Established Outsourcing Providers Lose Market Share in the DACH Region

The latest findings from a report on "Sourcing trends and Supplier positioning in Germany, Austria and Switzerland" by the market research firm Pierre Audoin Consultants (PAC) state that sales from IT outsourcing services will have increased by approximately EUR 4.5 billion in the DACH region (German- speaking nations) in 2010 compared to 2005.

Key Highlights of the Report

The top 5 providers account for nearly 45 percent of the market in Germany; and 70 percent in Austria. The remainder of the market is highly fragmented, with the number of outsourcing providers approaching 100 in the DACH region alone

• In the overall DACH region, IBM ranks first, closely followed by T-Systems. HP, Siemens SIS and Atos Origin
• In the Swiss market, IBM leads with a market share of nearly 19 percent, followed by Swisscom IT Services, HP and T-Systems. Accenture and CSC rank 5th and 6th
• In Austria, Siemens SIS - with a market share of 23 percent - is clearly ahead of its major competitors, IBM, Raiffeisen Informatik, HP, and T-Systems
• In Germany - by far the biggest market - T-Systems ranks first, with a market share of almost 13 percent, closely followed by IBM. HP, Siemens SIS, Atos Origin and Fujitsu are the challengers
• Infosys, an Indian player, has made it into the top 20 outsourcing providers in the DACH region. In Switzerland, the company even ranks 7th
• HP has gained quite some share in all markets after taking over EDS
• IBM has maintained its positioning in Austria and Germany since 2005, while slightly losing market share in Switzerland
• Swisscom IT Services has improved its position in its home market, Switzerland
• Capgemini’s market position has remained largely unchanged over the period in question
• Accenture, Computacenter or Wincor Nixdorf in Germany have gained market share
• In Switzerland as many as four India-based players (Infosys, TCS, Mahindra Satyamand Wipro) are among the top 20 outsourcing providers

https://www.pac-online.com/pac/pac/live/pac_world/global/press_corner/press_releases/index.html?lenya.usecase=show-rapport&document=pac_sitsi_reports/press_release/DE_Outsourcing_Program_SuppPos_EN_PR1008&xsl=press_release

Even after the frequent reinforcements of the fundamental principles that are inevitable for outsourcing success, most buyers and providers fall short of realizing 100% outsourcing success. What makes it happen? Here is a quick overview:

SLA’s – Are they realistic?

The buyer needs to find out whether the SLA’s laid in the contract are really attainable in the buyer organization or are they just wishful thinking? Often as it happens in most of the standard practices followed by the buyer, there are generic SLA’s in every contract of his. However rarerly or occasionally does the buyer performs a benchmarking exercise of the contractual SLA’s with his organization. A benchmarking exercise will enable the buyer to see which SLA’s are actually pertinent to the contract and which are not. Removing the redundant SLA’s and limiting the contract to valid SLA’s fine-tunes the overall scope of the contract and makes it easier for both the buyer and his provider to interpret and to implement them.

Pricing Model - kinks in a garden hose

The pricing model agreed with the provider is a key determinant of outsourcing relationship success.  However a rigid pricing model can act as a kink in a garden hose and can obstruct the desired flow of services. Consider the following example:

A UK based firm entered into a contract with one of the established application development firm.  The pricing model agreed upon was more like “as-is scenario” but failed to consider “what-if scenario”. As the buyer’s business grew after the contract was signed, it had new set of requirements with changing business needs. It expected its current provider to meet those needs. But the provider didn’t dedicate money and resources to provide added value. The reason - the pricing model in the outsourcing relationship was not configured to motivate the provider to deliver such services.

A good pricing model should be flexible and be adaptive to evolving needs of both the buyer his supplier.  It should also act as a mean of addressing operational and relationship issues. For instance, the earlier buyer and his provider could have negotiated a pricing model, which involved buyer paying a base rate to the provider for the standard services and a differential rate for value-added, ad hoc services with some of the value-added funding in advance and remaining/ or add-on year over year. This kind of pricing model ensures transparency in its cost elements. Hence, the buyer gets the level of services he wants with the added benefit of getting decreased prices over subsequent years for the standard services; and the service provider gets increased revenues with increased scope and minimized financial risk when the scope changes.

