Rakesh Sangani
Partner at Proservartner
and 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.

TCS Q1 results show profits up 24% 
Global Indian headquartered IT and BPO provider TCS, recorded a 24.3% rise in profit (to $402 million) for the first three months of 2010 due to robust demand in the US, where it achieved 55% of its revenue. Revenues in the first quarter climbed 14% to $1.79 billion. The firm added 36 new clients and 3,271 employees in the quarter.

Point of View: Another strong quarter for TCS which outperformed Infosys (it’s biggest competitor) with their results for the fourth quarter - second time in a row! The results are driven from strong performance in the US, offset by losses in the UK, subsidiary Diligenta, and the subsidiaries in Japan, Italy, France, Morocco, Uruguay, Chile and two of the three units in China.

Although CEO, N Chandrasekaran, has stated that TCS will continue to cautiously grow in the US and Europe, the Latin American market will be an area they will focus on with revenue targets set to grow more than 100% to $1 billion in the region.

Smith & Nephew awards F&A BPO contract to HP
HP Enterprise Services has announced that they have signed a 7-year F&A BPO services agreement with Smith & Nephew - one of the leading healthcare companies in Europe. This agreement will support the finance transformation in Poland and India by improving productivity, enhancing quality and providing increased operating flexibility. The financials of the deal were not disclosed.

“As part of our global transformation program, we intend to streamline our processes while optimizing the costs of operations to deliver a more effective service to our customers, suppliers and employees,” said David Trollope, senior vice president, Global Financial Systems for Smith & Nephew. “HP brings a strong track record in managing global finance and administrative processes with a collaborative style that suits our way of working.” 

Point of View: A great win for HP - it was a little bit of a surprise. This agreement was supported through the advisory expertise of Steve Radford and we understand that the strong HP solution and collaborative approach were seen as the key differentiators. There has been plenty of uncertainty on whether HP will divest their BPO capability and key personnel have left due to the uncertainty. We doubt that this win will determine whether HP divests or not, but if nothing else, it will surely push the price up!

Another leading pharmaceutical company sets up in Ireland 
Eli Lilly, one of the world’s largest pharmaceutical firms, will begin to recruit for 100 new positions in its European financial services center in Cork City. Speaking on behalf of Eli Lilly, Kay Flynn, Senior Finance Director, European Shared Services, said: “The decision to locate this important operation in Cork was based on our track record here, the availability of a skilled workforce, language ability and the presence of a strong shared services base here in Ireland.”

The Chief Executive of IDA Ireland, Barry O’Leary, added: “This investment is strategically important to Ireland and Eli Lilly and it is a welcome addition to the growing number of leading pharmaceutical companies that have recognized the benefits of locating financial shared services centers here.”

Point of View: The Eli announcement follows other high profile shared services being set up in Ireland. In the last two months, Pharma giant Merck (Dublin) and social networking site LinkedIn (Dublin) announced that they were setting up shared services in Ireland. The industrial development agency (IDA) in Ireland is not just attracting high profile companies, but is also a developmental hub for pharmaceutical shared services.

P&G increases Shared Services scale by using virtual reality!
Consumer products giant, Procter & Gamble Co. (P&G) wants to save more by using the “virtual reality” technology of its Global Business Services (GBS) arm for operations and product innovation.

Additional investment has been earmarked for the P&G Manila shared services center this year to improve and expand services by carrying out products visually rather than physically. “We will continue to invest here. We will continue to expand the services we provide”, Filippo Passerini, president of P&G’s Global Business Services and chief information officer, told reporters.

Point of View: P&G utilizes an increasingly popular hybrid shared services BPO solution. Whilst much of their Finance, IT, HR and Facilities Management functions are outsourced to various companies, they still utilize shared services for activities that for P&G lie further up the value chain (ie are more strategic) such as market research, purchasing, supply chain solutions, product life cycle management and customer business solutions. This has involved utilizing technology to make certain activities that were previously physical, into virtual activities that can be performed in a shared service center.

Capita Acquires Premier Medical Group for £60 million
UK BPO Provider, Capita, announced the acquisition of Premier Medical Group for £60 million, on a cash free, debt free basis. PMG is a leading provider of medical reporting and screening services across the UK.

The acquisition adds depth and breadth of expertise to Capita's existing services for the health market, which includes running the NHS Choices programme, health informatics firm, CHKS and the administration of both the Information Standard for healthcare information and the payment of national health patient fees to dentists on behalf of NHS BSA.

Point of View: Leading UK BPO player, Capita was launched in 1984 through a management buyout of a division of the Chartered Institute of Public Finance and Accountancy and has grown through organic growth coupled with strategic acquisitions. Only a couple of weeks ago we commented on the refocus of Capita away from Indian acquisitions due to high prices. The revised strategy targets tactical acquisitions in niche areas, this time in the NHS. Due to government spending cuts, the health sector across the globe will need to find ways to cut cost and to do this quickly. Capita has acquired Premier Medical Group in order to develop their Healthcare “Custom BPO” Proposition and one would expect Capita to take advantage of this capability with a win in the next 12 months.

LinkedIn locates Finance SSC in Dublin 
Social networking site LinkedIn has followed up the set up of the European Headquarters in Dublin, with the announcement that its Finance Shared Services will be located in Dublin as well. The company has already revealed it will be creating at least 30 jobs in Dublin working with IDA Ireland, the 'international Finance operations' will be led by Sharon McCooey who will report directly into the CFO Steve Sordello.

Point of View: Dublin is a city that is fast becoming the internet capital of Europe, with companies like Zynga and Yelp joining LinkedIn in setting up operations in the City.  LinkedIn’s move illustrates the grants available for companies in the city, and coupled with the talent at high end shared services, and reducing labour costs in Dublin due to the recession, the business case for starting an operation in Dublin can be compelling. However, the scalability does not match other locations and there are lower cost cities to situate in Europe.  

