Rakesh Sangani
SSON Editor at Large 

Rakesh is a strategic advisor, solution architect and implementer of transitions and transformations. With a specialism in BPO, Shared Services and Offshoring, Rakesh has worked with CFOs, FDs and senior client executives in the private sector (including at Ernst & Young, Pitney Bowes, Orange, Barclays and RBS) and the public sector (across Health, Police and Government markets) in improving efficiency, effectiveness, cycle times and profitability.

Rakesh is a qualified chartered accountant, holds practitioner status in Prince 2 and MSP and is certified Lean Six Sigma. He was trained by Andersen, Deloitte and Accenture and is now a partner at a social enterprise management consultancy Proservartner providing strategic advice and focusing on operational solutions for leading FTSE 100 and Professional Services firms.

To find out more details on Rakesh, you can view him on linked in http://www.linkedin.com/in/rakeshsangani or contact him on rakesh.sangani@proservartner.co.uk

Keeping It Real

Rakesh will be keeping a close eye on the sourcing and services delivery space - decoding the hype surrounding the latest news, trends, deals and movements - delivering you a no-nonsense commentary of what the headlines really mean.

Genpact awarded 10 year F&A BPO contract with Walgreen
BPO firm Genpact  has just reported that it has signed a ten year contract with US based drugstore chain, Walgreens. As part of the contract, Walgreens will shift its accounting processes and jobs to Genpact, a move that will involve transfer of at least 500 employees to Genpact providing order-to-cash, accounts payable, general accounting and travel & expense services.

“We are very excited to have Danville as one of our largest delivery centers in the US. It’s a deal with multiple advantages,” said Genpact chief operating officer ‘Tiger’ Tyagarajan. “It will also enable us in providing a range of services for multiple industries, including retail, healthcare and pharmaceuticals from Danville with greater onshore access to our clients.”

Point of View: Given that Genpact already provide services for six pharmaceutical companies and two life science firms they were always favourite to win this contract. However, it was their flexibility in providing an onshore solution combined with the commitment to build more jobs in the area, which became the differentiator.

Following TCS and Infosys, and as I predicted last month, Genpact has developed an onshore presence in the US that provides another bow to their armoury of solutions that they can provide to their clients. Genpact have done very well in negotiating a 10 year contract in return for the onshore capability – the challenge will be delivering the services in a way that they have little experience!

Capgemini extends F&A BPO Contract with Syngenta
Consultancy and Outsourcing company Capgemini have extended their Business Process Outsourcing contract with Syngenta, the world’s leading crop protection and seeds producer for the agricultural industry. The initial contract, signed in December 2005, focused on Accounts Payable services across 20 countries in Europe and AsiaPac. The new 7 year contract across 50 countries extends the scope of services to include a fuller scope of finance services: Accounts Receivable (including credit management and some collections work); Travel & expenses; General ledger (including preparation for management reporting) and Inter-company accounting, and indirect procurement services.

Point of View: This is a notable extension for Capgemini, and illustrates the success that the company has experienced with the AP pilot. It is not surprising that this has led to an extension in transactional procurement and finance areas, and the trend of sourcing for a pilot with a view to expanding is becoming more popular.

A BPO solution is well suited to an acquisitional company such as Syngenta, and interestingly enough one of the requirements of the solution is to progress to a transactional pricing model that not only enables Syngenta to purchase what they utilise but provides the corporate centre with a clear mechanism to recharge back to its divisions and departments. The challenge for CapGemini will be in delivering a 5 centre model while expanding the scope to cover the other support functions.

Infosys Q3 2010 Revenues Up 5.2% to $1,232m
Indian outsourcing firm Infosys announced 3rd quarter revenues up 5.2% compared to prior year to $1,232m, and up 1.9% in constant currency. Net profit was up just less than 1% to $334m and the operating margin was up 0.9% compared to prior year to 31.9%.  BPO revenues were up 7.9% to $340 million, with 50% of the BPO revenues coming from US Clients.

Point of View: In recent months the market has been experiencing an increase in the appetite for offshore BPO and ITO. In the US, Infosys is very well positioned to continue the good progress.

However, it is in Europe and in the UK that the company struggles against its key competitors. Fiscal Q3 2010 revenue dropped 10% to $269 million in Europe (year on year), whilst TCS has experienced significant traction in the UK and is taking that model to Europe -  Infosys has not had the same success.

Final Thought: Customer Contact - Philippines v India
When it comes to Customer Contact Centres, Philippines may be challenging India’s supremacy as the region of choice. Pramod Bhasin (President and CEO of Genpact) was recently quoted as stating “India has lost tens of thousands of jobs to the Philippines. The calibre of English is better and companies don't have to put up with the mess (that exists in India) there”. Genpact have 2,000 FTE in Philippines, expecting to ramp up to 3,000 in the next 12 months, Wipro have just set up a 1,000 FTE centre in Cebu City and Intelenet, Aegis BPO and Firstsource are all ramping up in the area.

For “voice” services, the Philippines is recognised as having “high quality voice skills”. This coupled with the low cost of services (similar if not lower than the cost of India resources), and a 94% literacy rate represents a real challenge to the dominance that India has been experiencing in Customer Contact Outsourcing. With US clients more comfortable with the Filipino accent, and the UK backlash on Indian Call Centres, the Philippines is fast becoming the “location of choice” for Customer Contact services.

Intelenet to take over 2 UK SSCs
Venture capital backed Intelenet Global Services, is close to taking over two customer contact shared service centres of a large operator of train services in the UK – Firstgroup (a FTSE 250 firm). The company operates in UK, Ireland, Denmark, Sweden, Canada and the US.The two centres are in Fort William and Plymouth provide services for the UK business and have a combined capacity of 250 FTE.

Point of View: Intelenet has invested in these centres to further expand their onshore footprint, in line with their strategy of onshore shared service centres in the UK, US and Australia. Whether this investment will bear fruit depends on whether Intelenet can:

1. Operationally perform well to secure the business in Ireland, Denmark, Sweden, Canada and the US.
2. Leverage these services to offer an efficient onshore service to other clients.

Indian Travel & Hospitality BPO to set up centre in Philippines
InterGlobal Technologies, a leading Travel and Hospitality BPO, announced that they are expanding their operations to set up a centre in the Philippines with a total capacity of 1,000 seats in a year. The company is investing $2.3 billion to set up the centre. InterGlobal provides voice and non-voice services to companies like United Airlines, KLM, Virgin Airlines, and Expedia.

Point of View: The trend of Indian companies setting up operations in the Philippines for “voice” activities is really catching on. Chief Executive Vipul Doshi stated the option to set up in Philippines was implemented due to the quality of the infrastructure, government support, quality of workforce and demand of clients. The demand in the Philippines is largely driven by US clients demanding less call services from India, and being more comfortable with the Indian accent and it is no coincidence that many of InterGlobal clients are based in the US. 

Accenture Q1 revenues down 11%
Consulting and outsourcing multinational Accenture reported a 11% fall in Q1 revenues to $5.4 billion, with net profits falling 7% to $445 million. There were net revenue decreases of over 10% in each operating group, except Health & Public Services where revenues remained at the same level as Q1 in the previous fiscal year. 

