things we can either acquire or build ourselves.'

Shares in SDL, which have gained 10.6 percent since the start of 2009, fell to 245 pence in mid-morning trade on Tuesday, reversing earlier gains.

Food company has major focus on outsourcing

Courtesy: http://www.manmonthly.com.au/

THE Anglo-Irish Trading Company (AITC) produces a unique range of dairy and non-dairy drink products with annual sales of around $2 million. But the company only has three employees, including While, and all aspects of the business except general office, sales, marketing, and product development are outsourced.

Areas outsourced include technical, packaging, raw materials, manufacturing, warehousing, distribution and pack design.

AITC procures its blending of finished product from a number of companies on the eastern seaboard of Australia. The advantage to the AITC business model is that there is no capital expense in setting up property, plant, leasing costs, and food accreditation requirements, and ongoing costs such as labour, workers’ compensation, superannuation, holiday entitlements and technical staff are not carried by the company.

“We realized that the best strategy was to work with blending companies that could amortize these costs over a number of clients and bring these economies together within the end manufactured cost of the product. Also, it was recognized that the various products that AITC sells to domestic and overseas markets require various types of manufacturing, which would mean a host of different types of equipment”, While told Manufacturers’ Monthly.

Outsourced warehousing

AITC warehouses and distributes product from a distribution centre at Sunnyfield Independent Enterprises (SIE) in Sydney.

“SIE has worked closely with AITC to put together an efficient and cost effective distribution warehouse encompassing all the technical requirements to supply our overseas and domestic clients.

The cost benefits are reflected in the amount of stock held at a given time and enable us to keep warehousing and distribution costs directly proportional to the business turnover”, While explains.

“If AITC had its own warehousing facility the cost would be fixed and not totally proportional to the turnover of the business. Yet again the fixed costs would include rent, equipment leasing, and warehouse staff etc.

“We do recognize that at a certain turnover there is a point where it could be beneficial for a business to provide its own warehousing, but such a decision would depend on many variables. At this stage we still see economic benefits in outsourcing these overheads whilst they can be amortized in the overall product costing”.

He said that AITC is currently working towards integrating aspects of outsourcing, including packing of cans, warehousing and distribution. This is being undertaken at SIE with a view to reducing the costs of transportation of bulk products to and from other packaging facilities on the east coast. SIE, a sheltered workshop, has proved to be efficient and competitive in providing packaging services and meeting tight delivery deadlines.

“Outsourcing provides diversity options and economic benefits to our company, and the companies we outsource to form part of a team with a focus on ensuring that we further develop as a competitive supplier to both domestic and overseas markets,” said While.

Outsourcing: A Trend for Difficult Times

Courtesy: http://www.goethe.de/

To be self-employed does not mean doing everything "oneself" and "all the time". Rafael Kugel is an extreme example: a scientist at the Free University of Berlin (Freie Universität Berlin), he also has a secondary occupation as the founder of a company and has been selling high-quality rapeseed oil via the Internet since 2005. Although he now has several thousand regular customers, Kugel deals personally with the day-to-day running of the business for only 15 minutes a day on average. The reason for this is that almost every activity has been outsourced: a German producer of bio-products produces and bottles the oil, while Kugel has contracted out the Internet shop, shipping and accountancy to specialised companies. Because of this he does not pay any wages for own staff who are not working to capacity. "It only costs me money if somebody at my call centre lifts up the telephone and takes an order. If nobody rings up, it doesn't cost me anything." Apart for a minimal basic charge, costs only ensue when an order takes place and are covered again as soon as the bill is paid. Kugel's "less-than-a-one-man company" began to make profits shortly after start-up.

Everything that is not among the core tasks

"In principle, all business processes of a company can be outsourced, that is, contracted out, unless they are among the core processes," Mario Kölzsch from A`PARI Consulting GmbH says. The staff canteen, administration and cleaning of the building, security, tax accountancy or IT services: nowadays it's usually service providers from the outside who see to these. "Well into the 1990s, such services were regularly provided by the companies themselves."

According to Kölzsch, outsourcing is particularly popular in economically difficult times because of the increased pressure to reduce costs. Often between 15 and 30 per cent of the budget in the IT sphere can be saved through skillful outsourcing. The German IT branch achieved a turnover of 13.6 billion euros in 2008 by means of outsourcing, according to the association Bitkom. The turnover has been increasing for years and Bitkom also expects a plus of 7 per cent for 2009. This area, with its complex know-how and fast-moving products, is crying out for highly specialised professionals. For example, if two companies using different hardware and software systems merge then the internal departments are very soon out of their depth. Usually people from the outside manage better to introduce a unified infrastructure.

IT and outsourcing are almost always mentioned in one breath. And no wonder: more than 60 per cent of companies outsource this sphere, according to Professor Arun Chaudhuri of the Münchener Fachhochschule für Ökonomie und Management (i. e. Munich School of Economics and Management). Further education (44 per cent) and procurement (43 per cent) follow; financial service providers, the manufacturing industry and public administration have handed out contracts to third parties in a big way. In these branches, the professor said, the pressure to modernise was especially strong. A slim company or a slim organization and a better overview of operational costs were the advantages. A pity, though, if it only has a cosmetic effect on the balance sheet: in the short term the results look higher and the management can show it has been active.

A secretary sitting in India

Globalisation has drastically increased the number of possible partners. Assistance activities are now outsourced worldwide, according to Professor Chaudhuri. For a long time now, office services within the country have not been unusual, but whoever can conceive of a secretary thousands of kilometres away? Outsourcing to low-wage countries is spreading to more and more areas of life: nowadays tax or nutritional advisors or an English teacher may well be located in India. "Over the last few years the transaction costs, for example for communication and monitoring, have dropped immensely because of the spread of the Internet and broadband connections." At the same time the qualifications of foreign specialized personnel and their number in absolute terms grew. That is why the trend is now to shift more challenging tasks, such as research and development, to China, India or Eastern Europe.

Parts of the production have already been located there for a long time: because of their proximity to important markets and the lower cost of wages. Companies with a lot of work done by hand especially choose to profit from the difference. The medium-sized producer of textiles, Setex, for example has outsourced a large section of its manufacturing to Poland.