LinkedIn is a growing firm, and one can assume that the set up of the Finance SSC in Dublin is a strategic move to have it close to the European Headquarters. As the company develops further scale, do not be surprised if the SSC component is migrated offshore! 

Final Thought: The Growth of KPO
Knowledge process outsourcing (KPO) is a component of business process outsourcing but focusing on processes that are highly specialised, more complex and dependent on a significant amount of knowledge. KPO exists in Finance and in HR, as well as the other business functions in the organisations. It is typically associated with investment research services (equity, fixed income and credit, and quantitative research), market research services and patent research service but also include collections analysis, business performance analytics and people retention and recruitment examination.

This week Gartner announced that India's KPO market is forecast to grow by 25-30 per cent annually till 2013, driven by rising demand for professional services. The emerging KPO space, which constitutes a small part of the overall business process outsourcing (BPO) sector, is estimated to have a market size of $50-70 million at present.

This is hardly a surprise, largely because we are in a mature market where many organisations have already outsourced in some form or another, where shared services and outsourcing is not a new concept for IT or for business processes, and where organisations are asking what next?
The answer in many organisations to that question, is moving up the “value chain” and review processes for migrations that provide more value, are more specialised, and require more knowledge. These processes are typically run by more expensive resources, and even though the scale may be limited, the savings can still be significant!

ACS acquire Employee Benefits Company from HP
ACS, a Xerox company, has acquired Excellerate HRO, which provides employee benefits information globally and offers relocation services from HP for circa $125 million. The purchase is ACS's first since being acquired by Xerox. Rohail Khan, executive managing director of benefits outsourcing at ACS, said the deal will help ACS further expand into pension administration and other aspects of human resources outsourcing.  "It's huge for us because it allows us to partner up with one of the major players in the benefit outsourcing space," Khan said. Khan declined to say how many employees the Excellerate division has, pending the deal's closing, but said nearly all the existing workers are expected to make the transition to ACS.

Point of View: This is a strategic acquisition by ACS, and signals Xerox’s intention to invest in acquisitions that could complement existing services. We would expect further acquisitions by the company to continue the inorganic growth, in markets that they do not currently operate or capabilities that they do not currently possess. It is worth noting that the HRO market is tough. Much of the benefit of an HR transformation is provided through pushing out a self service model, and the recent failures of EHRO and Convergys HRO (that was sold after racking up over $600 million in losses) illustrate the difficulties in transforming HRO deals to be profitable.

Aditya Birla Manics acquires Bureau of Collections Recovery
Indian BPO Provider, Aditya Birla Minacs, has announced the acquisition of the US-based Bureau of Collections Recovery (BCR), an accounts receivables management company, in an all-cash transaction. BCR is a $20-million revenue company, with earnings before interest, taxes, depreciation and amortisation (Ebitda) of 17-18 per cent. BCR has 600 employees, with two centres in the US and a captive unit in Delhi. BCR has clients in the banking, financial services and telecom sectors. It provides services in first-party, early out and third-party collections across various stages of delinquency as well as in pre charge-off, primary and secondary post-charge off collections.

Point of View: This is the second acquisition by Aditya Birla Minacs in the last three months; having acquired UK based Compass BPO in March. Manics hope to achieve double digit growth in revenue over the next few years, fuelled by acquisitions, to become a $1 billion revenue organisation by 2013. The challenge in this strategy is to integrate a large number of strategic deals whilst maintaining the culture and values of the company, and meeting the target. The CEO Deepak Patel states that "We will look at both tuck-in acquisitions as well as something that will allow us to leapfrog to achieve this target.” We are confident that Manics will reach their target, but the real challenge will be developing integrated offerings that bring out the best of each of their acquisitions to deliver profitability, and integrated client offerings, rather than just revenue.

Wipro Partners with Microsoft to deliver Global Legal Process Outsourcing
Global BPO and ITO provider, Wipro has announced that its Business Process Outsourcing division has partnered with Microsoft Corporation to provide global Legal Process Outsourcing (LPO) for Microsoft's Intellectual Property (IP) portfolio. In July 2008, Wipro began providing U.S. Patent and Trademark filing and docketing services to Microsoft's Intellectual Property & Licensing group. Microsoft previously had used a mix of in house resources, outside law firms and offshore vendors to perform these IP services. Microsoft facilitated the transition of processes to Wipro by leading domain training for Wipro's team. Wipro correspondingly developed the LPO framework, tools, trainings, controls and metrics required to drive high productivity and reduced costs for Microsoft. Wipro and Microsoft will continue to jointly develop improved domain expertise and processes to further streamline IP processes.

Point of View: The partnership model to develop new capabilities and enter new markets is becoming increasingly popular. Within recent months, Infosys has signed a partnership with Finacle to grow their footprint in banking and financial services and Genpact announced a partnership with Mastek to offer solutions in Insurance. The Wipro partnership brings a strong brand and attempts to grow their market share in a competitive industry.

The legal process outsourcing market is becoming increasingly attractive, and many providers are considering the entry / growth strategy in LPO. Wipro’s innovative partnership with Microsoft offers them a great opportunity to build and grow in an industry where contract values are significant, and margins can be impressive (due to the nature of the work).

Genpact partner with Mastek to provide solutions for Insurance
Leading back office provider Genpact has announced a partnership with IT firm Mastek to jointly offer solutions in the US insurance industry. Genpact will leverage Mastek’s IT skills and knowledge in the insurance industry, while Mastek will benefit from the BPO firm’s reach in the US market. The companies will offer joint information technology and business process management solutions to large and mid-sized insurance carriers. In addition, both parties plan on developing innovative platform-based business process management solutions across the industry value chain including policy services, billing, claims, distribution management, and new business/underwriting.

Point of View: The partnership model is becoming increasingly popular for the leading providers. Those that read these commentaries often will remember the partnership that Infosys signed with Finacle. It is an interesting model of mutual benefit, whereby the BPO and partner outfits will benefit from the increased access to a larger client base, and the talent to develop customised solutions.