Outsourcing net revenues were $2.26 billion, a decrease of 4 percent in US dollars and 5 percent in local currency from the first quarter of fiscal 2009.  Accenture expects net revenues for the second quarter of fiscal 2010 to be in the range of $5.1 billion to $5.3 billion.

Point of View: When compared to the fourth quarter results, where net profits were down 41%, the results illustrate that Accenture has been effected by the slowdown in activity and has made adjustments to its operating model to adapt to the changes required.

Accenture Chairman & Chief Executive, William (Bill) Green has cited the cause of the Accenture slowdown cause by organisations limiting spending to smaller projects. Our view is that although Accenture has been hit hard by the slowdown in activity, the machine will roll on and the relationships built in delivering “smaller” projects with customers will bear fruit as the larger transformation deals are signed off!

Accenture will be challenged hard in 2010 by the Indian Outsourcing Providers, and this will effect their market share. However, the Accenture brand is strong and it will be at least a few years before the Indian Providers become one of the “providers of choice” – the key risk to Accenture will be their own complacency.

Looking Ahead to 2010
Before I start prophesizing about next year, it is worth highlighting what changed in shared services and outsourcing in 2009.

The biggest news was that Xerox have entered the outsourcing market with their acquisition of ACS who were going nowhere pretty quickly, Dell also acquired Perot Systems to enhance their outsourcing capability whilst Satyam (don’t say it too loudly) were acquired by Tech Mahindra.

Shared Services and outsourcing executives would have noted a slowdown in activity through most of the year, with the uncertainty of the economic environment, the investment to kick off these projects were scrutinised more than ever before. However, as the year progressed, we noted an increase in activity with shared services and outsourcing programmes more actively signed off as the investment budgets were more readily approved.

We also recognised new outsourcing models being implemented, new industries targeted, new clouds on our horizon and new capabilities sought!

Six Councils opt for Shared Services
Six Scottish Councils are planning a shared services partnership to help make services more efficient. The six councils that make up the partnership - City of Edinburgh, East Lothian, Fife, Midlothian, Scottish Borders and West Lothian – will share services like HR, payroll, procurement and mobile and flexible working.

Councillor Peter Grant, chairman of Fife's policy, finance and asset management committee, said: "We should always be looking for ways to make our services as efficient as possible but this is given even greater urgency by the financial situation we are dealing with.

Point of View: When it comes to sharing services to deliver cost reductions, Scottish Councils have put their English counterparts to shame. This shared services initiative follows the deal sign by Glasgow Council with Serco in late 2007, and it is interesting to note that the 6 Scottish Councils have moved forward with limited Third Party support.

If the shared services deal reduces costs without reducing the quality of services for the 6 Councils, then this model will be expanded across Scotland and be a great reference for Council Shared Services, proving that the model can work!

Although there are strong national labour laws across Europe (ie use of Works Councils), the protectionist policies passed in the US coupled with public reaction to outsourcing is having an effect on the size of the North American outsourcing market.

This change is reflected in the strategy of leading outsourcing providers, the smarter providers are providing services not just offshore but onshore as well – note Infosys’ recent acquisition of McCamish and TCS’ deal with Dow Chemicals and Cardiff Council. We are expecting more and more onshore transactions in 2010 with minimal labour arbitrage advantages but more focus on indirect cost advantages, efficiencies, faster transactions and service improvement.

Infosys BPO announced alliance with Phillips in Latin America
Infosys BPO have announced its alliance with Phillips in Latin America. As part of the agreement, Infosys BPO will support a range of processes across Brazil, Argentina and Chile across Order-to-Cash, Procure-to-Pay, Acquire-to-Retire and Record-to-Report areas like Accounts Receivable, Intercompany, Foreign Exchange, Local Payments and Travel and Entertainment Expenses.

Infosys BPO will provide language support in English, Portuguese and Spanish. These services will be delivered from the newly inaugurated delivery center in Belo Horizonte, Brazil, a company press release said.

Point of View: Those of you with good memories will remember that Infosys acquired the Shared Services Centre for Phillips in the US, Europe and Asia for $28 million in 2007. This included the acquisition of three delivery centres in India, Poland and Thailand and a contract over seven years for $250 million that enabled Infosys BPO to rapidly build their capability.

The two organisations have a well working partnership, and this is illustrated by the latest alliance which will be utilised to build Infosys’ capability in Latin America. The next step for Infosys BPO will be to expand the scope in the US, Europe, Asia and Latin America to include the higher value Finance & Accounting activities.

Aditya Birla Minacs to hire 2,000 in 6 months
Aditya Birla Minacs, the BPO arm of the Aditya Birla Nuvo group, is gearing up its India operations, and plans to hire around 2,000 people in the next six months. As part of its strategy to be a $1-billion company in the next four years, it is eyeing the fast-growing telecom and insurance space in the domestic market. For which it has ventured into rural India under its initiative of ‘Connect India’. The company’s revenue for the year ended March 31 was $360 million.

Aditya Birla Minacs plans on using an India based hub-and-spoke model that will make the company increase its footprint in Tier-3 and Tier-4 cities whilst using its Chennai, Baroda, Aurangabad and Kolkata cities as the hub.

Point of View: Aditya Birla Minacs is part of the $30 billion Aditya Birla Group. The BPO firm has not been meeting the targets set out by the parent company, and as such a turnaround initiative has been put in place. This initiative has three methods to increase profitability of the BPO firm:
1. Execute more work within the Aditya Birla Group and use as a reference
2. Leverage existing relationships within the Group
3. Expand through acquisitions

With the economy in India growing year-on-year, the domestic BPO market is ripe for BPO players with the right focus and the right capability at the right price to grow their footprint. Aditya Birla Manics will have to meet all those requirements to stand a chance of growing at the pace expected by the Group and be a $1 billion firm by the end of 2013.

Infosys Opens Center in Brazil
Indian outsourcing multinational Infosys has announced the opening of a new subsidiary in Brazil to support its IT consulting, IT services and BPO activities. The first delivery centre in the subsidiary will be opened in Belo Horizonte.

Point of View: Latin America is a region of growth when it comes to outsourcing. Infosys’ news illustrates a significant investment programme in Brazil, but the organisation also has centers in Mexico.

Accenture, IBM, Genpact, TCS, Wipro and WNS all have a presence in Latin America, and likely to increase their presence in the region over the next 18 months.

Final Thought: The start of Actuarial BPO?
This week an Indian outsourcing firm, Patni announced a partnership with a US consultancy (Actuarial Risk Management) to expand its footprint in Actuarial BPO services by offering a mix onshore / offshore model. Actuarial BPO sits within the complex end of the knowledge process outsourcing spectrum, and we understand actuarial valuations are being targeted by Infosys, EXL Services, Genpact and Patni.

Due to the specialized nature of the role of the actuarist, the wage arbitrage advantages can be significant by migrating to a low-cost location. Couple this with the additional enabling technology that can be employed by a BPO provider, the efficiencies and cost advantages are significant even the knowledge transfer period would be much longer than for transactional processing.

Actuarial services can be considered core to an organization, and the real issue is not whether it can be done, but whether organizations have the appetite to offshore and embrace the cultural change of migrating the complex processing!