In Germany, simple sewing tasks were too expensive: "The portion of manufacturing costs allotted to wages is roughly 50 percent," remarks Setex-Chef Konrad Schröer – at the weaving mill that mainly works automatically, they only amount to 9 per cent. That's why the fabrics are woven, refined and coated at the central Westphalian workshop but then cut to shape, hemmed and sown in the neighboring country to the East for a fraction of the wages. At first this was taken on by Polish sewing factories; however, over time the number of cutting losses increased and it became difficult to retain an overview. Schröer decided that they had to take that over themselves. Setex has had its own factory in a Polish special economic zone for three years now – and that has even engendered new jobs at home.

Longer decision-making processes and higher control costs

Companies that have their extended work bench further away, in Asia for example, now notice the following: the enormously increased costs of transport are gradually eating up any advantages in wages and the latter have been reduced in any case because wages are rising more strongly than in Germany in many countries of the world. Many companies and organisations are relocating jobs back to base. Loss of quality and fear of plagiarism are other reasons.

Many suppliers and service providers calculate very finely in order to snatch orders away from the competitors. If their plan doesn't work, though, they risk insolvency or have to cut back on quality. Large customers attempt to dictate conditions to the suppliers who are dependent upon them. And that doesn't only happen abroad.

"More lengthy decision-making processes and an increase in the necessity for controls are likewise disadvantages of the model," Rafael Kugel, with his own start-up company, says. However the advantages predominated by far. However, the owners of the machinery factory Bäumer from Freudenberg saw that differently: some years ago they outsourced their welding, turning and sheet metal shops to companies in the region in order to avoid long supply paths. During the economic boom however suppliers were so busy that Bäumer had to wait a long time for the ordered components and hence had to plan early. That impaired flexibility – and thus also the competitive strengths – of this medium-sized manufacturer of machines for processing foam that were to be sold worldwide. In the mean time the outsourced sectors have been reintegrated again. "One is much more flexible when one is one's own boss," the managing director Matthias Schuster explains. Luckily the staff that were able to weld and work with metal were still there.

Babock to target army outsourcing

Babcock International is expecting an increase in outsourcing work opportunities from its biggest customer the Ministry of Defence (MoD), while seeking small acquisitions in overseas markets such as Eastern Europe.

Chief Executive Peter Rogers said the engineer and support services group, which already manages a number of naval bases including the nuclear submarine base in Devonport, England, said he thought the MoD would start to put out more work to tender from the army and airforce divisions.

"There will be more outsourcing -- there's not much more the navy can do, but the army could outsource more, and the RAF could outsource more -- it will happen gradually," he told in an interview.

He also said Babcock is boosting its presence overseas, and while he ruled out entering the world's biggest defence market the United States, he said he was keen to target Eastern Europe.

"In Eastern Europe we need to acquire something with good existing management -- it is one place we are looking," he said, although small acquisitions are the more likely option.

Babcock works on new nuclear build and railways as well as defence projects. Its shares were down 1 percent at 502 pence by 10:43 a.m., valuing the firm at around 1.1 billion pounds.

Source: http://uk.reuters.com/

Increased US Outsourcing, Less Offshoring: Report

Courtesy: http://www.tmcnet.com/

A new report by Technology Partners International (TPI) predicts that there will be an upsurge in outsourcing by American firms later this year as they seek to reduce operational costs and improve productivity.

Yet more of that demand will likely be handled domestically, including in contact centers, rather than offshore. As a byproduct there may be more mergers and consolidations amongst outsourcers that may result in a stronger outsourcing industry.

The study, Outlook for the Global Outsourcing Industry in 2009, identified the global economic crisis and a projected long recovery time as outsourcing drivers. Declining consumer confidence and spending and credit erosion are acting as catalysts favoring outsourcing to enable firms to get through the downturn.

At the same time it pointed to growing concerns about the stability of offshore outsourcing as exhibited by the scandal surrounding the Indian outsourcing firm Satyam and the Mumbai terrorist attacks. These factors, along with higher unemployment that will curb costs and growing political pressure to lower joblessness, may keep much of the outsourcing work in the US

TPI is expecting that the Obama Administration to launch initiatives, which, coupled with possible tax benefits to encourage onshoring, would offset the cost savings of sending contact center/IT work offshore. That in turn may lead to offshore outsourcers pressing for tax benefits in their home countries, setting up an incentives war.

“The United States is likely to employ policies to try to stimulate more domestic and less offshore outsourcing,” predicts the TPI study. “For the United States and other suffering Western economies, data privacy could become a weapon to force companies to ‘comply’ with locating work in a particular location because it may be the only ‘stick’ available to counter the ‘incentives’ to move work.”

TPI believes as an outcome of these trends existing captive offshore operations may be divested or restructured for higher value i.e. between commodity and non-commodity work as part of broader industry consolidation to create large service bureau capabilities. Coming out of the recession, which will likely be in late 2009, the firm expects to see a strong global outsourcing industry with four to six large, dominant providers.

“These market changes will fuel tri-lateral consolidation among India-based service providers, US - and Europe-based infrastructure providers, and the divested operations of cornerstone client corporations,” says TPI. [The outsourcing industry changes] will provide resiliency to the ecosystem that services the needs of major corporations. Ultimately, that ecosystem will service the needs of middle-market buyers as well.”

Sierra Systems Introduces "Get SMART Fast" Approach to Application Outsourcing

Courtesy: http://www.tradingmarkets.com/

Sierra Systems Group Inc., a leading information technology and consulting services company, today introduced its new "Get SMART Fast" approach to Application Outsourcing designed to help organizations quickly identify significant savings opportunities within their IT operation.

The "Get SMART Fast" approach utilizes Sierra's exclusive SMART methodology, designed to help organizations target and track Application Management Services (AMS) benefits and manage the transformation process to completion. Sierra's flexible delivery models - including Onsite Managed Services (OMS), Remote Managed Services (RMS), and Project Delivery - provide organizations with deployment options that best map to their unique business and technical requirements.