Sutherland acquire Adventity for circa $55 million
Business Process Outsourcing company Sutherland Global Services has acquired 100% of business and financial research service provider Adventity Global Services in an all “cash deal” for a reported $55 million. Adventity Global Services has over 2,500 employees and has operations in United States, India and in the Middle East. The company focuses on BPO services to Banks and Financial services companies and the airline and travel industry."Our global search for the right partner ended with Sutherland, in whom we found a company, who would take the leadership position in the BPO space. In Sutherland we found a true multi-national with a balanced and global delivery approach," Adventity Global Services CEO Kumar Subramanian said.

Point of View: US headquartered Sutherland Global Services has 26,000 employees across the globe, with a delivery network across the US, Bulgaria, Canada, India, Mexico, Nicaragua, the Philippines and the United Kingdom. They have been in the BPO industry for 24 years; however, this is their first acquisition. Sutherland is one of the largest privately owned BPO Providers, and in a competitive BPO landscape has built up a favorable cash position that they are now beginning to leverage.

The acquisition will provide Sutherland with capability in platform-based BPO services to Financial Services, Airline and Travel companies together with a footprint in analytics. This is a significant step forward to providing a range of solutions to their existing and potential client base, but at the same time significant focus and investment will be required to ensure that the integration is a success such that the offerings from Sutherland are seamless.

Final Thought: Australian BPO Market
The global search continues for the next big geography to enter into Business Process Outsourcing contracts. Could this be Australia? Datamonitor predicted the market to grow at a rate of 7.5% each year, until 2013 reaching a value of $8 billion. This is comparably low compared to the 2009 deal values in Europe of $43.8 billion, but many providers would consider the Australasia region in its entirety as a market worth pursuing.

It is worth noting that in Australia the offshoring of roles to India and other low cost countries has been largely frowned upon in the media and has been an area of debate within the country’s political landscape. Hence an onshore capability would be essential for any provider operating in the region. 

Certainly HCL technologies acknowledge this, and are keen to dip their toes into the water. HCL this week announced an alliance with global call centre and business process outsourcer, Stellar Asia Pacific to develop an onshore / offshore model for Australasia. This is an early move but expect other outsourcing providers to compete in Australasia in 2011.

Intelenet to enter new geographies and hire 7,000 in FY11
Private equity backed Intelenet Global Services, plan to expand their footprint overseas and increase their headcount by 22% in FY11, according to their CEO, Susir Kumar. "The IT sector is expected to grow at 15-20 per cent and so is the BPO sector. With the US economy back on the recovery path, we expect a double-digit growth as against four to seven per cent last fiscal. We are, hence, planning to expand our business and hire more people," reported Intelenet's CEO, Susir Kumar.

Point of View: Intelenet are fast attempting to compete with the big boys in Business Process Outsourcing, and with the backing from Blackstone (private equity) the focus is on “fast”. Intelenet have already acquired Travelport, Upstream, Sparsh, shared service centres for Firstgroup and have been linked with other US based Healthcare providers. It is therefore unlikely that the growth that they are planning is to be organic. The hiring plans are consistent with the leading BPO players and signal that after a difficult 2009, the industry has bounced back and a recovery is well under way!

Genpact Q1 Revenues up 8%, but Net Profits down 6%
Genpact, India’s largest business process outsourcing (BPO) company, reported a 6% drop to $28.2 million in its net income for the quarter ended March 2010, even though revenues rose 8% to $288.2 million. Genpact Chief Operating Office, NV Tyagarajan was reported as stating that this was due to the tax holiday of the Hyderabad unit coming to an end, coupled with investments in business development, sales and marketing. Revenues from clients other than General Electric (GE), grew 14% compared to the first quarter of 2009. Revenues from Global Clients now represent approximately 60.7% of Genpact's total revenues, with the remaining 39.3% of revenues coming from GE. GE revenues increased 1.2% from the first quarter of 2009.

Point of View: The Genpact story is a fascinating one, bourne from a captive GE shared service centre, funded by private equity and significant growth year on year both in terms of financial performance and reputational.  However, when compared with its competitors, Genpact does not provide the same level of profitability.

This quarter seems to emphasize the focus that Genpact have on revenue growth and market share, as the primary driver for the engagements that they enter into, rather on purely the profitability of each of those client engagements.  There will surely be pressures from their private equity and GE “partners” to be increasingly profitable, and expect Genpact to enter higher margin markets (such as analytics and industry focused BPO) in the near  future.

Patni acquires Health Insurance Company and wins 5 year contract
Global IT and BPO services provider Patni Computer Systems has won a five year agreement for providing end to end policy administration services with Universal American Corporation – Senior Health Insurance Company.  As part of the deal, Patni signed a definitive agreement to acquire CHCS Service Inc, a wholly owned subsidiary of Universal American. Patni CEO Jeya Kumar said, "This move takes on dual significance for Patni in terms of growing our global life and healthcare insurance business as well as establishing us as a Third-Party Administrator (TPA)."

Point of View: This is clearly another “sale and leaseback” transaction with Patni acquiring the subsidiary that provides existing services to Universal American, in return for a contract over five years estimated to be worth $250 million.  The acquisition provides further onshore capability in the North American market (CHCS is based in Pensacola in Florida), following the set up of a new BPO hub in Texas, and establishes a new line of business for Patni as a Third-Party Administrator (TPA) in the Insurance and Healthcare sector.

Patni have adapted to the increasing demand from clients for onshore solutions as part of a global delivery network, but will struggle with the integration unless the right level of investment is made, and focus provided to ensure that the new line of business is a success through alignment to their corporate vision and existing services.

TCS Q4 profit grows 50% year on year
Indian IT and BPO giant TCS reported a massive 50% growth in 4th quarter profit, to Rs 20 billion ($449 million). The company registered a consolidated net profit of Rs 70 billion ($1,571 million), up 33.18 per cent for the year ended Mar 31, 2010 in a Year on Year (YoY) basis. Net profit for the 09/10 financial year had increased 29% whilst revenues had only increased by 5.4%."Our ability to react to growth opportunities and execute efficiently has helped TCS deliver a superior performance for the fourth successive quarter. Our volumes have grown and our margins are at near historic highs," TCS CEO and MD N Chandrasekaran said.