More to be continued in our next blog…

National Association of Software and Service Companies (NASSCOM)has come up with the findings of its annual survey on the outlook for FY10-11. The Indian IT-BPO exports are projected to grow by 13-15% while the domestic IT-BPO is expected to grow by 15-17% during FY11. NASSCOM also released the annual rankings for the following categories, for FY09-10:

Top 20 IT Software and Service exporters in India (excluding BPO revenues)

1. Tata Consultancy Services (T.C.S.)
2. Infosys Technologies
3. Wipro Technologies
4. HCL Technologies
5. Tech Mahindra
6. MphasiS
7. Patni Computer Systems
8. Aricent Technologies
   
9. CSC
10. L&T Infotech
11. HSBC Software
12. Polaris
13. Mindtree
14. 3i Infotech
15. Mascon Global
16. Honeywell
17. Infotech Enterprises
18. Hexaware Technologies
19. Sonata Software
20. Zensar Technologies

Click Here for the entire listings.

The Dataquest Top 20 annual industry survey tracks the growth of the IT and BPO industries and ranks the top companies by their revenue.

The Top 20 IT Companies were:

TCS, Wipro, Infosys Technologies, Hewlett-Packard India, Cognizant Technology Solutions, IBM India, HCL Infosystems, HCL Technologies, Ingram Micro India, Redington, Oracle India, Cisco Systems India, Dell India, Intel India, Accenture India, Tech Mahindra, SAP India, MphasiS, Microsoft India, and Patni Computer Systems, the report said.

The Top 20 IT Export Companies were:

TCS, Infosys Technologies, Wipro, Cognizant Technology Solutions, HCL Technologies, IBM India, Accenture India, Tech Mahindra, MphasiS, Oracle India, Patni Computer Systems, Hewlett-Packard India, Capgemini, CSC India, L&T Infotech, Syntel, Aricent, Prithvi Solutions, Polaris Software Lab, and Mindtree Consulting, the report said.

The Top 20 BPO Export Companies were:

Genpact, TCS BPO, Wipro BPO, Aegis BPO, WNS Global Services, Firstsource Solutions, IBM Daksh, Aditya Birla Minacs, Infosys BPO, Accenture India, HCL BPO, Exl Service, Xchanging India, Cognizant BPO, Convergys India, 3i Infotech, Intelenet Global, Hinduja Global Solutions, 24/7 Customer and MphasiS BPO, the report said.

http://dqindia.ciol.com/dqtop20/2010/CompanyRanking/default.asp

Vendor Management Office or VMO, as many put it across is a framework for managing and governing your outsourcing vendors and to ensure that your desired business outcomes are achieved through your outsourcing efforts. However certain factors when not taken care of can hinder your efforts in setting up an agile and flexible vendor governance framework. Let’s look at the most prominent ones:

SLA Maze – Often SLAs are too many, generic, and are not properly spelt out that makes it difficult for both client and the vendor to understand and execute them.

Communication Barrier – Most of the times we only see top-down communication that involves senior management and executives. Bottom-up communication that generally involves technical team responsible for execution and delivery is either missing or given a secondary treatment. Thus organizations fail to have a two sided view of their contracts.

What about Qualitative Outcomes? – KRAs/ KPIs (Key Result Areas/ Key Performance Indicators) are employed to assess vendor performance, these metrics measure and track quantitative outcomes of the outsourcing contract but leave the qualitative facet of the contract that are important to your organization. Qualitative outcomes such as customer/ employee satisfaction, stakeholder expectation, client-vendor expectation mismatch, long term relationship with the vendor are indispensable for the maximum contract value realization.

Endless Meetings – Does carrying on innumerable, lengthy meetings yield the expected results? Not always. Most often the result of these meetings is ever piling cumbersome status reports that further complicate the overall project and load the project personnel.

Lack of a single consistent tool for measuring the Vendor performance – Manual or partially automated processes do not fully monitor the vendor performance and lack an ongoing vendor review. They demand considerable time of project personnel in feeding data and extracting and interpreting results.