"Our research shows that 88 percent of public companies and 68 percent of commercial companies have not used off shore resources for IT-related purposes," said Nigel Wallis, Research Director, IDC. "Customers are looking for creative approaches to application outsourcing that involve more than pursuing an off-shoring strategy alone."

Sierra's approach enables companies to do more with either the same amount of resources or, if needed, by reducing the resources required to support a given portfolio of applications while maintaining equal or greater IT support service levels.

"With today's unstable economic climate IT departments are forced to maintain or increase the level of service provided by IT operations, while also finding ways to cut costs--all without compromising quality, functionality and reliability," said John Krpan, GM and EVP, Application Management Services, Sierra Systems. "Our 'Get SMART Fast' approach is unique in that companies are realizing benefits in six months or less as compared to other strategies that can take as long as two years before benefits are realized."

SYBE Grows as Doctors Weigh Benefits of Outsourcing Billing Headaches

Courtesy: http://in.sys-con.com/

When we have a chronic headache or pain in our posterior we go to our doctor. When doctors discuss such ailments they are often referring to their growing discomfort due to enormous insurance paperwork overloads and Medicare frustration. The mounting burden consumes limited, valuable patient time according to SYBE Medical Management, a Los Angeles-based firm specializing in improving the bottom line for a growing list of physician offices.

"As physician practices attempt to remedy the paperwork problem many are looking at outsourcing to professionals who are trained and efficient in streamlining the billing process," says Steven Garrett, manager of SYBE Medical Management.

"One of the initial concerns by doctors when considering outsourcing is loss of control," added Garrett. Unless a doctor stays after hours and personally processes the billing it is really being "outsourced" to internal staff. If the doctor has a staff handling the billing process it is often delayed or sent to insurance companies with incomplete information or coding errors because the process is among other office responsibilities of the staff. Control is actually gained by outsourcing because of the timely, sophisticated reports generated for the physician by the outsourcing firm.

The cost of an office staff to manage billing is much more than an hourly rate. Doctors need to consider employee benefits such as vacation, insurance, retirement plans, sick days and matching employee FICA obligations. Outsourcing eliminates all of this. There is no "down time" due to sick days or vacation. Outsourcing firms such as SYBE Medical Management work on a percentage. And that is a good incentive in itself to work hard and efficiently for the doctors.

Most doctors have an existing staff employee as a liaison between the practice and the outsourcing firm. SYBE's staff is trained and professionally communicates throughout the process; getting the required information from the doctor's office and promptly submitting forms for processing. If a doctor's staff processes the billing, turnover can be a burden leaving significant down time until a new person is trained and up to speed.

"Successful businesses in all industries are realizing gained efficiency and lower costs through outsourcing," says Garrett. "Why should the medical profession be any different? SYBE has experienced a consistent growth in business in 2008 due to this 'win-win' process."

South Africa: Simeka Gains on Trend Towards Outsourcing

Courtesy: http://allafrica.com/

BLACK-empowered technology company Simeka Business Group has reported headline earnings per share unchanged from the 8,8c achieved a year ago, despite a 27% rise in revenue for the first half of its financial year.

CEO Mohammed Varachia said the group had seen solid growth during difficult market conditions, and its stock gained 1c to trade at 31c yesterday.

For the six months to November 30 its revenue rose from R309m to R393m and earnings before interest, tax, depreciation and amortization (Ebitda) grew a healthy 37% from R58,4m to R80m. A similar rise in net profit saw it retain R47,5m, and headline earnings per share were only eroded because the number of issued shares rose by almost 100-million.

The fact that its Ebitda outperformed the growth in turnover showed it could maintain healthy margins and keep its costs under strict control, Varachia said. Part of its success came from capitalizing on the demand for technology outsourcing, which is flourishing as companies cut back on their in-house technology staff to cope with the economic slowdown. The full effect of the economic meltdown may not have been felt yet, Varachia warned, but outsourcing offered Simeka good potential as more organizations began outsourcing to cut their costs.

Its performance was also boosted by acquiring the business services group SAB&T Ubuntu Holdings for R123m last June. That deal broadened Simeka's technology services to include general management consulting, and the two operations were now cross-selling to each others' customers.

Simeka's cash reserves stand at R94m, and although no interim dividend was declared a maiden dividend may be paid for the full financial year.  Simeka won new deals worth more than R150m in the past six months, Varachia said, and would earn annuity income topping R2bn in the next four years.

The group offers technology outsourcing and business support services with offices across SA, in 21 other African countries, and in the Middle East and the UK.  Its most recent foray was into Nigeria, and that branch was delivering profits ahead of target, justifying a further investment of R10m to tackle new opportunities.

AltX-listed Simeka is majority black-owned and managed, which it says is a competitive advantage and a key to growth.
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Its goal in the coming 12 to 18 months is to chase more government tenders in anticipation of a rise in public sector spending.

That would be helped by its black empowerment profile, Varachia said. It would also make a concerted effort to grow internationally in the next six months, mainly by taking its Microsoft solutions to high growth areas in the Middle East.

"We are looking to increase turnover from outside SA to around 30% of total turnover by year-end in May 2011, compared to the current 10%," Varachia said.

Rumors of Sprint Nextel outsourcing network operations raises questions

Courtesy: http://www.rcrwireless.com/

With Sprint Nextel Corp. continuing to struggle, rumors have been flying regarding possible extreme measures the industry’s No. 3 carrier might have to take to right the ship.

One that popped up in the Kansas Business Journal had the carrier looking at offloading its network operations to Ericsson Inc. The newpaper reported that if the deal were to go through, it expected Ericsson would inherit between 6,000 and 7,000 Sprint Nextel employees.

Sprint Nextel spokesman James Fisher said the carrier had no comment on the speculation, but did say the carrier is always looking for ways to improve its service.

Even though no announcements have been made, analysts said the carrier’s lack of comment was a clear indicator.

“In the absence of a firm denial you can assume that it’s very likely,” said Pete Dailey of Stratecast. “The signs all point to this happening.”

Ericsson was not available to comment.

