Survey Findings

Companies Want Outsourcing Providers to Drive Innovation and Reduce Costs:

An IDC and Capgemini survey of almost 300 executives attending IDC's Outsourcing Forum East this week found that top reasons for deciding to use Business Process Outsourcing in a corporate strategy include reducing costs (36 percent of respondents), driving innovation (21.2 percent), and the ability to focus on core competencies (30.3 percent). Correspondingly, 41.2 percent of those polled listed reducing cost as most valuable to the growth of their company over driving innovation (35.3 percent) and ability to focus on core competencies (14.7 percent).

However, the study displayed that companies are much less concerned about the actual cost of an outsourcing provider. Executives cited a provider's ability to offer transformational services in addition to operate capability as most important (47.2 percent). Finding the lowest cost solution garnered only 13.9 percent of the votes, coming behind economic stability and ability to offer global coverage for onshore and nearshore operations, both of which came in at 16.7 percent.

More than half surveyed believe outsourcing has met or exceeded their expectations, while almost a third said it's too early to tell.

Consistent with last year's results, participants indicated that IT Outsourcing (51.5%) is the outsourcing strategy that has the biggest potential upside to an organization over the next 3-5 years, followed by Finance & Accounting Outsourcing (21.2%). IT Outsourcing (37.3%) is also the main service that has already been outsourced to external service providers.

Additional survey highlights include:

* Inability to accurately project the results of outsourcing was found to be by far the primary drawback to outsourcing. A total of 55.8 percent said that the biggest downside of outsourcing was not getting expected results (38.2 percent) or not being sure what to expect (17.6 percent).  Customer backlash and losing control were also cited as concerns, coming in at 23.5 percent and 20.6 percent, respectively.

* Management's resistance ranked the highest internal challenge at 39.4 percent. Lack of internal metrics (27.3 percent), cultural issues between employees and BPO (24.2 percent), and inadequate change management strategy (15.2 percent) were also listed as internal concerns were listed as the major obstacles in BPO.  Only 6.1 percent attested running against no internal challenges.

* The three most important legal issues concerning BPO today according to those surveyed were; governance procedures (33.8%), business continuity (27.7%) and intellectual property rights (26.2%).

* Again, this year, participants cited ability to offer transformational services in addition to operate capability as the most important criteria for selecting a BPO provider (45.6% last year and 47.2% this year).

Human Resource Outsourcing Increasingly Includes Offshore Component:

According to a study of the HR Outsourcing (HRO) segment by Everest, the offshore element of HRO contracts has been growing. The report found that 44 percent of the currently valid 70 major HRO contracts have a significant offshore component.  Offshoring of HR functions results in the saving of up to 18 percent.  Further, benefits, payroll, and non-voice employee data management continue to be the most offshored HR functions, closely followed by HR IT. Amongst buyers, the healthcare and energy sector companies lead the HRO offshore adoption. India continues to enjoy a dominant position, providing most of the offshored HR services.  Eastern Europe is fast becoming an integral part of the offshoring of HR services.  Central and South American locations are also gaining ground serving as near-shore destinations for the North American clients.

 Top Stories

Big Growth in Finance, Accounting Outsourcing : FAO Research
According to a study on Finance and Accounting Outsourcing (FAO) segment conducted by FAO Research, there has been a 40 percent increase in the number of FAO contracts signed in 2005, as compared with 2004. Further, by the end 2006, an additional 60 percent growth is expected in the number of FAO contracts signed, as compared to 2005. The report reveals that 67 long-term, multi-process FAO agreements have been signed in the past two years, with 39 of them in 2005 and 28 in 2004. Accenture and Capgemini have acquired a majority of the new contracts. Other major providers mentioned in the report are IBM, Progeon, ACS, Genpact, Xansa, EDS, HP, EXL Service, and WNS. The study includes contracts, which are worth above USD 50 million with terms ranging from three to ten years.

Deutsche Bank will triple the number of its offshore staff to nearly 2,000
Deutsche Bank plans to move almost half the back-office jobs in its sales and trading operation to India by the end of next year.  The bank is also planning to boost offshore research staff to 500 from 350 now.

Japan's NTT Com signs first India outsourcing deal
Japan's NTT Communications Corporation (NTT Com) announced on Thursday a two-year outsourcing contract to India's SlashSupport, a Chennai-based tech support company.  Under the contract, SlashSupport will support NTT Com's desktop management contract and management of infrastructure such as servers and networks.