Proof of Concept - More often than not clients seek value, but fail to ask for a proof firsthand, a demo of the system/ infrastructure/ application at the client premises with the help of client “people and data” is not always run by the vendor beforehand.

Vendor Selection and Negotiation - Negotiate with the top two. After evaluating multiple vendors, carry out contract negotiations with the final two, and not just the final one. This increases competition and chances of getting a vendor with the top choice.

Keeping Compliance out of Contract – Client often overlook whether the offered product by his vendor is compliant to all legislations and regulations. Once the product is implemented at the client end, any compliance risk and cost of non compliance may have to be borne by the client and can affect the product performance.

Infrequent Vendor Evaluations – Most organizations carry out vendor evaluations at randomly defined periods. The period may be monthly, quarterly, annually or at the start, somewhere middle, and the end of contract. More frequent evaluations may result in weekly or monthly evaluations. Lack of well thought out ongoing evaluations leads to overlooking performance inefficiencies and required improvement areas.

Don’t buy Solution, buy Features – A solution is a broad-based term. Often 70% of the solution is generalized and 50% is customized to the client needs. However this may lead to a client paying for the features which are not of use to him.

Continuing the discussion on outsourcing governance, here are some more reasons why outsourcing governance is important for successful outsourcing relationships.

Saying No: Saying no is actually a more important job for the Outsourcing Governance team than saying yes. The Outsourcing Governance team needs to keep in mind that stakeholders may not always have a 360 degree vision or may not have the same motivation. Sometimes it's a simple matter of miscommunication or misunderstanding when too many people are involved in managing a project or a relationship. Whatever the case may be, governance teams must learn to say no when they are pressured by some stakeholders, or as expectations are unrealistic or demands are unreasonable. By keeping the viability of the entire project in mind, governance teams must learn to say no as often as necessary while convincing the stakeholders why they are saying no. The last thing that the governance team needs to do is say no and antagonize stakeholders which would truly jeopardize a project's success.

Supplier Relationships more important that Dry SLAs:  Yes, Service Level Agreements (SLAs) are very important. And SLA's must continuously be checked and enhanced to ensure that they meet the needs of the business. However when the governance team establishes a relationship with its suppliers that is based on trust and mutual respect, not to mention keeping in focus the shared goals of the organization, success is sure to come. Customer satisfaction cannot just be measured with SLA performance and that's why supplier relationships are more important than dry SLA's.

These and the key strategies shared in my earlier blog are important to creating a successful outsourcing relationship. If you are interested in learning how we can help you with your outsourcing governance, click here.

Most of the outsourcing contracts are in troubled waters right from the start of the contract. In spite of lengthy vendor selection, contract negotiation process, and abundant contract agreement clauses, they don’t achieve the expected business objectives both from the client and vendor side. What makes these outsourcing contracts fail? Some of the main problems facing failed relationships are:

Unclear Expectations on Client front

Client lacks a clear picture in mind as to what are the business objectives that are to be achieved through this contract. The contract outcome is measured in terms of service level agreements which are quantitative and rigid and does not consider the qualitative aspects. They leave other important parameters for measuring the real value such as business process optimization, risk mitigation, change management plan, innovation etc. In addition, processes followed for contract implementation are not clearly defined and mapped out.

Poor Cultural Fit

Cultural incompatibility between the vendor and the client is another major factor for the relationship failure. The corporate culture of both the client and the vendor might not be similar in aspects related to decision making, risk appetite, and way of communicating. One company may be risk-minded and a slow decision maker while the other can be agile and accustomed to making proactive decisions. The cultural differences are escalated to contract implementation differences due to different approaches followed by each of these companies.

Information Exchange Barrier

Vendor and the client do not proactively share necessary information with each other. Client does not disclose all relevant information to enable the vendor to accurately assess the business requirements at the start. Both parties share information reactively and not openly, proactively.  

Communication Barrier

Multiple official and unofficial communications drive any kind of work. The end result does not depend as much on the official communications than on the unofficial ones. The unofficial communications help assure that the task requirements are accurately conveyed to the concerned people. In failed outsourcing contracts, all of these unofficial relationships are given an afterthought. People don’t communicate very well and all communication flows through relatively few authorized channels. Hence rather than people constantly interacting with others who better understand the work, directions are passed down a chain of people who don’t understand them. The end result is costly mistakes. The more complicated the web of unofficial communications, the bigger the adverse impact on outsourcing will be.