Dollars and sense

Peter Jarich, analyst at Current Analysis, said the potential move makes sense for Sprint Nextel.

“The argument is going to be that you can get more done with less if you have Ericsson, who knows the network better, take over some of those functionalities for you,” Jarich said.

Dailey was on the same page and sees the takeover completely beneficial and possibly necessary at this point.

“Ericsson’s going to do a fine job, in some ways better than Sprint,” Dailey said.

Indeed, Dailey continued, handing the network over to a network vendor would be a financially sound decision and give Sprint Nextel the potential to save millions of dollars.

“It’s usually in the neighborhood of around $200 million a year,” Dailey said. “It’s reasonable to expect 25% off back savings.”

Outsourcing network operations might be a nightmarish scenario for certain carriers such as AT&T Mobility or Verizon Wireless, Jarich said, calling is a “touchy-feely” situation. Let’s face it; the network is a carrier’s baby.

“It’s one of those holy wars and one of those issues that can really divide people,” Jarich said. “You’ve got someone saying ‘look, we are a network, if we don’t control that then what do we control and where is our value?’ It’s not about the down pipe. It’s about providing that service on top of it.”

Focusing on customers

Aside from some extra cash, the carrier would have more time to focus on other priorities. Sprint Nextel has repeatedly said that 2009 will be about improving its murky customer service.

“It is still one of the top priorities,” said Sprint Nextel’s Fisher. “We’re not at the level we want to be yet.”

Offloading network management would give the carrier the opportunity to pay attention to other things, such as improving customer service, especially when the task is a tough one, Dailey said.

“The consumer perception of Sprint is that they provide pretty poor customer service,” Dailey said. “It’s hard to change that perception very quickly.”

But when it comes to Sprint Nextel’s reputation, handing the network over to a different player will have little, if no effect on customer perception, Jarich said.

“I don’t think it will be an issue for the end user,” Jarich said. “It’s got to be a good thing for them, unless you could imagine the Verizon commercials with Verizon service backed up by all those Verizon people and on the other side a Sprint person backed up by a bunch of Swedes. Would the average customer really care?”

End game

Further, Dailey believes Sprint has bigger problems to worry about, like possibly putting itself up for sale.

“Sprint ultimately needs to get bought,” Dailey said. “I believe that Comcast or some other cable company would want to buy Sprint.”

Dailey suggests cable customers are looking for integrated value plays. And when competitors AT&T Mobility Inc. and Verizon Wireless offer these extra wireline services it can be tough for a one-trick pony like Sprint Nextel.

Analysis for 2008 outsourcing market

Courtesy: http://www.Free-Articles-Zone.com

Outsourcing relationships and destinations are changing, and vendor management is as important as ever, according to new analyst reports.

Russian outsourcing provider Luxoft, said outsourcing vendor and client relationships are evolving into partnerships with clients now seeking increased value from vendors. Vendors are expected to deliver innovation and expertise to client’s business processes, Luxoft said in a report predicting outsourcing trends for 2008.

The National Outsourcing Association (NOA), in its annual survey of upcoming outsourcing trends, said Knowledge Process Outsourcing (KPO), which it defines as the “outsourcing of high value-add functions,” is likely to increase as trust in business process outsourcing grows.

The new trust involved in the outsourcing partnerships will mean more data is shared and security measures become even more essential to deploy, Luxoft said. Luxoft also predicts the growth in popularity of outsourcing for functional and system integration, and for new outsourcing services to be put on offer in the market that test all areas of system performance.

Also, because of increasing competition for skills in some outsourcing destinations, there will be more evidence of vendors tapping into the resources of other countries and the Offshore IT Outsourcing,Software Development Outsourcing & BPO Services Company must clearly estimate and propose costs. “This could, for example, bring Russia and India or China together in new and interesting ways,” Luxoft said.

Nearshore destinations will continue in their attraction as clients want “the combined benefits of proximity and familiarity as well as the manpower boost of outsourced resources,” added the Russian firm. In particular Eastern Europe and Canada are noted destinations. The Russian outsourcing industry escalated to over $1bn from 2006 to 2007, Luxoft said.

The NOA said the global delivery model is likely to move beyond India, citing the often said explanations of climbing attrition rates and rising Indian salaries.

But news last Friday of Infosys Technologies registering growth of 25 per cent during the third quarter of this fiscal, indicates Indian providers are challenging analyst’s expectations. The NOA also predicts more demand for management skills. In the association’s report, it said “NOA research shows both end-users and suppliers need staff who understand and have experience of outsourcing and the outsourcing life cycle”.

Gartner also explained the importance of vendor management in its latest analysis of the outsourcing market. Kurt Potter, Garner research director, said “although user organizations often have fundamentally sound procurement organizations to initiate outsourcing contracts, for many, their IT sourcing strategies and governance structures are still immature, lacking altogether, or misaligned with enterprise objectives.”

Gartner has forecast the global outsourcing market to grow at a rate of 8.1 per cent in 2008, but said publicly reported IT outsourcing and business process outsourcing contract values decreased overall by 50 per cent in 2007 because the outsourcing market has matured and there is less publicity on deals, while multi-provider strategies deals are smaller in size.

The NOA also predicts that although new technology such as virtualization, grid computing and thin client services, will be used by organizations to cut costs, the transition is likely to be difficult and possibly costly. This might mean that firms decide to go with outsourcing providers who can use this technology easily and cheaply, because they have the right tools and skills at hand.

Recession changes outsourcing model

Courtesy: http://www.itworld.com/

For some years, credit has been growing faster than economic activity. In 1980, debt levels for US banks were running at 21 per cent of gross domestic product (GDP). By 2007, the figure had grown to 116 per cent of GDP. In Europe, by 2008, bank capital had shrunk to 10 per cent of assets as requirements for capital adequacy were loosened. For most of the 20th century, the figure had been 25 per cent.

Some of that credit found its way onto the balance sheets of outsourcing companies, who used it to finance contracts and offer discounts to CIOs in the early years of a deal.