Point of View: The TCS results have fueled optimism that the outsourcing industry - hit hard by the global downturn - has bounced back and may soon see a surge of new business. The results illustrate the real focus the organisation has had on profitability this financial year.This contrasts the recent quarter 4 results announced by Infosys, who reported revenue growth of 3.5% (to Rs 59 billion) but a net profit fall of 0.9% (Rs 16 billion), and illustrates on a difference in strategy for the two Indian powerhouses, where one is focusing on profitability whilst the other on revenue growth.

CapGemini wins Kraft Contract on IBX Platform
Kraft Foods has partnered with Capgemini America in a new multi-year agreement which will see the global solutions provider assume responsibility for Kraft's strategic sourcing and spend management categories in the US. Capgemini will deploy its new global service delivery model, which leverages technology from its recent acquisition of IBX, an on-demand purchasing solutions provider, for Kraft Foods’ operations.

"With the combination of our globally recognised capabilities, market knowledge, Rightshore® delivery model, and suite of tools and technology, including the Software-as-a-Service procurement platform of IBX, Capgemini will deliver spend savings, processes improvement and change management to leading, global companies like Kraft Foods," says Capgemini Business Process Outsourcing head Hubert Giraud.  "These services will streamline their procurement operations and support their goal of sustainable performance."

Point of View: CapGemini bounced back from a disappointing financial year to acquire IBX, and their procurement capability. On the face of it, this seems an impressive transaction with Capgemini quickly leveraging the IBX capability and the synergies from the acquisition. However, Kraft Foods has already been working with IBX since 2009, to streamline and capture its entire indirect spend in the US and Canada, and this contract win seems largely similar to the scope of the existing contract. The real test will be for CapGemini to deliver high quality outcomes and expand their scope of services that are performed with Kraft Foods by leveraging their finance and HR outsourcing and consulting capability.

Mphasis acquires U.S. firm Fortify Infrastructure Services
Mid-market Bangalore based applications and BPO Company, Mphasis Limited, is acquiring Fortify Infrastructure Services Inc, an offshore remote IT operations and management (ROM) services firm in the US. The deal is a combination of upfront payment of $15 million by Mphasis and earnouts. The revenue of privately-held Fortify is understood to be in the region of $20 million
Mphasis state that the acquisition will give it access to an experienced management team and a talent pool of highly experienced professionals, besides new customers. Ganesh Ayyar, CEO, Mphasis, said, “As mid-market customers are looking for partners to solve the challenges of operating and managing their IT, we see this as a sweet spot to provide cost effective and outcome based ROM services.”

Point of View: A number of mid-market outsourcing companies are backed by private equity and Mphasis is no different, backed by leading PR firm Baring Private Equity Partners. The acquisition follows Mphasis’ last year buy of AIG Systems Solutions Pvt Ltd (AIGSS), the captive back office arm of the insurance major, American International Group (AIG), in India. Fortify focuses on Mid Market customers across the globe.

Being an acquisitional outsourcing company it is no surprise that they have continued to purchase capability, revenue and capacity, and the acquisition of a US based company solidifies the trend of Indian Companies buying onshore US capability – in line with our predictions of the year.

Patni Computer Systems set up North American Hub in Texas
Global IT and BPO services provider Patni Computer Systems has announced it has set up a new North American hub for BPO operations in El Paso, Texas.  Establishing the service hub expands Patni’s business process outsourcing (BPO) and knowledge process outsourcing (KPO) delivery capability to service North American customers from domestic locations in a cost-effective manner and employ highly-skilled local talent.

It will employ more than 300 skilled professionals providing a wide range of insurance, financial services, F&A, technical support and multi-lingual helpdesk services to Patni’s North American clients.

Point of View: Only last week, we predicted that an increasing number of BPO companies were to set up onshore capability to serve the North American market. Surprisingly enough, within a week Patni have followed in the footsteps of Genpact, TCS and Infosys BPO.

Interestingly enough, the 4 Indian providers have utilised 4 different models in growing onshore capability in North America
• Genpact - won of a 10 year contract with Walgreen
• TCS – set up a quasi JV with Dow Chemical
• Infosys BPO – acquired McCamish Systems for $58 million
• Patni – organic set up of a operation in Texas

Indian BPOs extend focus beyond Tier 1 Cities
As the tier 1 cities in India become more expensive, and this directly impacts on the economics of the BPO transactions, we have seen this year a trend of deals focusing outside of the tier 1 cities and in some cases to rural areas in India as they provide greater wage arbitrage. Infosys signed a deal with the state of Andhra Pradesh to set up 22 rural BPO delivery centers in the state, to enable them to adapt to the changing pricing environments.

Prediction 6: We predict that in the current economic environment we will see clients put even more pressure on wage arbitrage and sustainable cost reduction, and that the leading BPO providers will develop capability in lower cost regions in India. Where the lowest cost regions may not have the language capability, the processes will be split such that those process activities that do not require language will be carried out in the lowest cost location.

Leading Providers focus on Industry Verticals
Year upon year, providers have been supplying solutions to industry verticals, that are not always specific to the client needs. As BPO in Finance, HR and Procurement becomes more mature, we have seen an increasing trend of clients asking for more innovation and industry specific solutions. Genpact has a strong presence in Pharma and Life Sciences, and their acquisition of Symphony Solutions for $68 million, which has a strong presence in Pharma analytics, illustrates that the leading providers are increasingly focusing on industry verticals.

Prediction 4: We predict that during this year, we will see clients demanding more specific solutions, and therefore more providers supplying solutions relevant to industry needs. This will include industry focused analytics and the growth of Custom BPO, where providers will move up the value chain to “middle office” processes within industry verticals.