Poor Working Relationship

The partners do not have a trusting working relationship where they understand each other's expectations and motivations, and can engage in good dialogue.

Deal Inflexibility

Vendor lacks flexibility and is unable to meet client's changing needs. The parties' interests were aligned at the beginning of the contract but became misaligned as the client's business environment or needs changed. Vendor is not committed to the ongoing change management effort necessary for success and wants the client to adjust the solution rather than incorporating requisite changes.

Poor Governance Structure

Governance problems are cited as the reason for failure for 80 per cent of outsourcing contracts. Most relationships fail because they lack “effective vendor governance structure” for managing the ongoing relationship and ensuring that the outsourcing efforts meet both the vendor’s and client’s goals. The reporting structures followed are ineffective with “information overload” and "frequently missed" performance items. Senior management spends most time reading reports without giving attention to items that matter most.

Poor Vendor Performance

The vendor fairs poorly against the agreed service level agreements. Certain services/solutions that the vendor initially committed didn't actually happen; or the vendor in one or more instances did not treat some of the important aspects of the contract in an honest, up-front manner.

The bottom line is

An outsourcing relationship should be built on mutually beneficial goals and with a highly effective vendor management and vendor governance structure that facilitates collaboration, visibility, and realigned interests. Otherwise, the relationship health will suffer and the relationship will ultimately fail. The partners should establish a structure for open communication and should create rules for having regular discussions about the relationship, its progress, issues faced and resolution procedures. By dealing with issues before they become problems, the likelihood of relationship success rises dramatically.

Deals

Statoil Awards Accenture Five-Year Finance & Accounting Business Process Outsourcing Contract

Accenture has signed a five-year business process outsourcing (BPO) contract with Statoil, an international energy company with operations in 40 countries, to manage the company’s Accounts Payables processes.

http://newsroom.accenture.com/article_display.cfm?article_id=5026

UBS and CSC Sign New Global IT Services Contract

CSC has signed a contract with UBS for the provision of voice and data network, security and telecommunication services.

http://www.csc.com/newsroom/press_releases/49729-ubs_and_csc_sign_new_global_it_services_contract

CSC Wins $220 Million Navy IT Infrastructure Services Contract

U.S. Navy has awarded CSC a contract to provide information technology (IT) support services. Under the terms of the agreement, CSC will provide a broad range of IT support, including network operations, real-time processing, enterprise data center, system development and maintenance, and hardware and software integration.

http://www.csc.com/newsroom/press_releases/49782-csc_wins_220_million_navy_it_infrastructure_services_contract

HCL signs mega outsourcing deal with Saudi's Al Majdouie Group

HCL Technologies has signed a "mega" outsourcing agreement with Saudi Arabia's Al Majdouie Group to provide end-to-end services for a period of seven years. The scope of the deal includes developing infrastructure, implementing Oracle's e-business suite with over 70 modules and managing and running them; and commissioning and managing a data centre and disaster recovery services.

http://economictimes.indiatimes.com/infotech/ites/HCL-signs-mega-outsourcing-deal-with-Saudis-Al-Majdouie-Group/articleshow/6155221.cms

USL outsources IT functions to Accenture

Liquor major United Spirits has decided to outsource its information technology and systems functions to Accenture Services, the outsourcing unit of technology outsourcing and consulting major, Accenture.

http://economictimes.indiatimes.com/infotech/ites/USL-outsources-IT-functions-to-Accenture/articleshow/6150021.cms

Unilever picks BT for €1.2bn outsource deal, again

Consumer goods maker Unilever has extended its €1bn outsourcing contract with BT Global Services in a technology refresh deal worth an extra €173m (£144m).  The new deal will see BT provide Unilever with unified communications, messaging, supply chain, wireless technology and agile working in over 100 countries over the next four years.

http://www.computerweekly.com/Articles/2010/07/14/241971/Unilever-picks-BT-for-1.2bn-outsource-deal-again.htm