Huntsman outsources infrastructure services to Atos Origin
Under the terms of the outsourcing contract, Atos Origin will provide worldwide infrastructure services to Huntsman for its global SAP platforms, workplace, Lotus Notes, eCommerce and data warehouse environments running on a wide range of platforms including Wintel, Unix, Linux and a Citrix-based thin-client office environment. Sarbanes Oxley compliance and reduction of total cost of ownership are the key themes of the new contract.

Kyobo Life Signs 10-Year Outsourcing Contract with IBM
KYOBO, a Korean life insurance company, has awarded IBM a 10-year, USD 340 million contract to operate and manage its IT infrastructure. According to the terms of the contract, IBM will manage the company's servers, storage systems, network, and desktop computers.  It will also operate its data and disaster recovery centres.

Morgan Stanley eyes BPO in Philippines
Investment bank Morgan Stanley is evaluating information technology (IT) outsourcing in the Philippines for possible expansion, Trade Secretary Peter Favila said.

NASSCOM and CBI Sign Breakthrough Agreement on Supporting Offshore Outsourcing to India
NASSCOM, India's largest branch organisation for this sector, will work together closely with the Dutch Centre for the Promotion of Imports from Developing Countries, the CBI. Together the two institutes have set up a unique export development programme wherein the two organisations will on the one hand make their BPO expertise available to European SMEs. On the other hand, they will help selected Indian IT companies with proven quality to access European markets.

 Service Provider News

India Targets Media As Next Offshoring Market
Genpact, offshoring service provider, 33 per cent owned by General Electric, has allied with New Delhi Television, a leading broadcaster, in a 50-50 joint venture. They will initially market their services to studios and TV networks looking to lower the cost of digitizing libraries of old analogue program, creating graphics and subtitles, editing of raw footage, tagging material, and archiving programs.

Chennai most attractive Indian city for offshoring services' says A.T. Kearney report
The Indian cities were benchmarked as attractive based on three major categories of financial costs (compensation, infrastructure costs and cost of living); people skills (availability of educational skills and attrition rates) and business environment (city infrastructure, quality of life and government support). Chennai emerged as a leader across all categories followed by Hyderabad, NCR, and Bangalore.

EDS gets $3 billion US Navy contract extension
US Navy has extended its Navy Marine Corps Intranet (NMCI) contract with EDS through to 2010. The extension is the largest individual contract ever awarded to EDS. Previously, EDS has networked nearly 1,000 sites across the US.

Xansa, Fujitsu Services land UK public sector outsourcing wins
Xansa has sealed a five-year, £27m deal to provide an internet services platform for three government departments.  It will be used for Directgov, for public services information; the Department of Health's corporate web service; and several services for the Department of Education and Skills.  Fujitsu Services has been awarded a 15-year, GBP 185 million HR Outsourcing (HRO) contract by Northern Ireland's Department of Finance and Personnel (DFP).  Fujitsu will modernize delivery of personnel services offered by DFP to 28,000 people across the NICS and the Northern Ireland Office (NIO) through an electronic Human Resource (e-HR) system. The contract also covers personnel administration, payroll management, and recruitment services.

BT wins GBP 25M networking contract from Balfour Beatty
BT has won a £25m contract with Balfour Beatty to provide networked IT services to the construction giant. The deal will see BT consolidate Balfour Beatty's various distributed networks into one multi-protocol label switching (MPLS) data network which will serve 500 UK offices and project locations – including short term building sites.

ACS awarded multi-million dollar Burger King contract
Affiliated Computer Services (ACS), the Dallas-based provider of business process outsourcing and information technology solutions, has been awarded a multi-million dollar information technology outsourcing (ITO) contract with Burger King Corporation.

Fujitsu to expand Rapidigm India
Fujitsu Consulting plans to invest between $5 million and $10 million to expand Rapidigm Inc's India facilities to allow for increased global offshoring to the country. This will also entail the doubling of Rapidigm's headcount over the next 12 months.

IBM opens new Shanghai IT centre
The 700-seat facility consolidates IBM's existing IT services sites in Shanghai into a single location in the Waigaoqiao free trade zone and joins IBM's other Chinese IT services centres in Dalian and Shenzhen. The Shanghai global delivery centre will offer IT services for software development, maintenance, and testing, and will support the main business application packages including Oracle, SAP, and Siebel.