Mphasis to open Sri Lanka center
BPO firm Mphasis have announced the opening of a new center in Columbo, Sri Lanka, which will offer legal and finance & accounting services starting with 600 people in the first stage. The centre will be operational from next year and the aim is to expand to 3,000 people in three years. Mphasis have invested $2.5 millon for the first stage of operations.

Point of View: Sri Lanka has been rife with political issues for a number of years. It is now peace time and given the high number of talented graduates, the wealth of accountancy knowledge, the strong English-speaking skills and an average wage lower than cities in India, it is a country in which we predict a number of BPO delivery centers and captive centers being built over the next few years.

Genpact awarded F&A BPO contract by AstraZeneca 
BPO firm Genpact has reported that it has signed a five year contract with pharmaceutical firm AstraZeneca for providing Finance & Accounting services. The multi-million dollar contract will deliver services for over 50 countries.

AstraZeneca Head of Global Transactional Finance Graham Russell, stated that "streamlining our business processes will enable us to improve the effectiveness of AstraZeneca's finance function in driving, measuring and reporting business performance, while simultaneously reducing the costs of the finance function".

Point of View: In the 80 global enterprises that Genpact supports in F&A BPO services, five of those are pharmaceutical companies and two are life sciences companies. It therefore comes as no surprise that Genpact have been awarded this contract.

Genpact are attempting to provide the higher margin transformational consulting activity to their BPO clients, similar to the model employed by Accenture and IBM. What will be interesting is whether they are able to build on the current scope and transform the non-Finance areas of the AstraZeneca business. The first challenge will be delivering the F&A effectively!

United Utilities to sell outsourcing business for £500 million
United Utilities are reported to be selling off their outsourcing business, with bids expected of up to £500 million. The FTSE 100 firm, which provides water and sewerage services to 7m people in northwest England, hired investment bank JP Morgan Cazenove to oversee the auction as part of a wide-ranging asset disposal.

The business to be sold carries out work on metering, waste treatment and connections for utility companies.

Point of View: Not what we normally associate with core outsourcing services but the specialised custom BPO services provide potential suitors with a route into utilities and the opportunity to provide further services. Venture capitalists 3i, Advent International and KKR have all been named as potential bidders, and it would not surprise me if the services were combined with a broader outsourcing offering specialised for Utility Companies.

HCL BPO targets acquisition in media, publishing and entertainment (MPE)
HCL BPO are reported to be evaluating targets in the $100 million range in the media, publishing & entertainment segment, with a view to acquire in the next six months. The acquisitions are likely to occur in the Australia, UK or US markets, as the company feels that these mature markets offer a larger footprint compared to other geographies.

Point of View: With low margins, established players and commoditized services in Finance, HR and Procurement BPO, HCL BPO are focusing more on custom BPO. Custom BPO involves the migration of industry specific activities to a Third Party specialist, in this case the industry is Media, Publishing and Entertainment. HCL BPO are actively looking to advance the BPO range of services that it can offer to its Media, Publishing and Entertainment services. Do not be surprised if the acquisition is an existing player in the MPE Custom BPO Market.

The acquisition of Axon almost 12 months ago illustrated HCL’s appetite for high profile acqusitions in Western markets. Reputational improvement is a key drive for HCL acquisitions therefore expect the acquisition to be in the US or UK.

Final Thought - Greater Savings from CFO-led globalization programmes
A recent survey from Deloitte stated that Finance globalization programmes led by CFOs generate greater savings then those led by others with programmes led by CFOs providing an average 21% saving against a 15% saving for programmes led by COOs or CEOs.

An interesting piece of research, but ask yourself which community was questioned in the survey – you guessed it, CFOs and Finance Leads! It is a shame that the data is fundamentally biased, but given the significance of senior level and middle management buy in within Finance globalization programmes, one would envisage that CFO leadership and buy-in would be a key driver for success.

In my experiences, the CFO leadership leads to tighter controls, more focus on strategic plans, a methodological approach to change, and integration between the different components that make up a successful programme.

WNS Awarded Multi-Year Contract with Chiquita Brands International
Global BPO provider WNS announced a multi-year contract with Chiquita Brands International to deliver Finance & Accounting services. Serving Chiquita in both English and Spanish, the scope of the agreement includes General Accounting, Fixed Assets, Data Standards, Credit Management, Billing, Collections, Dispute Management, Cash Application, Accounts Payable and Travel & Expense.

The contract with Chiquita marks WNS's entry into Latin America where the company will look to significantly expand and grow its business.

Point of View: WNS have invested in Costa Rica with the Chiquita Deal in mind, and will have further deals in the pipeline to justify the expenditure in the delivery centre. Expect WNS to divert current service delivery to Costa Rica, and win further work that is supported from the Latin American Centre.

HP Services revenue up 8% to $8.2bn 
HP Services have announced fiscal Q4 2009 revenues of $8,926m, up 7.8% on restated fiscal Q4 2008 revenues of $8,277m. (Fiscal Q4 2008 revenues include a 5-week only contribution from EDS: pro forma revenue growth was not provided). This included an increase of 15.7% in ITO revenues, 12.9% in BPO revenues, 7.8% in Application Services and a fall of 6.7% in Technology Services.

HP Services’ operating margin for the quarter was 16.2%, up from a margin of 1.4% in the prior year period.

Point of view: HP results are impressive considering the challenges of integrating EDS. The increase in revenues in outsourcing represent a significantly better performance than IBM and Accenture in the 4th Quarter, and compete with the strong performance of the leading Indian Providers (TCS, Wipro, Infosys & Genpact)

What is most impressive is the increase in the operating margin, which now beats the margins for IBM and Accenture, and has been achieved through effective client service coupled with streamlining the EDS cost base. Given these results, and the performance in BPO, it is unlikely that HP will be selling off its BPO capability in the current market!

WNS sets up Costa Rica BPO Center
Private-equity-owned BPO provider WNS announced the set up of a new Latin America center to support the complete suite of WNS activities including Finance & Accounting, customer services, research and analysis.

The establishment of the Costa Rica center marks WNS's entry into Latin America and it will also serve as a nearshore center for global clients with North American operations.

Point of View: WNS has followed the leading BPO providers into Latin America. Accenture, IBM, Genpact, TCS, Wipro and Infosys BPO have set up delivery centres in Brazil, Mexico, Guatemala, Argentina and Uruguay. Costa Rica is recognised as a hub for Customer Contact services, and provides support for Spanish, Portuguese and English language. This is not an insignificant investment for a firm that was recently up for sale, and WNS will be expecting a quick payback period for the center.

Intelenet to buy US firm in $30 million deal
Mumbai BPO provider, Intelenet Global Solutions, is set to acquire a US-based firm with capabilities in Healthcare records processing and IT, for $30 million. This would be the fourth acquisition by Intelenet, following deals with Travelport and Upstream (to diversify into the travel domain) and Sparsh (to build its domestic capability).

Point of view: We reported a few weeks ago, the attractiveness of the Healthcare market in the US, a disparate market without a true leader. Xerox & Dell have acquired with a view to enter the Healthcare market, and Intelenet seem intent to make a similar move.

Who will be successful remains to be seen, but it will be key to demonstrate flexibility, focus, knowledge of the market and true capability to compete!

IBM Daksh eyes BPO facility in West Bengal
IBM Daksh, the BPO arm of IBM, has expressed an interest in setting up a facility in Kharagpur, West Bengal, according to the states IT Minister Debesh Das.