M&A, Partnerships, JV

Capgemini and Oracle leverage Strategic Alliance

Capgemini is leveraging its strategic alliance with Oracle to market and implement Oracle Revenue Management for Public.

http://www.capgemini.com/news-and-events/news/capgemini-and-oracle-leverage-strategic-alliance/

Accenture Acquires Acceria

Technology services and outsourcing company Accenture plc. announced the acquisition of Acceria, a privately-held French company. Industrial consulting firm Acceria focuses on business processes and methodologies for after-sales operations of industrial companies. Following the acquisition, Accenture will be able to penetrate into the global automotive and industrial markets, thereby enhancing its management consulting capabilities.

http://www.zacks.com/stock/news/36874/Accenture+Acquires+Acceria

Hewitt Associates and Aon Consulting to merge

Hewitt Associates is to merge with Aon Consulting to be known as Aon Hewitt. Following the close of the transaction, Aon intends to integrate Hewitt with its existing consulting and outsourcing operations (Aon Consulting) and operate the segment globally under the newly created Aon Hewitt brand.

http://www.hrmagazine.co.uk/news/1015547/Hewitt-Associates-Aon-Consulting-merge/

News & Events

Mahindra Satyam launches Offshore Development Center for BASF IT Services in Chennai

Mahindra Satyam (NYSE:SAY), a leading global consulting and IT services provider, has launched an Offshore Development Centre (ODC) for BASF IT Services at one of its offices in Chennai.

http://www.mahindrasatyam.com/media/pr1July10.asp

TCS, Wipro, Infosys in race for IRDA IT project

IT giants including TCS, Infosys and Wipro have been shortlisted by insurance regulator IRDA for technical bidding to implement its enterprise resource planning (ERP) system. Besides TCS, Infosys and Wipro, three other firms including Intelligroup, Mahindra Satyam and Deloitte have also been selected for the technical bidding.

http://economictimes.indiatimes.com/infotech/ites/TCS-Wipro-Infosys-in-race-for-IRDA-IT-project/articleshow/6167451.cms

Infy closes BPO in Bangkok

The business process outsourcing (BPO) arm of India’s second-largest information technology services company, Infosys, has shut its centre in Bangkok, which it had acquired from Philips. The centre was primarily handling the back-office works of Philips globally. As a result, the company has moved about 40 of the 175-odd staff at the centre to China.

http://www.business-standard.com/india/news/infy-closes-bpo-in-bangkok/401587/

Award

CSC Receives 2009 Peruvian Company of the Year Award

CSC has been awarded the prestigious 2009 Peruvian Company of the Year Award for Services and Enterprise Management. The award is Peru’s highest honor in these areas, recognizing companies operating in Peru for their previous year’s achievements.

http://www.csc.com/newsroom/press_releases/49733-csc_receives_2009_peruvian_company_of_the_year_award

Analyst/Reports

Global Sourcing 2.0 - Evolving Global Delivery Imperatives for Outsourcing Service Providers

This Everest report analyzes the global delivery trends and imperatives in outsourcing and discusses their implications for buyers and service providers.

http://bitURL.net/z55

FAO Supplier Profile Compendium - Comprehensive Look at 21 Established FAO Providers

The FAO supplier profile compendium provides accurate, comprehensive, and fact-based snapshots of 21 suppliers in the multi-process FAO market.

http://bitURL.net/yd9

Sourcing's Unique Role In The New Technology Adoption Process

For Sourcing & Vendor Management Professionals. By defining their distinct value in the emerging technology adoption process, SVM teams can increase their value to the business.

http://www.forrester.com/rb/Research/sourcings_unique_role_in_new_technology_adoption/q/id/56905/t/2?src=Alert%20RSS_CustomFeed&cm_mmc=Research_Alert-_-email-_-07_08_10-_-56905

Outsourcing relationships are unpredictable. Sometimes they work and sometimes everything that looks rosy when the outsourcing relationship is starting out begins looking dull almost immediately after the contracts have been inked. So what makes a successful Outsourcing relationship?