In some cases, the outsourcing provider not only delivered IT services, they became a source of credit too. Compass Management Consulting analysis of contracts suggests that the discount in the first year of sourcing deals was 15-20 per cent below the market rate. This was offset by a premium of up to 30 per cent above market rate towards the end of the contract term.

With the shrinkage of credit over 2008/2009, these variable price deals are no longer sustainable. At Compass, we are calling this a new sourcing paradigm because its effects are so profound.

One example: today's economic conditions are the toughest for several generations. Corporations are looking to cut costs like never before and some think they "deserve" discounts because of the slowdown.

Five or 10 years ago, service providers could secure access to funds, provide the discount, ramp up prices in the final years of the deal (by which time the economy was growing again) and both parties were happy.

Not today. In the new sourcing paradigm, service providers are either unwilling or unable to raise cash in order to fund a discount.

The economic situation -- and its consequences for outsourcing -- is undoubtedly serious. Yet if service providers and clients grasp these changes early, current conditions could trigger improvements in sourcing relationships that will benefit both parties.

Firstly, the new fiscal conditions mean that both parties have an increased incentive to achieve value evenly over the lifetime of the contract. Cost savings will no longer be achieved through the mirage of financial engineering. Instead, both parties will be challenged to deliver savings through long term improvement initiatives, economies of scale, adherence to standards and optimized service delivery and relationship management.

With discounts gone, the new outsourcing paradigm is putting pressure on client organizations to contribute to improving performance in order to achieve savings alongside their service provider.

Tritonic(TM) Increases Creative Productivity and Lowers Overall Expenses by Outsourcing Editing Requirements to Papercheck

Courtesy: http://au.sys-con.com/

Tritonic(TM) has increased the overall quality of its creative work by outsourcing its proofreading needs to Papercheck. Tritonic(TM) has utilized Papercheck's high quality editing services since September of 2007, allowing its talented graphic designers to focus on creativity and design. The firm has taken advantage of Papercheck's 24/7 editing services, while reducing overall proofreading expenses.

Tritonic(TM) does more than simple designs and logos; they evoke emotion and create designs that are inspirational, challenging, and fresh. To maintain this high degree of design, creativity, and marketing, the company must collaborate across the entire organization. Each team member must maximize his or her time to produce innovative and creative marketing campaigns. Tritonic(TM) is a rapidly growing business which cannot afford to spend talented resources on the critical, labor intensive task of editing. Luigi Tartara, Principal Owner, commented, "Editing only draws comments when it is not executed. When editing is properly done, no one notices that we have done anything at all. Since using Papercheck, our clients have not mentioned a single grammatical error, and that is the way we like it."

Mr. Tartara sought a means to keep creative productivity high, without sacrificing quality and hampering cash flow. Tritonic(TM) selected Papercheck's high quality proofreading services to ensure that its creative work is grammatically correct and succinct. Although creativity is extremely important, poorly written work and grammatical errors cannot be tolerated. Papercheck has eliminated the need to hire a full time editor, while giving Tritonic(TM) 24/7 editing resources to meet all of its deadlines. Papercheck provides on-demand proofreading services, equivalent to maintaining a staff of three fulltime editors.

ACS Receives Positive Rating for Finance & Accounting Business Process Outsourcing

Courtesy: http://www.businesswire.com/

Affiliated Computer Services, Inc. has received a positive market rating in industry analyst firm Gartner Inc.’s recent MarketScope for Comprehensive Finance and Accounting (F&A) Business Process Outsourcing.

Gartner evaluated business process outsourcing (BPO) vendors based on customer experience, market understanding, geographic strategy, product/service, vertical/industry strategy, and market responsiveness/track record. A company attains a positive rating when its business model demonstrates cost savings, deliverable business benefits and an increase in client satisfaction.

“We believe Gartner’s ‘positive’ rating confirms ACS’ position in the market and our commitment to delivering business benefits and overall client satisfaction,” said Ron Gillette, senior managing director of ACS Finance & Accounting Services. “By leveraging our extensive global delivery network, ACS clients are ensured seamless F&A management that provides reduced costs and improved service levels, enabling them to focus on their core business.”

According to the report, comprehensive F&A BPO consists of support for multiple business processes in the F&A domain through a single BPO contract. It typically includes three or more subprocesses associated with F&A, from the following categories: accounts payable, accounts receivable, general ledger, financial reporting, treasury and cash management and specialist processes, including yield management, shareholder accounting and risk analytics. The MarketScope report was authored by Cathy Tornbohm, Gartner research vice president.

ACS Finance and Accounting Services are core to the company’s diversified business process outsourcing service offerings. Our broad spectrum of services includes accounts payable and receivable; billing; general accounting; tax management; and treasury and risk management. The ACS F&A global delivery model supports more than 23 countries and encompasses 20 languages.

Outsourcing industry ponders Satyam impact

US executives don’t expect enduring effect from scandal

Courtesy: http://www.indusbusinessjournal.com/

As the details of the Satyam Computer Services Ltd. fraud scandal – with $1 billion of falsified cash and assets reported – rocked India and the global IT and outsourcing world last month, US outsourcing executives and analysts weighed the impact on their business.

“In our business we are not seeing any slowdown,” said Kishore Mirchandani, president of Outsourcing Partners International Inc., a New York-based firm that provides financial and accounting outsourcing services. “I think business will be as usual. We don’t anticipate any changes. We will still have growth.”

Outsourcing Partners, which Mirchandani co-founded in 1998, has a handful of locations in India, including centers in Bangalore, Delhi and Kochi. The company has been on Inc. magazine’s annual list of fastest growing private companies for four years with growth of 128 percent over the last three years. It employs 2,400.

Mirchandani admits that, since Satyam focuses on IT, the impact of the fraud scandal might hit closer to home to US IT outsourcers, but overall he does not believe that it will slow business down. “I think it is an isolated situation and it is not reflective of the industry,” he said.

He does believe that it may tighten up the scrutiny and increase the level of governance with clients, but believes that the successful outsourcing firms already have appropriate practices in place and increased scrutiny will only serve to highlight this.

“We have [a high level of governance] with every client of ours. We have total transparency and that is why we are as successful as we are today,” Mirchandani said.