The proposed IT Park in West Bengal, to be developed by Webel and the Kolkata Municipal Corporation, will be set up on a two-acre plot and be completed within 15 months from the start of construction.

Point of view: Kolkata is fast becoming a competitor to the big Indian BPO cities (namely Bangalore, Chennai etc). The investment in a new IT park, comes at a time where BPO companies are looking for low cost opportunities in India in established cities. IBM Daksh has been quick to invest in a new centre in Kolkata, and we expect other BPO providers will follow suit.

HCL wins $200 million deal with Equitable Life
Indian technology and outsourcing company HCL, has announced the 30 year contract with Equitable Life – which stopped taking on new business in 2000, but is engaged in serving the policies of its existing client base of circa 500,000. HCL will take over the contract from Lloyd’s Banking Group Plc, which currently has about 340 staff working for Equitable Life. About three-fourth of these employees will be taken into HCL to comply with European regulations. Nearly 240 of them, however, are likely to be redundant once the integration is complete, Equitable Life Chief Executive Chris Wsicarson said in a call with reporters from London. Besides the staff in HCL’s UK offices, between 50-70 staff stationed out of India will be working for the client.

Point of view: Following the acquisition of Liberata Financial Services in July 2008 (fixed assets cost of $2 million), this deal is the first major win utilising the Liberata Insurance Platform.

This is a good win for HCL, but at terrible margins (£19,607 per person) and HCL will need to bear the cost of redundancy and find quick efficiencies to ensure the contract is profitable. It will take a few more wins at better margins before HCL can turnaround their declining performance and compete with Tata Consultancy Services, Capita Group, and US-based Unisys Corp.

Infosys BPO CEO Amitabh Chaudhry Quits
Amitabh Chaudhry, CEO of Infosys BPO submitted his resignation to the company in order to pursue other professional opportunities. Chuadhry had taken over in March 2006, grew the company from revenues of $85 mil to $316 mil (year to March 2009), and played a key role in a number of strategic initiatives – including the $38 mil acquisition of McCamish Systems.

Point of View: The second CEO in less than 4 years to leave Infosys BPO, it is rumoured that Amitabh is set to be appointed as lead of a joint venture between HDFC and Standard Life.

This follows a series of high profile leaders leaving the big Indian providers over the last few years. Whether it is the attractive opportunities that become available, the level of remuneration received, or the challenge in leading an outsourcing firm, it seems that the top Indian Providers do struggle to hang on to their top talent!

Final Thought: Rural India
Leading companies are either setting up Shared Service Centres in big tier 1 Indian cities – Mumbai, Delhi, Bangalore, Chennai etc, or outsourcing business processes for efficiencies in cost and ways of working, service improvement and faster transactions.

However, there is a large cost arbitrage to be gained from migrating work from tier 1 cities to rural areas in India, where BPO salaries and rent costs can be 70% lower. Whilst India is synonymous with outsourcing, the tier 1 cities host only 30% of the country’s population.

The opportunity has led to an increasing trend of rural BPO companies being set up in these lower cost areas, the larger BPO firms are tending to either subcontract to these firms or are setting up themselves (the Infosys model) in rural areas.

Rural Shores is one such BPO company that has set up in these areas, and aims to take the “jobs to the village” where there is plenty of “talent which can be trained”. They aim to set up 500 centres across India in the next 5 years. With cost reduction being a key driver for outsourcing contracts, we predict rural India will be transformed over the next 5 years.   

TCS awarded BPO Deal with Dow Chemical 
Chemical company Dow Chemical has agreed to have TCS provide procurement and finance services. This deal will involve the set up of a onshore shared service centre that TCS intends to commecialise. The “strategic” services centre will be set up in Midland Michigan, with the first phase accommodating 1,250 personnel. 

Services to Dow are ultimately expected to be delivered from a global network of service centers, including major centers in Midland and Mumbai, India, and satellite centers in Shanghai, Terneuzen (Netherlands) and Sao Paulo (Brazil), and other sites as needed.

Point of view: Onshore capability is becoming increasingly important in today’s competitive market. This week, Infosys acquired capability in the US to provide onshore shared services and increase their client base, whilst TCS have taken a different approach in this deal with Dow which has quickly followed their agreement with Cardiff Council (where services will be provided onshore).

This represents a change in strategy for the “Indian Providers”, and we expect that it will not be long before Wipro and Genpact increase their onshore presence.

Local Councils get a bad deal from outsourcing according to Deloitte 
Local authorities have got a bad deal from kitchen sink outsourcing deals with private industry and should take their most important IT functions back under the wing of the public sector, says professional services firm Deloitte.

Contrary to the belief in recent years that local authorities would save money by handing their entire IT departments over to private contractors, Deloitte said outsourcing suppliers are better suited to providing "highly commoditised IT functions, such as desktop, networks and datacentres".

Point of view: If one were to be cynical, one would highlight that Deloitte do not do as well as the other big 4 when it comes to Local Councils, one could also highlight that Deloitte do not win much revenue from Local Councils outsourcing contracts to the public sector IT Outsourcing providers.

Although we would agree that the public sector may not get the best deals in large scale outsourcing contracts, the answer is not to outsource less but to ensure that the right sourcing strategy is in place, the right governance mechanisms are set up and the right incentives are in place to ensure “value for money” and continuous improvement in service quality.

Genpact awared 5 year contract with Unitech Wireless 
Telecom operator Unitech (formed by a joint venture between Indian real estate major Unitech, and Norway based Telenor Group) has signed a five year contract with Genpact for the BPO firm to provide multiple customer service solutions from its operations centre in Jaipur.

Unitech Wireless’ VP for Marketing David Meneghello said “with Genpact as our partner, we will build the quality of customer service as the strongest differentiator in the current competitive environment”.

Point of view: The Unitech Wireless win, illustrates the success that Genpact are having in the domestic India BPO market. In winning these deals against other low cost domestic providers, Genpact focuses less on wage arbitrage but more on the understanding of business processes, their culture of operational excellence and in this case experience in Telecoms – the domestic BPO market is said to quadruple to $6.82 billion by 2013, and Genpact will be well placed to have a large piece of the domestic pie.

Infosys BPO acquire US Based McCamish Systems for $38 million
BPO provider Infosys BPO has signed a definitive agreement to acquire all of the outstanding interests of McCamish Systems, a small BPO company in Atlanta, Georgia, focused on the insurance and financial services market. The deal includes an up front payment of $38 million plus an additional $20 million payable if McCamish Systems achieves financial targets.

Acquiring McCamish will give Infosys clients in the insurance and  financial services industry, while also providing a base for services delivery from the U.S., CEO and Managing Director Amitabh Chaudhry said. 

Point of View: The US acquisition illustrates the revised strategy for Infosys BPO, to have both the onshore capability for clients who do not wish to offshore, and the offshore network for clients that are willing.

Infosys aim to move away from being seen as a “low cost Indian Provider” to one with onshore presence and technological capability. The acquisition provides Infosys with a reputable presence in the onshore US market, and a suite of technology solutions for insurance and financial services, along with an increased client base – whether the acquisition was at the right price remains to be seen!