We believe that setting up an Outsourcing Governance can make or break an outsourcing relationship. Here's why:

Stakeholder buy-in: Stakeholder participation and involvement is very important in any outsourcing decision. A company that makes sure that each cross-section of its stakeholder audience is appropriately represented and involved generally can formulate a good outsourcing relationship. When we say stakeholders, we mean the inclusion of everyone from the actual users of the services to the executives in charge of the internal and external processes. An outsourcing governance group can go a long way in ensuring that along with participation comes reality. What we mean is that the outsourcing governance team can make sure that everyone is realistic and requirements are prioritized as well as stakeholder expectations are managed appropriately without one group feeling slighted over another. When that happens, everyone operates harmoniously with little internal or external conflict.

Stakeholder participation:  Every rule and every process may be in place but an outsourcing project may still falter if stakeholders are uninvolved or don't receive communication from the outsourcing team on a regular basis. Since information is power, keeping stakeholders happy requires that the communication channel is consistently open and effective. Regular interaction is one thing but an outsourcing governance team should ensure that stakeholders feel that their time is well spent.

Execution, execution, execution: A governance team's true test is in its ability to ensure that team members deliver what they have committed to. Note that the governance team has no actual authority on most participants in this situation and therefore the governance team has a huge responsibility to make sure that people not directly reporting to them say what they mean and mean what they say. Failure of the entire process is sure if execution doesn't happen when it was promised or by the person who promised it. Due diligence in the form of documenting every change, holding people accountable, and following up on tasks and open items becomes very important to the success of the entire outsourcing relationship as well as to the effectiveness of the governance team.

More about Outsourcing Governance and its value in next week's blog..........

Infosys (NASDAQ: INFY) defines, designs and delivers IT-enabled business solutions that help Global 2000 companies win in a Flat World. These solutions focus on providing strategic differentiation and operational superiority to clients.  Infosys is part of the NASDAQ-100 Index and The Global Dow.

Highlights - Consolidated results for the quarter ended June 30, 2010

Revenues were $ 1,358 million for the quarter ended June 30, 2010; QoQ growth was 4.8%; YoY growth was 21.0%

• Net income after tax* was $ 326 million for the quarter ended June 30, 2010; QoQ decline was 6.6%; YoY growth was 4.2%

• Earnings per American Depositary Share (ADS)** was 0.57 for the quarter ended June 30,2010; QoQ decline was 6.6%; YoY growth of 3.6%

• 38 clients were added during the quarter by Infosys and its subsidiaries

• Gross addition of 8,859 employees (net addition of 1,026) for the quarter by Infosys and its subsidiaries

• 1,14,822 employees as on June 30, 2010 for Infosys and its subsidiaries

* Excluding the income from sale of our investment in OnMobile Systems, Inc. of US $ 11 mn in Q4 FY10, QoQ decline was 3.6%

** Excluding the income from sale of our investment in OnMobile Systems, Inc. of US $ 11 mn in Q4 FY10, QoQ decline was 3.4%

Business Outlook

The company’s outlook (consolidated) for the quarter ending September 30, 2010 and for the fiscal year ending March 31, 2011, under International Financial Reporting Standards (IFRS), is as follows:

Outlook under IFRS#

Quarter ending September 30, 2010

• Consolidated revenues are expected to be in the range of $ 1,413 million to $ 1,427 million;YoY growth of 22.4% to 23.7%

• Consolidated earnings per American Depositary Share are expected to be in the range of $ 0.59 to $ 0.60; YoY growth of 5.4% to 7.1%

Fiscal year ending March 31, 2011##

• Consolidated revenues are expected to be in the range of $ 5.72 billion to $ 5.81 billion; YoY growth of 19.0% to 21.0%

• Consolidated earnings per American Depositary Share are expected to be in the range of$ 2.42 to $ 2.52;YoY growth of 5.2% to 9.6%

# Exchange rates considered for major global currencies: AUD / USD – 0.86; GBP / USD – 1.50; Euro / USD – 1.23

## Excluding the income from sale of our investment in OnMobile Systems, Inc. of US $ 11 mn in fiscal 2010, the EPS growth is expected to be in the range of 6.1% to 10.5%

http://www.infosys.com/investors/reports-filings/quar terly-results/2010-2011/Q1/Documents/IFRS-USD-press-release.pdf