Further Shared Services to be Acquired
A shared service center  is now an asset that can be sold. In the last few years, we have seen a number of “sale and leaseback” type arrangements where the shared services center is sold to a provider and then services are provided back to the seller in a predetermined number of years. The trend includes:

• In 2009, Cognizant acquiring the back office subsidiary in India of UBS for $75 million and providing services back for $404 million over 5 year
• In 2008, TCS acquiring the back office of Citigroup for $505 million and providing services back for $2.5 billion over 9.5 years, and WNS acquiring Aviva for $230 million and providing services back for $1 billion over 8 years
• In 2007, Infosys acquiring three captive BPO centers for $25 million located in India, Poland and Thailand and providing services back for $250 million over 7 years.

Prediction 2: We therefore predict that over the next 12 months there will be further shared services acquired both onshore and offshore, with services then provided back to the seller of the services. The deals that will be signed will be to provide new capability or capacity for the existing provider.If you do have a shared service centre and are interested in discussing options for sale, or are a outsourcing provider that wishes to purchase specific capability, please contact me on rakesh.sangani@proservartner.co.uk or directly on +44 (0)7545 143587.

Rakesh's Trends & Predictions
Onshore capability has become an essential string to any outsourcing provider's bow. We know of the global capability (delivery networks) that outsourcing providers can provide for clients, but that capability must now include the ability to keep processes onshore either completely or as part of a onshore-offshore mix model. This year alone, we have seen three large Indian providers ensure that they have the right onshore offerings. This has been carried out through the use of three different models:

• Acquisition: Infosys BPO acquired McCamish Systems for $38 million plus another $20 million based on them reaching performance targets
• Quasi Joint Venture: TCS agreed a contract with Dow Chemical that will enable them to have onshore capability with TCS providing the people and Dow the premises.
• Contract win: Genpact won a 10 year contract with Walgreen, with the staff migrating from Walgreen to Genpact. This would enable the organisation to leverage the centre and provide onshore capability to other clients.

This movement can be explained by one simple reason – there are buyers of outsourcing who want certain processes (if not all) remaining onshore.

Prediction 1: We therefore predict that over the next 12 months there will be an increasing demand for onshore services from clients, either due to the perception of offshore outsourcing or due to the client considering the outsourcing of more complex activities. As a result, we will see more of the current outsourcing providers purchase or develop onshore capability in the US, Japanese and European Markets to serve these clients.

Final Thought: Training in BPO
Infosys has announced a training partnership with the Chartered Institute of Management Accountants (CIMA).  Infosys BPO will adopt and incorporate the CIMA qualification as part of their continuous learning and development program for their supervisory and management team engaged in providing BPO services in the Finance and Accounting function to their clients both outside and in India.

Genpact is acclaimed with the six sigma training program, and even though the training may pull individuals away from their day to day activity, it is evidenced that strong training regimes in BPO companies are directly associated with lower attrition levels. It is becoming more apparent that as the market becomes increasingly competitive, the difficulties in keeping the best people becomes more and more profound – comprehensive training regimes is a leverage to mitigate the risk of losing people, but this must be considered with the culture that the organisation is creating, the working hours, the team dynamic and the community spirit developed in the centre. 

EXL Q4 Profits double to 7.5 million
Nasdaq listed BPO provider EXL Services Holdings has stated that it expects to significantly accelerate revenue growth rate to 21-24% for the year ending December 2010 on the back of continued growth in demand for outsourcing services. Net profit more than doubled to $7.5 million for the fourth quarter ended Dec 31st 2010, due to improved operational efficiencies. Revenue during the quarter rose 36% to $59.4 million. The company won 19 new clients across outsourcing andtransformation services in 2009 and expect more client wins in the current year. It has provided revenue guidance of $225 million to $230 million for 2010.

Point of View: Even though the quarter represents a successful period for EXL. Actually, we should not be surprised at the company doubling their profits for the quarter. EXL Services Holdings have acquired AmEx’s travel services captive for $30 million and Schneider Logistics’ operations in the Czech Republic for circa $5 million during 2009. Assuming the pricing of these deals were at 5 times EBITDA, in fact excluding the acquisitions EXL Services have increased their profitability by only $0.5 million in the quarter! 

Northgate acquires Convergys for $100 million
Northgate Information Solutions has paid $100 million (£66 million) to buy the HR BPO division of Convergys. NorthgateArinso, which will take on 2,600 staff as a result of the deal, will become the second-largest HR outsourcing provider in the world as a result of the deal, catapulting the Hemel Hempstead IT company past Oracle.

It is the second big deal completed by Northgate since it was taken private by Kohlberg Kravis Roberts (KKR) for nearly £600 million in 2007 after the US private equity company backed the acquisition of Anite’s public sector division.

Point of View: What a bargain! Convergys entry into the HR BPO market has been a dismal affair, and the firm has accrued losses of $38.4 million, $38.3 million, $358.8 million and $246.1 million between 2006 and 2009, and has managed to sell at only $100 million ($85 million upfront with the remainder paid over three years).

Considering Convergys expected the unit to generate $250 million in revenue and $20 million in EBITDA in 2010, and Northgate said that they were comfortable with those targets, the price looks like a steal!  So long as NorthgateArinso can convince new clients to migrate onto their standardised euHReka platform, costs will reduce further and the acquisition will be a great deal at a fantastic price.

Aditya Birla Minacs acquires UK’s Compass BPO
Aditya Birla Minacs, a leading BPO services player in India and part of the Aditya Birla Group, has acquired the UK-based firm Compass BPO for an undisclosed sum. Compass BPO provides services in the area of finance and accounting (FAO) with presence in the UK, the US, UAE and India. It employs around 600 people.Aditya Birla Minacs CEO Deepak Patel said that the acquisition would give them a firm foothold in the FAO segment and would help them get into newer sectors like foods & beverages and US government business. Compass BPO is a 11-year-old company and has been profitable, according to Mr Patel. The founders of Compass — David McCullough and Mark Atkins — will join Minacs’ management.