Final Thought: UK Local Government & BPO
For quite some time, the leading private sector BPO players have been attempting to develop a footprint in UK local government. Local government contracts are attractive because of the value of the contracts and the length of time those contracts are provided (generally longer than in the private sector).

There are plenty of examples of BPO in local government, Capita, Serco, IBM, Steria, Capgemini, Vertex and Mouchel all have had successes in the market, but Accenture and the leading Indian providers have struggled.

This may be changing, this week TCS announced that they will be strategic ICT partner to Cardiff City Council for a deal of total value £150 million over 15 years. TCS will utilise their onshore delivery network to support this account, and it’s just a matter of time before they attempt to increase the support to cover BPO services.

Whereas Accenture will struggle to become a darling of the public sector (especially after pulling out of the NHS), Genpact, Infosys and Wipro have built public sector focused divisions in recent times. The success of TCS will see the Indian firms driving hard to win accounts in the UK public sector (particularly in local government), which will provide strong competition to the current suppliers in the market.

EXL acquires AmEx’s travel services captive for $30 million
Nasdaq listed Indian Outsourcing firm EXL, announced the acquisition of American Express’ travel services captive in India for $30 million. As part of this deal, EXL have won an 8 year contract to provide the back office services for $160 million. EXL who were bourne out of an acquisition of a captive back office in India (for Conseco insurance company), will add the India delivery centre to their network, the 800 AmEx Travel Services back office employees to their existing 105,000 contingent and the analytics capability performed by the AmEx travel services back office to their existing toolset.

Point of view: The acquistion would be a great price, had EXL negotiated better on the 8 year contract to provide services back to AmEx travel services. On a $20 million a year contract, EXL are providing a service encompassing 800 FTE in an existing location in Gurgaon, where wage inflation is notoriously high. The provision of services for approx $25k per FTE, means that EXL will struggle to make money out of this contract and makes Cognisant deal with UBS (circa $44,200 per FTE) a better deal!

This is a high risk deal for EXL, but a great reference and increased capability. If they are to compete with the leading BPO players, then they will need to be able to leverage these and the risk may well be worth taking!

Genpact Q3 results revenues up but profits down
Genpact have announced a year on year 5% increase in revenues to $284.4 million, but a decrease in profits by 1.7% to $33.1 million. The split of total revenues illustrates that 84.9% of revenues are from business process outsourcing services, and that almost 61% of total revenues are from non GE clients.

Point of view: The results may not read too impressive, but this is due to the weak dollar currency over the period rather than Genpact performance. TCS were the best performing competitor, with revenues increasing in Rs by 7% but dropping 2.3% in USD (under US Gaap). When compared to TCS revenues, and in the current economic environment, Genpact have had a very strong quarter.

Capgemini wins 7 year F&A BPO deal with Bunge Limited
Bunge limited, a leading global agribusiness and food company, have selected Capgemini to support its Finance operations by providing Finance & Accounting services (including master data, global transactions and issues resolution), under a 7 year agreement.

“Capgemini’s proven track record of maximizing efficiency in F&A processes, along with its global delivery model, was a major factor in our decision to select them as our partner for this initiative,” said Jacqualyn Fouse, Chief Financial Officer, Bunge Limited. “We are confident the partnership we are building with Capgemini will further support the continued growth of our business over the next decade.”

Point of View: Capgemini have had a good year in F&A BPO and overall outsourcing revenues are on the up. Having invested in organic growth, and increasing their global delivery network (with operations set up in Vietnam and Romania).

The challenge for Capgemini that they do not provide the low costs of operations that the Indian providers can supply, and they do not provide the transformational capability provided by the leading blue chip providers (IBM and Accenture). However, the balance between the two, and a good sales team has led to a good year for Cap Gem.

Final Thought: Merger Talk
In recent weeks we have seen Dell acquire Perot Systems, Xerox acquire ACS, Cognizant acquire the back office of UBS, and many more smaller BPO mergers and acquisitions. Following the Xerox acquisiton, Canon announced that they also had intentions to gain entry to the BPO market. In addition, Accenture, Aegon, iGate, Genpact, TCS and Wipro have publicly announced that they are searching for acqusition targets in BPO. Industry analysts add Cisco, HP, BT, Deutsche and Hitachi to the list of potential acquisitors.

The targets include Sapient, Computer Sciences Limited, WNS, Amdocs, Hewitt, Exl Services, and Jack Henry & Associates, with analysts arguing that Accenture and Genpact could also be targets or acquisitors.

The BPO landscape is changing rapidly, with the top 20 BPO firms this year unlikely to be the same as that in 12 months time. We expect that there will be a number of acquisitions over the next 18 months, with HP moving away from BPO, and Cisco, Hitachi and Genpact linked with larger acquisitions.

Infosys to open 22 rural BPO Centres in Andhra Pradesh
Indian IT major Infosys has signed an agreement with the Andhra Pradesh government to set up one rural BPO centre in each of the 22 districts of Andhra Pradesh (Hyderabad being the best known). Amitabh Chaudhry, CEO & MD of Infosys BPO stated that the first BPO centre will be set up in the next six weeks as a pilot

Point of View: Let’s remember four key facts:

• India still is the leading location for offshore captives and BPO delivery centres. On the whole, organisations select India as the location of choice
• BPO firms are continuously investigating new low cost locations, and even the Indian firms have set up delivery capability in other low cost areas including Latin America, China and the Phillipines
• Wages for BPO and Shared Services are rising according to recent surveys on average at more than 7% per year in India. This is driven by the big city wage inflation – Mumbai, Chennai, Bangalore etc.
• Attrition is a key issue in India, with shared services and BPO centres experiencing up to 40% annual attrition rates

Assuming that Infosys can obtain the right capability in the rural areas, the wage disparity in India will result in the rural areas providing significant cost advantages compared to the rest of the country. By developing a brand linked to a rural area, BPO companies also hope to reduce attrition rates. With an increasing number of clients selecting India as their low cost location of choice and Accenture, IBM, Wipro and TCS focused in growing their India capability, the market will be watching the pilot closely! We would expect this deal to be a success and open the door to centres being set up in rural areas across India.

Wipro beats expectations and posts 19% increase in Q2 net profit
Wipro has announced a year on year 19% increase in net profits to Rs 11.71 billion ($243 million) and a year on year 6% rise in revenues to Rs 69.18 billion ($1.44 billion) for the quarter. The revenue growth by Service Line was 5% IT Services, 18% IT Products, 11% Consumer Care, 7% BPO and 16% for Consulting.

The results exceeeded analyst expectations with Wipro winning 37 new clients between the period July to September. This included a multi-year deal with a large pharma firm to provide turn-key infrastructure services across 38 countries; a large contract with an Australian brewery to provide IT infrastructure, business application, data centre and disaster recovery services support; the recent multi-year total outsourcing deal to provide world class IT infrastructure for Indira Gandhi International Airport in New Delhi.

Point of View: This is a great performance by Wipro. Although Wipro’s quarterly results are not as impressive as those recently released by Tata (profit increase 29% in Rs) they are more impressive than Infosys (profit increase 7.5% in Rs) and many of their other competitors across the board of service lines.

What is clear after the losses reported by IBM and Accenture is that the Indian providers are finding more success with a stronger currency in a challenging global environment than some of the blue chip providers who sometimes operate at higher margins!