Rajini Poddar, president of Artech Information Systems LLC, a Cedar Knolls, NJ-based IT-services provider with revenues approaching $200 million, is a bit more concerned about ripples caused by the Satyam scandal.

“I think in the short term there will be some impact, because companies that do outsourcing will do more due diligence,” Poddar said. “But I don’t know in the long run if this thing is endemic to India.”

“I think it will kind of blow over at a certain period of time,” she added. “However, if it turns out not to be an isolated incident then there are bigger implications.”

Poddar, whose firm has a center in Noida, India, believes the fact that the Indian government is not taken the matter and has been swift to act will help to quell concerns from outsourcing clients.

Like Mirchandani, Poddar sees only benefits from an increased level of due diligence from clients and increased corporate governance practices.

At the end of the day, she feels the benefits of outsourcing to India will continue to make the practice popular and highly utilized. “[Outsourcing] is part of doing business. It is part of being competitive,” she said.

She also said that it is very telling for the outsourcing industry that, despite the accounting and bookkeeping malfeasance by Satyam, the company suffered no complaints about the service it delivered.

Looking at the Satyam scandal from an analyst perspective, Doug Brown, partner at the Brown-Wilson Group, and co-author of “The Black Book of Outsourcing,” anticipates larger industry response.

He predicts five issues that will shape the industry in 2009 as a result of the Satyam fraud case:

• Suspicions and scrutiny will rise of all offshore vendors, particularly family-led companies and Indian firms
• Geopolitical risks and threats force clients to bring offshore work back to United States and the United Kingdom
• US and UK clients establish outsourcing governance officers with offshore contingency planning a top priority
• President Barack Obama’s administration economic stimulus and infrastructure support plan could benefit US job creation/return in outsourcing sector
• Transparency in corporate governance, particularly among offshore outsourcers and firms with more than 50 percent of their workforce abroad will become part of customers' decision making process.

Brown is particularly staunch on an increased emphasis on bringing outsourcing jobs to the United States.

“The timing may be extremely fortuitous for US firms – and offshore companies with US operations – to create American jobs under the Obama Administration's new stimulus plan,” he said. “Reorganizing service delivery options to the US – for US clients – may be the only way to maintain those customers. Wipro and [Tata Consultancy Services] had recognized that trend and are well positioned to capitalize on the change in service locations. This also means more jobs for Americans.”

The Brown-Wilson Group conducts an annual survey – under The Black Book of Outsourcing name – of over 400,000 outsourcing users globally to evaluate senior leadership of the 5,000 global outsourcing vendors and, according to Brown, even before the Satyam scandal confidence was beginning to lag. “One hundred percent of outsourcing users within the Fortune 1000 participate in the Black Book’s annual customer experience surveys yet only 4.6 percent reported even mild lack of confidence in any of India’s biggest firms in 2008,” he said. “In 2009, preview surveys have indicated over 68.3 percent of offshore outsourcing users report mounting lack of confidence in their suppliers’ governance. Even if Satyam’s problems are Satyam’s only, the rest of the offshore industry is about to experience greatly elevated scrutiny.”

The Black Book of Outsourcing has already altered its 2009 survey to take a closer look at corporate financial governance.

“Black Book's annual client user survey maintained the same 26 key performance indicators on outsourcing firm’s senior management for six consecutive years in four main categories: C Level Commitment, Human Capital Performance, Corporate Direction, and Leadership Impact. Corporate direction scores, which included Accountability, had decreased from 2006 to 2008 but was comparable to all top Indian outsourcer firms,” Brown said. “In response, we’ve added a new (fifth) section specifically addressing Accountability to include indicators of Trust, Executive Confidence, Financial Stewardship, Avoidance of Illegal Activities, Mitigation of Geopolitical Risks, and Sustainability Leadership among others. We believe these results will greatly change the make-up of 2009's top 50 best-managed outsourcing vendors as compared to prior years’ rankings.”

Like Mirchandani and Poddar, Brown also believes increased corporate governance will benefit the industry overall. “The big winner will eventually be all offshore outsourcing users because transparency will be necessary to convey trust and tools to better scrutinize vendors will be vital to user decision making,” Brown said.

Making the outsourcing decision

Courtesy: http://www.fleetequipmentmag.com/

When it comes to outsourcing maintenance, one approach does not fit all. Every fleet makes outsourcing determinations based on its own unique practices and needs. But, add in the unknowns of a poor economy and fleets may want to rethink their decisions.

Economic factors

Vince DiSchino, director of business development for Regional International & Idealease, says, “I feel the economy should have little to do with maintenance procedures except how it effects fleet mileage and utilization. To further answer this, you must start with your maintenance philosophy. If your maintenance approach is preventive and ‘fleet ready’ you will continue to spend dollars effectively as the fleet needs it. This approach takes planning, asset managing, and maintenance support in place, whether internally or outsourced. To me this is a question of what is most cost effective and meets my needs. If your needs are ever changing it will be as challenging to make the necessary internal changes as it will be to find outsourcing providers that can keep pace with your changes and provide some sort of budget compliance. If your challenges are the difficulties of managing your internal operations, i.e. staffing, technology changes, etc. then outsourcing may be the direction. This is still more operational than fiscal.”

DiSchino goes on to say, “If your maintenance approach is reactionary and breakdown-initiated, your philosophy is to not spend any money until (not unless) you have to. To me this is a runaway program and very costly in the long run. Monday morning quarterbacking will blame the outsourcing provider, the economy or anyone else for the unexpected results. I have been involved in outsourcing, primarily as a provider. Those that understand what fleet maintenance is comprised of, know their true costs, have an asset management program in place that will keep their fleet balanced, and have a way to monitor and manage results can intelligently approach and consider outsourcing. Those that lack these factors usually are looking for someone to pass the responsibility to and blame when it doesn’t work.”

Some fleets are committed to doing their own work regardless of economic conditions. David Foster, vice president of field maintenance at Southeastern Freight Lines, says, “If anything we have tried to up the quantity of transitions completed by our own shops instead of outsourcing. I see no benefits in outsourcing if you can get the work completed yourself. It is required for part of our business where we do not have shops, or cannot get the equipment moved to one of our shop facilities.  We do a more efficient, quality repair in-house. That is not to say we do not have some quality vendors in some locations.”