Point of View: The Aditya Birla Group have set massive growth targets for Aditya Birla Minacs to achieve, set at becoming a $1 billion revenue in the next three years. This represents almost a three-fold increase in their revenue and can only be achieved through an aggressive acquisition plan in the industry. Compass BPO provide Aditya Birla Minacs with presence in the UK industry and an improved revenue line. I expect that this will be the first of a number of acquisitions by Aditya Birla Minacs, who will have to acquire quickly to meet the targets set by the parent.The key challenge will be that of integration, and if significant focus is not given to integrating the UK business to the India company culture, then the value of the acquisition will soon disintegrate.

Why focus only on salary?
This week analysts have commented on the struggle that South Africa face to compete with low cost countries across the globe. Although South Africa can be considered a low cost country when you consider the salary levels, it is when you consider the overhead components that it becomes rather expensive. In particular, electricity and telecom costs are higher than other low cost locations.

This is a problem faced by a number of locations in Shared Services and Outsourcing. Within our markets there is always focus on the salary component when reviewing the feasibility of migrating to low cost locations. However, in this day and age, the salary component makes up on average only 40% of the total cost per FTE. The remaining 60% is the overhead component, including the costs of rent, rates, facilities, electricity, telecoms and management.

So when making the decision on where to migrate your existing operations, consider not only the salary component in low cost countries, but also the cost of overhead, and how these costs will change in the coming years, to provide a total cost of the services in the future. 

TCS bags £600 million contract from UK Pension Accounts Delivery Authority (PADA)
TCS has further expanded its footprint with governmental clientele, by bagging a £600 million contract from UK's PADA (Pension Accounts Delivery Authority) to administer the latter's NEST (National Employment Savings Trust) scheme.
The first stage extends till October 2010, by which time TCS is expected to set up systems to start the administration. Subsequently the decision on going ahead with the full tenure would be taken by the PADA.

Point of View: This is a very interesting win for TCS, and a win by default as they were the only supplier not to pull out of this low margin deal. The scheme is targeted at the low and moderate income groups, and valued by the number of people that join the scheme. At best this will represent a high revenue, but low margin win for TCS, and an opportunity that all the other vendors qualified out!

However, this is a strategic win for TCS. They will be able to leverage their onshore capability in the UK (Peterborough) to provide certain economies, and will hope that they can utilise a onshore-offshore mix in the near future. The win will be a great reference to be added to the recent wins with Cardiff Council and the Child Maintenance & Enforcement Commission.
TCS is fast becoming a real competitor for UK Public Sector work – whilst this can be low margin activity, and often include a great deal of complexity, the contracts are large scale and offer long term revenue assurance. 

Infosys BPO expands in Philippines
Infosys BPO is expanding its Philippine operations with the establishment of additional delivery centers this year. In a briefing, Ritesh Idnami, Infosys BPO Philippines Chief Operating Officer, said the company plans to expand its delivery centre to 3,000 seats from the current 1,100 seats. The India-based company has one delivery center in Metro Market Market Mall in Taguig City that began operations in 2007.  “We’ve currently shortlisted three properties around Metro Manila. The first phase will be second half of the year and another center by the end of the calendar year,” he said.  With the expansion, Infosys BPO said the company’s revenues could grow by 100 percent this year.

It expects to have generated $23 million in revenues during its past fiscal year, which ends in March.  “We would like the Philippine operations to be relevant in BPO business. It means it should contribute 8 to 10 percent of our revenues over the next 18 to 24 months,” Idnami said.

Point of View: It was not too long ago that Pramod Bhasin, CEO of Genpact, commented on the benefits that the Philippines had as a location for BPO. He was 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 are ramping up to 3,000 FTE in Philippines, Wipro to over 1,000 FTE, and Intelenet, Aegis BPO and Firstsource are ramping up in the area. Expect further growth in the Philippines, and for it to be utilised as the number 1 location for Customer Contact services.

Steria expands service offering in Indian Market
Steria has announced that it will expand the scope of its Indian subsidiary (where local employees now account for 30 per cent of the company's global workforce) to include the delivery of IT services and solutions to the domestic Indian market.
"India continues to undergo massive transformation. From air, land and sea, the underlying infrastructure that propels daily life is evolving; firstly, so that it can better serve the lives of the Indian people today; and secondly, to prepare for the strong GDP growth of one of the world's top 12 economies," said Dr. Mukesh Aghi, CEO, Steria India. "This means there is both opportunity and tremendous pressure to modernise India's infrastructure and public services in the fastest and most effective way possible."

Point of View: It is not a surprise that a company with such a presence in India has decided to enter the domestic market, but it is a surprise at how long it has taken Steria to make this strategic move. TCS, Wipro, Genpact, Infosys, and IBM have long ago announced their commitment to the growing domestic market, and this delayed move by Steria illustrates why they are not yet considered as one of the leading outsourcing companies.

Final Thought: Shared Service and Outsourcing Growth
Have you noticed the increase in activity in shared services and outsourcing in 2010? After a period of time where executives were taking the “wait and see” approach on whether to approve the initial expenditure for shared services and outsourcing projects, it seems that in early 2010, these budgets have been approved and there is a focus on making change happen, and making it happen quickly!

If you haven’t noticed this, where have you been! Research company Nasscom recently commented that IT and BPO exports from India will increase by up to 15% this year to $57 billion, and analysts Everest Research Institute estimate that the industry in the Philippines will grow by at least 15%. This coupled with an increase in the level of recruitment at leading consultancies focusing on shared services, and the massive recruitment targets for all of the top BPO and ITO providers leads one to believe that this year will be a busy one for shared services and outsourcing executives!

SAS & Accenture partner on predictive analytics
SAS Institute and Accenture are teaming up to form the Accenture SAS Analytics Group, a joint venture that will develop, implement and manage predictive analytics solutions. The venture is a "first for both companies," according to Accenture.
The Accenture SAS Analytics Group will develop industry-specific solutions that initially focus on financial services, health care and the public service sector. The group also plans to develop cross-industry offerings, starting with customer acquisition and retention and enterprise analytics.