Atos Consulting to implement Finance Shared Services for Toyota
Global manufacturing provider Toyota Boshoku Europe has chosen Atos Consulting to design and implement its European Finance Shared Service Centre with Oracle Business Accelerators.

Point of View: Atos have won this deal primarily on the back of their expertise and capacity with Oracle solutions coupled with their experience in manufacturing, and secondary because of their international scale and commitment to complete within 9 months for 3 countries.

This win strengthens Atos’ position within the manufacturing industry, however, an IT led shared services solution is likely to cause more problems than solutions!

Final Thought: Indian BPO Market
Ironically, it seems as though one of the fastest growing outsourcing markets in the world, lies in India! Ernst & Young predicted that India’s BPO Industry (currently a market worth $1.6 billion) will expand at a compound average growth rate of 38% to reach $6 billion by 2012.

International facing BPOs are rapidly changing focus to build their domestic BPO divisions. Earlier this year Genpact announced that they were targeting 30 outsourcing deals across India, Infosys set up a division focused just on domestic BPO, whilst Wipro, TCS and IBM continued their focus on domestic BPO.

This defies the argument that a firm should outsource primarily to gain cost synergies from wage arbitrage, as the case for change for Indian clients is around improved productivity, the need to scale quickly, focus on core competencies, and improved cycle times.

TCS Q2 revenues up in Rupees, but down in dollars!
Tata Consultancy Services (TCS) reported Q2 revenue increase by 6.9% to INR 74.4billion, but under US GAAP in USD a fall of $2.3% to $1.54 billion. However, profits rose on both currency views, and soared up 29% in INR. Revenue from Banking, Financial Services and Insurance (BFSI) increased 14%, Manufacturing revenue was down 14%, Retail and Distribution revenue rose 43%, whilst Telecom fell 11%.

Point of View: In the UK, TCS wins in public sector, energy and retail have made up for weaknesses and losses elsewhere. TCS have focused on their margins to deliver better shareholder value, and it has really taken effect – this is evidenced by the sharp increase in profits (which is disproportionate to the increase in revenue). Even though the industry split illustrates a mixed bag for TCS, compared to the blue chip providers TCS had a great quarter!

Infosys to cross-sell BPO services with Finacle 
Indian outsourcing giant Infosys plan to sell BPO leveraging the client base of Banking Solutions Provider Finacle. Infosys’ primary markets are in North America and Europe whilst Finacle has a dominant presence in India and has won contracts in the Middle East, Africa, Eastern & Central Europe.

Point of View: The Financial Services industry has been prone to platform-led solutions, as TCS have found to their success, and this alliance with Finacle will provide Infosys with opportunities to develop a joint offering with a credible partner.

In addition, Infosys has gained a route to market to the Middle East, African and Eastern and Central European zones. If Infosys can leverage the realtionship with Finacle effectively, this will be a very smart move by the US listed firm.

Accenture sign massive Fiat deal
Accenture have just signed a mammoth multi-year ITO and BPO contract with Fiat to provide application development, maintenance activities, HR and F&A activities.

Point of View: This is a good win for Accenture that has taken almost 24 months to fruition. Fiat is the 6th largest carmaker, the largest in Italy and often in the news linked to other automobile companies. The win represents a good opportunity for Accenture to increase its presence in the automobile industry. As the organisation continues to focus on industry verticals, we expect more automobile specific solutions from Accenture soon.

IBM announces Q3 Revenues down 7%
IBM Global Services have announced their 3rd quarter results with revenues down to $13,772 million, down 6.7% year-over-year, and down 5% in constant currency. Global Business Services decreased by 11%, strategic outsourcing decreased by 4% (2% constant currency) and BTO by 11% in USD.

Point of View: Although a downturn in results is never impressive, comparing the IBM results to the Accenture results released a couple of weeks ago (revenues down 14% in USD and 7% in constant currency), they have performed stronger. 

However, when we look at outsourcing, we note that Accenture had a 1% increase in revenues on constant currencies, whereas IBM had a 2% fall. The reality is that the current environment has hit the established players in the market – Accenture and IBM have both used this to reduce the size of their workforce.

Final Thought: Healthcare and BPO
Dell Chief Executive stated recently “When you look at the healthcare space, it's the one sector of the economy that has the least amount of IT, and we see it as very promising for growth." Weeks later, Dell acquired Perot Systems that already have a strong presence in Healthcare and in July won a contract to provide IT Consulting through the Hunan Province.

Following the ACS acquisition Xerox CEO Ursula Burns stated “ACS is probably the world's leader in healthcare business processing. They have the largest position in Medicaid processing". And in March of this year, Infosys CFO V. Balakrishnan said the company needed to scale up in the healthcare market.

It does not take a genius to work out that the healthcare BPO market represent a significant opportunity. In the UK, Steria have set up a joint venture with the DoH to provide Finance & Accounting, and Payroll services, however the market is ripe for an HR BPO provider to provide further services to NHS Trusts. In the US, the market is larger and still competitive and Continental Europe, Japan and China represent further opportunities.

BPO vendors are competing frantically to become the vendor of choice for Healthcare. However, we expect a number of vendors (especially Xerox) to win BPO opportunities in a fragmented Healthcare market over the next 18 months.

National Grid outsource to TCS
UK based electricity and gas supplier, National Grid, are reported to outsource up to 300 back office support staff to TCS. The value and specific scope of this win for TCS has not yet been disclosed.

Point of View: This win strengthens TCS position in the UK market. The UK market currently accounts for 29% of TCS revenues and includes prominent clients on platform deals i.e. Pearl Group on TCS's BaNCS financial services software, Emap on its finance and accounting platform and Deutsche Bank on TCS investment reconciliation utility.

TCS will continue to grow in the UK, and will attempt to replicate this model in the US, Japan and Continental Europe where they are much less successful.

NHS Shared Business Services goes live with 8 new NHS Clients
NHS Shared Business Services (SBS); a unique joint venture between the Department of Health and Steria, have this week announced a further eight new contract wins, totalling 17 new customers since April 09. NHS SBS now supports 30% of all NHS organisations.

Point of View: For a NHS solution that has not been mandated, the NHS SBS was always going to struggle with the business development effort. After more than four years since the set up, NHS SBS are not yet breaking even and are have varying quality levels especially when it comes to the Payroll services.

With cost cutting a major focus in the NHS, we expect at least another 20% of Trusts to sign up to Finance and / or Payroll services over the next 18 months and service quality to eventually stabilise!

Cognizant acquire UBS Indian Subsidiary
Cognizant has announced the acquisition of UBS’ Indian Subsidiary for $75 million. The subsidiary carried out Knowledge Process Outsourcing (KPO), Business Process Outsourcing (BPO) and IT Outsourcing (ITO) work utilising 2,000 people in India, and supported UBS divisions across the globe.

As part of the deal, Cognizant has signed with UBS a 5 year, $442 million service agreement for the provision of KPO, BPO and ITO services. New UBS Chief Executive Oswald Gruebel stated that UBS has decided to opt for a buy rather than build strategy for its outsourcing needs, to improve efficiency, reduce costs and increase flexibility.

Point of View: This is a “good deal” for Cognizant who have paid to win UBS as a client, and at a good price compared to the $505 million paid by TCS for Citigroup Global Services.

