From: Baroni Limited [Baroni-Limited@tiscali.it]

Sent: 05 July 2007 20:03

Subject: Baroni Limited - Offshoring Newsletter' - 21/07

Sensitivity: Confidential

HRO Buyers Focused on Value Creation and Technology Rather Than Cost Savings, Says Everest Research Institute Survey Analysis

To gain value creation and access to technology, a growing majority of Human Resources Outsourcing (HRO) buyers are willing to forego cost savings and sign outsourcing deals that favour the ‘transfer-transform model’ in which a company’s processes and technologies are provided by the supplier, according to a new study from the Everest Research Institute.

The HRO buyer survey and analysis, Human Resources Outsourcing Market Update: HRO Benchmarks, also noted transactions since 2004 have rapidly shifted from highly customized solution contracts to more configured or “off the shelf” solutions to leverage suppliers’ economies of scale. Thus, buyers with contracts coming up for renewal in the next few years can expect to receive price improvements over their original contracts.

'Five years ago, HRO buyers were focused on cost savings, but today we’re seeing a different kind of buyer that is willing to accept less than 10 percent or even zero cost savings because they want access to the best technologies and other value creation functions,' said Monica Barron, Vice President, Everest Research Institute. 'Companies are straying further away from the ‘lift-shift’ outsourcing model characterized by the supplier taking over the buyer’s existing staff, processes, and technologies that are used as the platform for providing outsourcing services. Instead, buyers want to take advantage of supplier-provided processes and technologies that are already in place and ready to be implemented. As such, buyers are more frequently accepting multi-client solutions that offer more competitive pricing options.'

According to the study, suppliers are creating and offering value-based solutions, such as talent management, that can help companies create and deliver strategic initiatives but will need to improve overall delivery quality, and develop and implement standardized metrics, to truly satisfy buyers.

'Suppliers must focus their efforts on developing people and process capabilities and offer competitive pricing with innovative solutions and up-to-date technologies,' said Rajesh Ranjan, an Everest Research Institute Senior Research Analyst and co-author of the report. 'Furthermore, suppliers must also collaborate with buyers to develop more standardized and measurable service metrics to counter our survey finding that almost a third of buyers report a decline in quality. We believe the suppliers’ efforts to improve quality, the continued transition of buyers adopting the transfer-transform model, and the continued maturity of HRO processes and delivery models will improve quality-related issues.'

Other study findings include:

* Process Scope: The majority of buyers (54 percent) have outsourced 10-12 HR processes out of a maximum of 12 processes.

* Process maturity: Transaction-intensive and support HR processes are outsourced more frequently than judgment-intensive processes. Emerging maturity in areas of compensation, recruiting, training and global mobility are gaining traction to join mature processes such as payroll, benefits, employee data management, HRIT and contact centre.

* Technology: Half of the transactions employed a hybrid technology model (a mix of ERP, proprietary and best-of-breed applications.) Almost all of the transactions surveyed had HR technology in scope, with 61 percent reporting a significant change to HR technology post-outsourcing.

* Targeted cost reductions: All buyers surveyed achieved their targeted cost reductions with average staff reductions of 54 percent.

* Offshoring: Nearly half of the transactions had no offshore component; 44 percent of transactions had 1-5 processes with offshore components, led by HRIT, employee data management and training.

* Pricing: Fixed price modelling was used most often, and price points have declined significantly since 2004.

 Top Stories

UK Cabinet Office offers shared services from £32m Fujitsu deal
The UK Cabinet Office has awarded a 4-year ICT services deal worth £8 million per year to Fujitsu Services that will allow the Cabinet Office to reduce its IT costs by £2.5 million per year. The deal also entails the provision of setting up a new service Public Sector Flex. This service aims to provide a shared service to various other public sector organizations enabling them to reduce their costs by accessing common infrastructure, collaboration, and reuse of systems.

India is offshoring hub, but may lose to China: Deloitte
The report, titled Global Financial Services Offshoring Report 2007, states that offshoring is saving the financial services industry an estimated 4.5 billion pounds a year, up from around 2.5 billion pounds a year ago, propelled by a 1,800 per cent increase in headcount over the last four years. The UK financial services industry alone now saves up to 1.5 billion pounds per year from offshoring, most of it to India. India remains off shoring’s hub but is likely to lose share in the future. The DTT GFSI group estimates that about two-thirds of global off shored staff is employed in the sub-continent. China threatens to be India's principal offshoring competitor.

NAB to offshore 41 jobs to India
National Australia Bank (NAB), has decided to offshore its 41 back office finance jobs to India by the end of this year. Confirming that NAB is planning to offshore the jobs to Bangalore by the end of this year, bank's corporate affairs manager Kerrina Lawrence, said, '41 back office finance roles will be transitioned outside of the company by the year's end.'

First Financial to set up captive unit in India
First Financial Bank, one of the six oldest banks in the United States, is learnt to be setting up a captive operation in India. The captive is likely to have a capacity of 1,000 people and have both IT and BPO functions.