Point of View: Only last week we commented on Genpact’s acquisition of Symphony Solutions, and expected the leading BPOs entering the analytics space with plenty of focus, investment and speed. It is not surprising that Accenture have set up this joint venture with SAS, analytics represents an opportunity to capture higher margin work and is complimentary to the services provided by consultancies and business process outsourcing companies.

The joint venture approach is one that Accenture are not reported to follow often in their relationships with Third Parties, and have lagged in the dynamism in this area compared with some of her competitors. The long standing relationship with SAS (over 10 years) has provided Accenture with the comfort of joining forces with SAS, and no doubt the length of the relationship has provided SAS with the confidence of taming the Tiger!

Accenture Acquires RiskControl to add to Risk Offerings
Accenture has acquired RiskControl, a privately held risk consulting company based in Rio de Janeiro, to complement and expand its risk service offerings in the rapidly growing Brazilian market.

The acquisition includes RiskControl's staff and service offerings as well as its end-to-end software tool, RiskControl, a software platform that helps companies manage, monitor and evaluate risks throughout their business. The software is used primarily in financial services institutions to help manage balance-sheet exposure to market risk factors such as fluctuations in interest rates, foreign exchange rates, stock prices, indexes or commodities prices.

RiskControl will be integrated into Accenture's new Risk Management service line, and Accenture will continue to deliver services to RiskControl's clients under the terms of their existing contracts.

Point of View: A study completed by Accenture in 2009 found that 85 percent of CFOs and senior finance and risk executives in 21 countries are dissatisfied with their risk management capabilities, and 40 percent of them had increased or planned to increase their risk management capabilities.

With the economic downturn, global acts of terror and climate change all in the front pages of every paper, and the forefront of the thinking for CXOs, it is not surprising that the company has focused its efforts into the risk market. Accenture already has a presence in Brazil, and given the growth of Latin America, and coupled with Accenture’s increasing client base and the increase of outsourcing to Latin America, this acquisition seems immensely sensible.

The challenge will be to integrate the capabilities into the Accenture toolset, and the people into the Accenture culture.

Home Office Targets £50 mil saving through Shared Services
The Home Office has said it will cut between £40 million (US$63.4 million) and £50 million from back office costs, after completing a shared services programme based on Oracle software. The Shared Business Services programme is run by IT services firm Fujitsu, and centred on Oracle eBusiness enterprise resource planning software.

The shared services integration has been running since 2006. John Collington, programme director at the Home Office, said the department had "successfully delivered a major government IT programme, on time and to budget, which is now delivering tangible benefits to the business, including projected cost savings of £40-50 million".  The Home Office also said it had improved management information through the scheme, with more "accurate and timely" data available for "improved decision-making".

Point of View: Surprisingly enough, there have been occasions when I have been called a cynic, but when the programme manager of a multi million pound deal blows the trumpet of his successes with reference to a £40 - £50 million saving, driven from an Oracle enterprise resource implementation, then one needs to be asking questions.

Given that they have been running the programme since 2006, one would expect some improvement but how many public sector agencies can truly state that they have delivered measurable cost savings to shared services through implementation of IT (certainly not the NHS). I assume that the saving is over a number of years and does not include the cost of the Oracle consultants nor Fujitsu specialists. I would also be slightly concerned by the 25% deviation on whether the savings will be £40 million or £50 million!

CSC extends Sunshine State Insurance BPO contract
IT services vendor Computer Sciences Corp (CSC) has won a six-year extension to its business process outsourcing (BPO) contract with Florida-based Sunshine State Insurance Company. Financial terms of the deal were not disclosed. Under the deal, CSC will support Sunshine State’s personal and commercial property business from an upgraded technology platform that automates more of the underwriting process. The extension will provide technology and services for improved risk management and selection, business analytics and advanced Web 2.0 capabilities.

Jim Cook, president of Business Solutions and Services at CSC, said: “By incorporating process innovation and the latest technologies within our BPO operations, we are able to provide cost-effective property and casualty insurance operations, now serving more than 45 companies including 10 based in Florida.”

Point of View: Although BPO is not core to the services offered by Computer Sciences Corporation, the company has a tendency to fray into solutions that can be profitable. With services being provided to a number of insurance providers including Zurich Financial Services and Conseco, a BPO offering in Insurance linked with their technology solution is a compelling proposition.

This is more proof, that in fact, contrary to popular opinion CSC do BPO!

Final Thought: Cap Gemini to acquire?
Capgemini Global CEO, Paul Hermelin, says they are looking at acquisitions both in India and globally and could close a deal outside the country within this year. He stated that the company is looking at acquistions in the infrastructure and business process outsourcing space. Capgemini had reported a 60% slump in profits in 2009, and forecasts a further 2 to 4% decline in 2010, but Hermelin has defiantly stated that the company will look at acquisitions of up to €100 million in the US, China, India and Latin America.

For the company to be viewed as a leading BPO provider, they will need to acquire quickly and expect them to be linked with existing internal shared services centres and the mid market BPO companies throughout 2010.

IBM announces 9% increase in Q4 Net Income
Blue chip IT and business services firm IBM, announced quarter 4 results that showed a rise in net income of 8.7% to $4.81 billion. Comparably, revenues grew by just 0.8% to $27.2 billion.  For the full year, 2009, IBM's net income grew by 9% to $13.4bn while revenues fell by 8% (or 5%, adjusting for currency) to $95.8bn. Turnover was $103.6bn in 2008.

IBM raised its 2010 profit target and reported a stronger-than-expected 9% increase in fourth-quarter earnings, as cost cuts and a shift to more profitable contracts helped it weather a slump in corporate spending.

Point of View: As a cynic, I always assume that when a company has a stable / decrease in revenues but profits rise, the rise is more about focusing on higher margin work rather than real cutting of costs. IBM are not renowned in the market for their low cost services, but for the use of technology and improvement in margins.