Importantly, Cognizant will not be making great margins from the account (receiving $88.4 million a year utilsing 2,000 FTE providing a range of services). However, the client reference, the increased capability – two thirds of FTE are in KPO and BPO, the press coverage and the foothold into Financial Services, makes this a good deal for a firm that has struggled to make its mark in KPO and BPO.

Cognizant will need to move away from their ITO heritage, to be taken seriously as a BPO and KPO provider. This deal will be a true success, if Cognizant bring in the right people and the right skills to leverage the BPO and KPO capability.

Final Thought: F&A Outsourcing Buyers Opt for Less Technology Disruption
Everest this week released a piece around the platform decision that F&A BPO Buyers are increasingly having to make. This suggested that even though TCS and Infosys have seen some success with platform led solutions, that buyers of F&A BPO recognise technology as a key enabler but are unwilling to take on disruptive changes to their technology landscape.

The buyer of an F&A BPO deal, is seldom the CIO of an organisation. It is therefore not surprising that leadership teams are apprehensive of tools and structures that are largely unproved (except in the Financial Services industry) and are not understood. The CFO will understand Finance, and the importance on IT as an enabler, but only a brave CFO will want to confront a firm-wide change in the technology platform along with the migration of significant Finance activity.

Very few “risk loving CFOs” will want to make buying decisions that drive changes to the areas that he/she does not own in the business nor fully comprehend, and I am yet to meet a “risk loving CFO”.

Change at the top of TCS
Chandrasekaran has taken over the company reigns from S Ramadorai. After 22 years at TCS, Chandrasekaran now leads a $6 billion company with over 140,000 employees. He has stated that he will focus on five key areas:

• Customer Centric Model
• Integrated Offerings
• Emerging Markets
• Quality of Service
• Non Linear Growth Models

Point of View: Chandrasekaran will want to make his mark quickly, and similar to Ursula Burns, we think that Chandrasekaran will aim to acquire in the short term. Following the Citigroup transaction, it makes strategic sense for TCS to increase their presence in Japan and European Markets, to replicate what they have in the UK, and compliment their acquisition. I expect TCS will be linked to the numerous shared service centres in Japan, which is seen as an emerging market for each of the leading BPO Providers.

Aegis acquires Sri Lankan BPO Firm
Aegis BPO Services (part of the Essar Group) has acquired a 80% holding in IsmartTimex – one of the largest BPO firms in Sri Lanka. Aparup Sengupta (MD and CEO) stated that they expect the firm to more than double in voice, back office and especially F&A activities. 

Point of View: There will be plenty of Mid Sized BPO Provider acqusitions over the next 18 months, and Aegis may well acquire again given that this is their 18th! This particularly acquisition illustrates the acceptance that political instability and civil unrest has subsided in the region. If there is stability in the region, the combination of a high number of talented graduates, good Accountancy knowledge, strong English speaking skills, and a lower average wage when compared to India, means that Sri Lanka is a great BPO location.

Accenture 4th Quarter Profit Drops 41%
Accenture have announced a drop in 4th Quarter Profit by 41%. Fourth-quarter profit fell from $434.8 million to $254.7 million. Consulting sales, which make up more than 60 percent of total revenue, dropped 19 percent to $2.91 billion. Accenture said in August it would reduce office space and cut jobs, including 7 percent of its senior executives.

Point of View: When confronted with the data, one can jump to conclusions that Accenture is in a dire state with changes needed immediately. This is not wholly wrong but the situation is not as bad as it may seem.

Fourth quarter revenues were $5.15 billion, a decrease by 14% in USD, although 7% in local currency and an increase in 1% in outsourcing. For the full fiscal year net revenues were relatively stable compared to prior year.

So before we get too carried away, although have not escaped the consequences of the recession (especially in Consulting), there has been a drop in demand in Management Consulting and immense pressure on pricing across the board. Accenture has bourne the cost of restructuring therefore when the market picks up again, they will be well positioned to expand and grow but maybe not as well positioned as some of their competitors.

A quarter of BPO firms will not exist by 2012
I came across Gartner research this week that stated 25% of the top BPO entities will not operate as separate entities by 2012.  It stated, some will be acquired and some will exit the market completely to be replaced by dynamic new players delivering BPO as automated, utility services, and that was largely driven by the current economic conditions.

One cannot argue with the direction, especially with the Xerox acquisition this week and the obvious advantages of “guaranteed” revenue over a significant period of time. However, the strategy of the leading BPO players is to acquire comparatively smaller entities to provide scale, clients and/or capability.

We would therefore predict that 10% of the top BPO entities will not exist by 2012 and that the provider of choice will be the firm with a global delivery network that provides a significantly automated service, at low cost, coupled with value based BPO services and a transformation consulting capability.

IBM set to acquire analytics capability
IBM have made a $1.2 billion offer to acquire analytics company SPSS, and have acquired RedPill Solutions who provide customer analytic services, in a move which will compliment their BPO capability and they hope will provide both a competitive edge and differentiation.

Point of View: Whilst many of the Indian BPO vendors are assessing acquisitions to deliver scale, IBM has assessed these to increase the scope and quality of services that can be offered to clients.

Analytics are becoming more important in an environment where more information is being requested than ever before.  Although quite expensive, these acquisitions will continue to help IBM be recognised as a true transformational BPO provider.

Dell acquired Perot Systems for $3.9 billion 
Computer giant Dell has reported the acquisition of IT Services and BPO Provider Perot Systems for $3.9 billion to diversify into new markets and take advantage of the ways in which the “businesses compliment each other”.

Point of View: When compared to Xerox’s acquisition of ACS, Dell seems to have paid quite a high price for Texan firm Perot Systems.  The acquisition will provide further scale and capability for Dell in IT Services and BPO, and will provide the opportunity to leverage Perot System’s international clients.

However, if this is not combined with further acquisitions then it fails the “So What” challenge.  The acquisition on its merits will not stop the sliding of profits, and stimulating growth in the current economic conditions will be quite a challenge for Dell.  We would expect further acquisitions from the Computer Giant.  

Xerox acquires Affiliated Computer Systems (ACS) for $6.4 Billion
Document management company Xerox has announced the $6.4 Billion acquisition of BPO Company ACS.  Within 100 days of her appointment, the new CEO, Ursula Burns, has carried out a bold move to establish Xerox as a BPO provider and more than double employees to 124,000.  Upon the announcement, the Xerox share price dropped as much as 19% with analysts citing a perceived lack of synergies.

Point of View: Although the price for ACS was very high, we believe that there are significant synergies from this “game changing” move by Xerox.

• Document Management in BPO: Every offshore BPO deal needs an electronic / scanning and processing solution. The takeover will enable Xerox to leverage the opportunities in current ACS contracts
• Leveraging Clients: Xerox currently provide document management services for a series of BPO providers and their clients. The new capability provides the opportunity for an end to end service from receipt of paperwork to processing
• Global Brand: Xerox has a strong brand across the globe. ACS currently focuses activities in the US (92% of ACS revenues from the US). The acquisition will enable ACS to leverage the Xerox brand and increase their global presence

The challenge will be in effectively integrating the cultures of two successful companies, developing a seamless end to end approach and optimising the range of synergies that are possible.  If they get this right, within a few years, Xerox will be a recognised player in the BPO market.