Darry Stuart, president and CEO of DWS Fleet Management Service, says, “In my opinion and practice, you should always provide maintenance as if Chapter 11 was on the threshold. That does not mean that you do not spend money; it means you always spend your money wisely. Whether you outsource or provide in-house repairs and maintenance. Take the checkbook out of the hands of the technician and provide mechanical repair and business guidance.

“I do not think that either doing maintenance in-house or outsourcing it has drawbacks. Both have benefits, and sometimes you have no choice, based of how many trucks and locations are in consideration. As an example: a small shop with two different technicians on first and second shifts is cost prohibitive for a fleet of two trucks. When you factor in salary and benefits –– it would be cheaper to outsource one of the shifts. It’s true that technicians are onsite to support the operation, but if an outsourcing agreement helps to cut cost, it’s worth it.”

Stuart goes on to remind fleets, “We are not in the maintenance business –– we are really in the asset management business, of which our process is fixing trucks. Outsourcing clearly costs more money, unless your maintenance program leaves much to be desired. If you factor in management and experience to manage that, outsourcing maybe the answer. That’s where full service leasing comes into play.”
At the end of the day, you have to plug in all the costs, real costs and the burden costs, like building and utilities, downtime, efficiency, and so on. However, says Stuart, “Out-sourcing just may be easier, sort of like valet parking on a rainy day –– you know there’s an upfront cost, but the benefits of staying dry in a downpour may be worth the extra money. At the end of the day, it’s all about cost. Based on size, doing it yourself may put you in position to be the low-cost provider.”

Benefits, drawbacks

There are many things to consider when choosing to hire an outsource maintenance provider. When it comes to benefits, DiSchino believes that a fleet’s service provider has the responsibility for proper staffing and skill fulfillment as follows:

• It should be operating under some industry standards for time and labor charges.
• It is responsible for compliance with OSHA, EPA, DOT, etc.
• The work should be guaranteed.
• The company should provide you the needed reports that you have requested in your negotiations.
• The outsourcer prepays all your maintenance expenses.

He goes on, “Spend your time on planning and reviewing results. Note that the drawbacks of outsourcing may appear to be more costly and difficult to sell to upper management. Also, there may be difficulty keeping a provider in the loop when internal changes occur. Then there is the possibility that a supplier may cancel, leaving you with few options, or the supplier may not give you the priority you feel you deserve.”

Outsourcing with an OEM

Darcol International operates an all-Kenworth fleet of 35 trucks, including Kenworth T800s, W900s, and T660s. Paul Geiger, president and founder, says, “Our customers rely on our promise to deliver their shipments safely and on time. Having a good preventive maintenance program is absolutely critical to ensuring that our power units are in top shape and we don’t have delays due to equipment failure. That’s why we rely on the Kenworth PremierCare Preventive Maintenance Program to stay on top of truck maintenance. 

The maintenance program provides fleets of any size a customized preventive maintenance solution for trucks, regardless of manufacturer. Since maintenance is as close as the nearest participating Kenworth dealer, fleets like Darcol don’t have to run empty miles to get trucks back to the shop for regular PMs or rely on unfamiliar maintenance shops to complete the work. 

About three years ago, when Darcol moved its warehouse operations to a new 3 1/2-acre cross dock facility in Winnipeg, Geiger enrolled his company in the maintenance program through Custom Truck Sales, the local Kenworth dealer. While he expected results from the program, Geiger said he was surprised at just how much money it saved his company. Darcol reduced fleet maintenance costs by $55,000 in the company’s first year with the Kenworth program. Darcol realized the savings by outsourcing its maintenance needs. Before Kenworth PremierCare, the company operated a maintenance shop, supplying it with parts and its own technician.

Plus, when Darcol’s trucks are out on the road, drivers can call 800-KW-ASSIST to reach the PremierCare Customer Center, which operates seven days a week, 24 hours a day. The program representative can make the necessary arrangements, authorize service and handle all of the financial matters. Darcol dispatchers no longer have to make calls to arrange service, and drivers do not have to worry about billing issues.

The dispatchers also use the Kenworth PremierCare Maintenance Manager’s online service tracker to determine when repairs will be completed. That function is important to Darcol, which offers an online freight tracking and customer order feature on its website to provide customers the option to monitor freight while in transit or check the availability of Darcol trucks. Using the information from the maintenance manager, dispatchers can update the company’s freight tracking and order system on the Darcol website. 

Outsourcing tire maintenance

As the owners of a mid-size fleet, Doc Hyder, his brother and sister are “hands-on” when it comes to fleet operations. Located in Dade City, Fla., Rowland Transportation operates a fleet of 63 tractors and 80 trailers –– all refrigerated. Its Kenworth T600s and T660s deliver perishable food-stuffs throughout the lower 48, but concentrates more of its business in the southeast. “With time-sensitive food products, the onus is on us to deliver on-time, and that promise to customers is made easier thanks to our relationship with Goodyear and the fleetHQ program,” says Hyder. “If we have a problem with a tire, Goodyear has a network of dealers who can get us back up and running fast. And we don’t have to haggle over pricing –– what we pay for a tire on the road is what we pay for the tire at home.”

The corner on curbing costs and downtime was turned four years ago when Rowland developed a relationship with McGee Tire to provide a cradle-to-grave tire program. The company even began using retreads –– utilizing Goodyear’s UniCircle process. McGee also put the company’s 4-Tires-Now emergency roadside service into place for Rowland.  The program evolved into fleetHQ in 2008.

“When Rowland and other customers signed up for fleetHQ, we develop a tire list so that when fleetHQ is called, dispatchers know immediately what type of tires are needed for replacement,” says Duane Koscielski of McGee Tire. “And, our customers can track online the status of repairs and the history of using our emergency roadside program. Plus they don’t have to pay an incidence fee for using the service.  They just pay the service cost, and what they pay on the road for the tire is what they pay if they bought directly from us. And we provide the bill –– so our customers get just one invoice.”