The quarter marked the first increase in IBM revenues since Sept 2008, and continued the trend where declines in hardware revenues are made up for by increases in revenues from software and services. It is important to note that IBM's numbers have become more consistent since it spun off or sold various divisions, including its PC division

IBM wins India Media BPO Contract
Indian media company UTV Software Communications has signed a five-year BPO deal with IBM to streamline its key provisions for an undisclosed amount. The technology giant will take over the companys finance and accounts, rights management, procurement, projects, material management and other key functions in a bid to provide a customer-centric operating environment.

Rajeev Wagle, chief financial officer, UTV Software Communications Ltd. commented: “The market here is growing at a rapid pace and customers are increasingly becoming demanding, making it imperative for us to offer fresh delivery platforms and content diversity enabled by technology. Teaming with IBM not only brings domain expertise but foresight that could potentially be a game-changer in the industry”

Point of View: This is an interesting piece of news for two key reason:

1. It demonstrates the focus that IBM have in the Indian Domestic BPO market which is growing at a phenomenal pace – analysts predict that the domestic BPO market will quadruple to $6.82 billion by 2013.
2. The contract includes India’s first cloud-enabled email implementation via LotusLive iNotes, a web-based e-mail service. Much has been said about the realism of cloud computing, and an cloud-enabled email service will be an interesting test of the model.

Expect more wins in India for IBM.

Wipro reports a 19% increase in Q3 Net Income
Indian Outsourcing giant Wipro, have reported a 19% increase in net income to $259 million, and a 6% increase in revenues over the quarter from October to December 2009 beating market expectations. Compared to the preceding quarter (Q2), net profit was up 4.7% and revenue was up 0.7%.

Point of View: A good set of results from Wipro, and although more impressive than Infosys, the results released by TCS illustrate there is still some more work to do! Wipro are still largely an IT led company and changing that feel in 2010 will be one of the key challenges if the company is going to outgrow its competition.

For all of the shared services and outsourcing executives out there, you have probably noted the increased activity at the start of 2010. The forecast for the year looks positive for the market and Wipro. Girish Paranjpe, Executive Director and Joint Chief Executive Officer of Wipro Limited noted that “Unlike last year, where people were in a wait and watch mode and not spending money till much later in the year, this time around, it seems that the people are ready to go right from the beginning. So we hopefully will have a uniform growth throughout the year, instead of a backend and lumpy growth like we saw in 2009."

TCS reports a 39% increase in Net Income
Indian multinational vendor Tata Consultancy Services has reported a 39% increase in net income to $383.3m for the third quarter 2010, compared to a net income of $276.2m in the same quarter last year. Revenue was up 10.3% at $1.63bn.
Operating income increased 21.6% to $446.5m, while diluted EPS rose to $0.20 from $0.14 in the same period last year. The company added 32 new clients during the quarter. IT and consultancy services revenue rose 10.3% to $1.58bn, while equipment and software licenses revenue grew 8.5% to $47.4m.
 
During the quarter, the company added 7,692 net new employees and had an attrition rate of 11.5% with attrition in IT Services at 10.8% and BPO at 18.3%.

Point of View: TCS continues to have a good year, and the Q3 results build on the good progress in Q2. The net income growth in the quarter is much more impressive then TCS’ top competitors and illustrates the stress on cost management to drive down costs coupled with the focus on the massive deals evidenced by the wins that TCS has experienced with Cardiff City Council and Dow Chemical.The challenge for TCS will now be to deliver on the promises and ensure the growth in the quarter is sustainable.

Genpact Q4 Net Income Drops 26%
Leading Indian BPO company Genpact has announced Q4 net income was down 26% to $34.6million, although revenues were up 5% to $296.9million.  For the calendar year 2009, net income was up 1.7% with revenues growing 8% to $1,200m compared to prior year. By industry the revenue split was 44% Financial Services, 39% Manufacturing, and 17% Others (including healthcare, retail, transportation & logistics, media & entertainment, and hospitality).

84% of revenues in 2009 were from BPO services, with the remaining 16% coming from IT services.

Point of View: The annual position for Genpact illustrates a good year for Genpact, and it has indeed been a good year with the company picking up high profile contracts with South African Breweries, AstraZeneca, UCB, United Biscuits and most recently Walgreen.

The Q4 position is explained by a number of sales, marketing and research investments in the quarter, and this has led to the acquistion of Syngenta Solutions. The most impressive statistic for Genpact is that the GE client base (that have extended their relationship a further two years to 2016) now make up only 40% of the revenues.

However, as for all the BPO providers, and illustrated by the fall in net profits, there is a real pressure on pricing and the new extension with GE included further price concessions. Expect 2010 to be another successful year in terms of client wins for Genpact, but increasing pressure on net profit!

Genpact acquires Symphony Solutions
Business process outsourcing specialist Genpact has acquired Symphony Marketing Solutions (SMS), a provider of analytics and data management services for an undisclosed amount expected to be close to $64 million.

SMS has expertise in the retail, pharma and consumer packaged goods (CPG) industries and employs more than 1,200 staff in several offices around the world, including the US and India. At the same time as announcing the deal, SMS revealed that it had signed an eight-year contract with IRI to provide it with end-to-end data management and analytics services.

“This expertise will allow us to offer a broader range of services, ranging from core finance and accounting, procurement and supply chain to data management and advanced analytics solutions,” said Pramod Bhasin, president and CEO, Genpact.

Point of View: Genpact is very strong in the pharma industry and this acquisition will enable them to broaden the scope of services with their existing client base, through providing higher margin analytic services.

BPO providers are under intense price competition for largely commoditised services such as F&A BPO. To continue to be profitable and satisfying stakeholders and investors, the providers will need to broaden the scope of services in each of the verticals. We noted this trend in October, following IBM’s acquisition of SPSS for $1.2 billion. Expect that the rest of the leading BPOs follow IBM and Genpact.

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!

*SSON gets the low-down from Genpact COO, "Tiger" Tyagarajan ...click here for more 

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.