Broadridge Fin to invest $6M in Hyd
Broadridge Financial Solutions plans to expand its outsourcing operations in India by setting up an advanced delivery centre in Hyderabad with an investment of USD 6 million. The facility is likely to be operational by June 2008. In addition, the company aims to increase its Indian headcount from 500 presenting 2007 to 700 by 2008.

Nestle extends offshore IT deal with Satyam
Food and drinks giant Nestle has signed a three-year extension to its $75 million IT outsourcing contract with Indian company Satyam. Nestle originally signed a three-year deal with Satyam in 2004 for SAP application support. The $2.4bn Globe project is aimed at standardizing the way Nestle does business around the world by building a single SAP system for procurement, distribution and sales management across 500 factories in 85 countries.

DAALLO Airlines outsources accounting to Kale Consultants
Kale will provide passenger & cargo revenue accounting services including the processing of sales and uplifts, claims to credit card companies and to other airlines for interline coupons, declaration of revenue with comprehensive account postings for the general ledger, management of deals, and a decision support business intelligence system.

JPMorgan scores with five new briefs
JPMorgan Worldwide Securities Services has won custody mandates from five UK-based mid-sized pension funds to provide custody and other related services to these pension funds. ArvinMeritor UK, House of Fraser, Kingston Communications, Lend Lease UK, and Pilot's National Pension Fund are the sponsors of pension funds.

Microsoft IT park near Pune
Microsoft is planning to set up an IT park at Hinjewadi, near Pune in Maharashtra.

 Service Provider News

EDS, China's MOFCOM Sign Strategic Cooperation Agreement to boost China's position in global IT services.
EDS and the Chinese Ministry of Commerce (MOFCOM) have signed a partnership agreement to strengthen the country's position as a leader in providing IT services across the world. The agreement entails EDS to collaborate with MOFCOM to come up with certain initiatives including a favourable policy and regulatory framework in fostering the country's ITO industry

Re appreciation to dent IT firms` first quarter results
The first quarter of the financial year 2007-08, all the software majors are expected to post a decline in margins during this quarter. Infosys Technologies had estimated a margin drop of up to 50-60 basis points, assuming the rupee was at Rs 43.1 to a dollar. The rupee appreciation, however, has exceeded the projections by around 4.2 per cent in case of Infosys, 5.05 per cent for TCS and 2.40 per cent for Satyam. Every one-rupee appreciation, say analysts, knocks off 35-40 basis points (bps) from the operating margins and 1.6 per cent from the earnings of software majors.

Oracle and Wipro Deliver New Managed Service Offering for Identity Management
The new managed service offering utilizes leading components comprising Oracle(r) Identity Management, a component of Oracle Fusion Middleware, and helps organizations reduce identity management related costs, enhance security and streamline regulatory compliance across the enterprise.

CSC Signs Contract Extension with General Dynamics Armament and Technical Products
Under the terms of the contract, CSC will continue providing a full range of IT services, including help desk, desktop and network support; mainframe and midrange services; and applications development and maintenance.

SunGard Vivista Receives Additional Five Year Contract Award from Gloucestershire County Council
SunGard Vivista has won a five-year IT services deal renewal from Gloucestershire County Council (GCC) under which GCC's ICT professionals will be transferred to SunGard's offices in Gloucester to form a dedicated delivery unit, which will manage the various ICT operations and programs of the council. The original contract (which was signed in 2002) entailed SunGard to offer a wide range of IT facilities management services including support for about 5,000 workstations and more than 150 networked sites across the county through its Gloucester-based delivery centres.

EDB Business Partner wins IT deal with SpareBank 1 worth up to 3.6bn nkr
The agreement entails EDB and SpareBank 1 to collaborate to develop advanced banking and finance solutions leveraging each others' expertise in technical and banking and financial services. These solutions are aimed at ensuring competitive business processes in the banks. In addition, the deal entails EDB to migrate the banking operating services from a mainframe environment to a UNIX solution.

CSC Signs BPO Contract Extension With Swiss Re
CSC will continue to provide end-to-end processing services to support Swiss Re's underwriting, rating, policy issuance and administration, cash processing and reporting to independent bureaus and industry databases. CSC administers the company's workers' compensation business on Swiss Re's CyberComp platform, which CSC built based on its POINT policy administration and Agency Link software.

CIT, Mindtree plan B'lore development centre
CIT Group, New York-based provider of commercial and consumer finance solutions, today announced it is tying up with Bangalore-based Mindtree Consulting to set up an offshore development centre in India's IT capital. The company said the centre will help it to streamline its global sourcing initiatives, technology operations and improve its operating efficiencies.

Fidelity acquires eFunds for $1.8 billion in cash
US-based Fidelity National Information Services (FIS), has acquired eFunds Corporation (EFD) in an all-cash transaction valued at approximately $1.8 billion. In February this year, FIS expanded its offshore presence in India through the acquisition of California-based Second Foundation. As a result of the acquisition, FIS' wholly owned subsidiary, Fidelity Business Solutions India has centres in Bangalore and Chandigarh. eFunds, provides risk management, electronic funds transfer (EFT) services, prepaid card processing headquartered in Gurgaon, New Delhi has close to 4,000 employees in India. It also has a presence in Chennai and Bangalore.

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