“It doesn’t get much better than that,” says Hyder. “fleetHQ helps us tremendously. It allows us to control our costs and control what tires are going on our vehicles. It’s also allowing us to get back up and running faster than ever, which not only makes our drivers happy, but our customers as well.”

Outsourcing lifts management costs of UT endowment

Higher performance justifies higher fees, UTIMCO says.

Courtesy: http://www.statesman.com/

When the University of Texas Investment Management Co. was created in 1996, the idea was to hire private-sector money managers to generate private-sector-size returns with the university's money.

While the investment results have been mixed, one effect of this arrangement is clear: It has cost more to manage UT's endowment than the state's other major public funds.

Operating out of plush offices on two floors of the downtown Frost Bank Tower, UTIMCO relies heavily on outsourcing, hiring "external managers" who are experts in complex investments to handle the university's trust funds. The largest of these is the Permanent University Fund, which generates investment income that supports schools in the UT and Texas A&M systems.

Today, about 86 percent of that fund's assets are handled by external managers. By comparison, the Employees Retirement System of Texas outsources 25 percent of its investments; at the Teacher Retirement System of Texas, the figure is less than 10 percent.

Texas' major trust funds have different goals, so their investment strategies vary. Pension funds are legally obligated to pay eligible members fixed retirement benefits, so they tend to favor more conservative investment strategies; a university endowment's goal is to maximize returns to supplement annual school budgets and can be more aggressive.

The result: While the Permanent University Fund is the state's fourth-largest trust fund in terms of assets, it has been the most expensive to manage, according to the Legislative Budget Board's latest study comparing public investment funds.

In 2007, for example, UTIMCO paid a little over $28 million in fees to manage the then-$11.7 billion university fund — more than $20 million of that to external advisers. By comparison, managing the Teacher Retirement System Pension Trust Fund, whose investments that year were handled almost entirely by state employees, cost only $21 million — even though the teachers' fund is nearly 10 times the size of the Permanent University Fund.

Pay for performance?

UTIMCO executives say their performance justifies the higher cost of private advisers. And when compared side by side with other state funds, the Permanent University Fund has often outperformed them.

But compared with the past 10 years of returns earned by its national peers — universities with endowments of at least $1 billion — UT's performance is only average, ranking 38th out of 77 institutions, according to statistics compiled by the National Association of College and Business Officers.

And when subjected to "risk-adjusted return" calculations — a tool used to compare the performance of funds with different types of assets — the fund's returns between 2003 and 2007 lagged behind all but two of the state's nine investment funds, according to a Legislative Budget Board analysis.

Asked for comment on that assessment, UTIMCO spokeswoman Christy Wallace said the budget board had used "an inaccurate methodology. As a result, those numbers are not meaningful."

As the nation's economy has stalled, all of the state's investment funds have reported dramatic drops in value. The Permanent University Fund is now worth $8.8 billion, down nearly 25 percent from 2007; the teacher retirement fund has fallen 27 percent, from $111 billion to $81 billion. Experts say those declines could steepen soon as private investments are revalued to reflect the soured economy.

The losses formed the backdrop last week when the chairman of the UTIMCO board, Robert Rowling, resigned in a dust-up over $3 million in bonuses — paid out of the agency's management fees — for executives such as CEO Bruce Zimmerman, who earned just over $1.5 million in salary and bonuses last year. UTIMCO officials defended the payments as reasonable and required under contracts negotiated before the economy collapsed.

In house vs. outsource

Over the years, many large endowment funds eager to grow have increased their reliance on specialized private advisers. "Most public funds don't have that kind of expertise in-house," said Craig Hester, a trustee of the Employees Retirement System Pension Trust Fund.

So-called alternative investments often require managers to take a more active role in handling them, such as in real estate, said Ehud Ronn, a finance professor at UT's McCombs School of Business. More hands-on management means higher fees — sometimes much higher.

Managers of hedge funds — smaller private funds that use riskier trading strategies and are less regulated than stocks — typically have been paid generous commissions keyed to what's known as the "2 and 20" rule: 2 percent of the value of the assets being managed, plus 20 percent of net profits above a predetermined benchmark. At the end of 2008, about a third of the Permanent University Fund portfolio was invested in hedge funds, some of whose managers earned the traditional 2/20 compensation.

Gary Hill, UTIMCO's director of financial reporting, acknowledged that using external investment advisers is more expensive than relying on in-house employees. By government standards, state-salaried investment advisers are well-paid: five of the Teacher Retirement System's investment advisers and managers, for example, earned more than $200,000 in 2007, according to a database of state salaries compiled by Texas Watchdog, a nonprofit Web site. Teacher Retirement System chief investment officer Britt Harris earns just under $500,000 annually.

Still, those paychecks pale in comparison with the compensation of private investment advisers, whose annual salaries and bonuses can easily run into the millions of dollars.

All of Texas' funds have used some external investment managers to varying degrees. The exception had been the Teacher Retirement System, which until recently was managed almost exclusively by state employees.

In 2007, however, the Legislature granted the Teacher Retirement System permission to use outside advisers to invest up to 30 percent of the pension fund. Noting that most large pension systems outsource more than 70 percent of their assets to private managers, Harris said he is proceeding cautiously. In 2008, he said, only about 7.8 percent of teacher retirement fund assets was invested by outside consultants, at a cost of $1.6 million in management fees.

The $18 billion Employees Retirement System Pension Trust Fund, which pays pensions to retired state workers, has moved in the opposite direction. That's because in recent years its in-house investors have performed better than their outsourced counterparts in some instances.

According to the Legislative Budget Board's 2007 comparison of domestic stock investments, Employees Retirement System staff investors generated 15.6 percent returns in 2007. Its outside advisers, by comparison, had a 13.5 percent rate of return over the same period — lower, even, than the S&P 500's returns, a common performance benchmark.

As a result, the Employees Retirement System has reduced its reliance on outside consultants. In 2007, about a third of its portfolio was invested by external managers. Today, a quarter of the fund is outsourced for investment advice, a spokeswoman said.