Final Thought: How to increase Finance BPO / Shared Services productivity
A recent report by the Kenexa Research Institute stated that employees needed to be motivated to provide productivity gains. This was as momentous as when I read that the standards of men drop as their consumption of alcohol increases (also known as “beer goggles”).

So we asked a series of Finance shared services and BPO experts what were the drivers of improved productivity with the following results: One driver was the investment in technology, enabling automation, workflow and query documentation, escalation and resolution; a second is the economies of scale, which enable specialisation and in the case of BPO providers the sharing of best practice across client deals; but most importantly effective measurement, performance alignment and visual management. This is about setting the right leading and lagging measures to monitor performance and productivity daily, ensuring that employees are motivated through the right incentives and links to their evaluations and that the measures are transparent and visible for all to see.

UBS is rumoured to be in talks with Cognizant and Genpact to sell its BPO and KPO units valued at $100 million.
The deal could also include a sweetener in the form of a multi year contract with committed revenue of $400 million.

Point of View: Similar to the Citigroup captive units that were sold to TCS for $505 million, the UBS sale offers firms an opportunity to have a significant year on year revenue stream, a strong reference and leverageable BPO and KPO capability. When compared to $800 million for WNS, one can understand why Warburg have halted their exit plans. Genpact are keen to increase their presence within Financial Services and we predict that after all the fun and games, they will pay a fair price to win / buy the UBS units.

Tata Consultancy Services announce the opening of a new Global Delivery Center 
Tata Consultancy Services (TCS) announced the opening of a new Global Delivery Center in Buenos Aires, Argentina to provide BPO services.

Point of View: A significant global delivery network and presence in Latin America is vital for success in BPO. Accenture, IBM, Genpact, Wipro and Infosys have all operating units in Brazil, Guatemala and / or Argentina. It is a clear market for growth for BPO providers aiming to service US clients, and provides English, Spanish and Portugese core language capabilities. With a presence in Brazil and Argentina, TCS will be well positioned to provide BPO services from Latin America.

Private Equity Giant Halts Exit Plans from WNS Holdings
Private equity giant Warburg Pincus has halted its exit plans from NYSE-listed WNS Holdings, following a tepid response from potential acquirers. India’s second-largest pure-play BPO issued a statement on late Thursday night calling off ongoing discussions for possible “control transfer transaction”.

Point of View: It is not surprising that in a time where the economy is in a global recession, that Warburg were encountering difficulties finding organisations to match their valuation (which is rumoured to be close to a massive $400 million for a 50% stake). Genpact and Intelenet were the only two firms to make firm offers and these were not close to the amount that Warburg Pincus were looking for.

With the current market, and their recent results it is difficult to justify such a value. Within 18 months, we expect WNS to be on offer again; for either a reduced price or following a significant growth period – my money would be on a reduced price!

Final Thought: The end of BPO for HP-EDS?
Following the acquisition of EDS in May this year, HP have been considering their strategic options. Rumours in the marketplace will have us believe that HP is in fact considering selling off its BPO capability due to the organisations lack of focus on innovative BPO solutions.

With the combination of BPO solutions being complementary to the IT solutions that HP already provide, and the current economic market meaning that firms are being picked up at a margin of what would otherwise be expected, we doubt that HP will be selling its BPO capability soon.

Although what is clear, is if HP is to compete with the larger providers in the BPO market, the company will need to invest in acquisitions and people. We expect HP to provide BPO as a complimentary good to existing IT clients, and where strong client relationships exist but not to make an aggressive move to grow market share.

17 September

The coming of Wipro
On the back of the BPO wins with Fosters, GE, Unitech Wireless, and Lavasa, Wipro’s share price has outperformed its competitors and it is tipped for future success.

Point of View: Wipro have been linked with a number of acquisitions of shared service centres and smaller BPOs. On top of which, they have recognised the need to have a strong consulting arm to provide the innovation and transformational services that their clients consistently ask for.  However, Wipro are playing catch up, and will need to change the culture of the organisation and the methods of selling, if they are to move away from being considered as an IT company that does BPO to a true transformational BPO provider.

HCL Technologies announce Q4 results 
HCL has announced an increase in revenues of 134% compared to the previous year’s results for Q4. The fourth quarter net income of Rs 330.1 crore represented a 51.3 per cent increase over the previous sequential quarter. The revenue stood at Rs 2,908 crore, up 34.7 per cent year-on-year, and 1.6 per cent sequentially.

Point of View: Interestingly, even though overall revenues have increased significantly, the BPO revenue for HCL now accounts for less than 10% of its overall revenues. HCL is becoming more of a pure IT outsource provider and is likely to continue its success through its strategy of underpricing its competitors.

Tesco add 500 to Shared Service Centre
Tesco has announced that it intends to add another 500 roles to the Shared Service Centre in Bangalore in the next six months. In addition, the firm will invest £15 million for setting up a 2000 seat facility in Bangalore.

Point of View: Currently 40% of the 3,500 FTE are carrying out BPO activities, however, given the success of Shared Services at Tesco, the scope is likely to increase to include more BPO activity and a movement up the value chain. Given the recent purchase from RBS, it is likely that the scope of the SSC will include financial services along with the existing retail activities. We believe that Tesco are building a valuable asset that will be realised through a sale to a BPO company within the next 5 years.

Accenture has won a seven year F&A BPO contract with Scandinavian Airlines (SAS).
The deal will span 14 countries across Western Europe and is part of the “Core SAS” strategy designed by SAS to deliver annual savings through simplifying and streamlining their operating model.

Point of View: Accenture shows that it can still beat the lower cost indian providers through its capability and reputation, even though WNS has the specialism in the airline industry. This deal with SAS includes AP, expenses, AR, GA, and reporting but initially only covers the Western European branches. This will be as a pilot for further BPO activity.

Genpact has won a five year F&A BPO contract with UCB, a global biopharmaceutical company.
Genpact will deliver utilising dual centres in Romania and India to provide services across 11 European countries and the US.

Point of View: This follows the wins with United Biscuit, and Huntsman. Genpact has had a very strong 2009, and is currently the market lead in F&A BPO. The challenge will be with the scale of staff growth required, being able to effectively deliver the services with experienced experts, but that is a great challenge to have! Expect more wins before the end of this year.

UBS are rumoured to be on the verge of selling their back office operations in India and Poland to one of the Indian Providers.

Point of View: Last October, Citigroup sold their India-based back office arm to Tata Consulting Limited for $505 million. Industry reports that the two other leading Indian BPO firms are in an auction to purchase the UBS back office. That is likely to be Infosys and Wipro, and the purchase is likely to be very expensive. The buyer would need to assess the savings potential and leveragability of the unit, in a market were the buyers tend to go for captive solutions.

An acquisition is coming!
Organisations that have built captive centres are realising that they have built a marketable asset and in an environment where cash, more than ever, is king, more and more are considering selling their prized asset.

With Infosys, Wipro and Genpact all cash rich organisations in a BPO market that has historically attracted attention from venture capitalists, it is just a matter of time before another acquisition is completed. WNS have a stake up for sale, UBS are rumoured to be selling their back office operations and smaller BPO suppliers are ripe for purchase by a larger unit. We predict that an acquisition will be completed by early 2010.