Archive for July, 2009

TPI, harbingers of doom… in a good way

July 24, 2009

At last, some realism is leaking into the market; fetid and rank it may be, but like all good boils, this one really needs lancing.

The latest research from TPI does not make happy reading for the outsourcing service provider and sourcing advisory/consulting communities. The message is simple;  information technology outsourcing (ITO) is in the dolrums and  business process outsourcing (BPO) has fallen off a cliff.

Providers have returned woeful results. Total contract values (TCVs) for deals worth at least USD25m were down 22 per cent during the first six months of 2009, compared with H1 of last year. In addition the number of signed contracts was down 11 per cent, with only 135 contracts awarded during the last quarter.

BPO deals have declined across all regions and all functions; finance and accounting and particularly human resources have been hardest hit. The value and number of BPO contracts were at their lowest levels since 2001. In fact, at USD2.4bn for Q2, TCVs were down 69 per cent compared to the same period last year.

Let’s put this in context. In order to match the figures for 2008, the outsourcing service providers will need to sign deals with TCVs in excess of USD53bn. Hands up all those that think that this is a probable outcome?

So, we have all of the service providers with clogged pores, pressure building inside until we see such an expulsion of people last seen in the heavy industries in the 1980s.

What should we do, pack up, stay indoors and hide our faces until clients arrive back with ready supplies of Clearasil?

Well, I say lance the bugger!

The medicine is easy to administer, the pain short-lived and the opportunities are better for a glowing complexion afterwards. What are the medicines in my opinion? I’ve discussed cloudsourcing recently and we urgently need to go back to “what clients want and need – not what we think they should want and need”.

The sooner we do this, the better the prognosis.

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A time to reflect – a time to act

July 15, 2009

It is my estimation that, unless one’s involvement is peripheral, nobody survives a war; the people who come out the other side are not those who went in. Oh, I know, we all change, every day, and each morning emerge from our cocoon of sleep a different person, to confront an unutterably alien face, and any illness, and all shocks, age and change us by their given degrees… yet when an illness is past or the shock faded, we rejoin, more or less, the same society that we left, and recalibrate our selves by it. Such triangulating solace is denied us when that community itself has changed as much as or more than we have ourselves, and we must remake our own beings as well as the fabric of that shared world.

This quote comes from Iain Banks’ A Song of Stone. It is applicable to friends and relations who are currently in Iraq and Afghanistan, but is also applicable to the outsourcing and BPO industries in a time of recession.

With the systemic changes in the makets driven by the current economic climate, clients are facing a changed community of advisors and service providers. Not all will survive; not all should, but the recalibrating community of people and companies that address the real and growing needs of clients do create the fabric of our shared world.

Now is the time, I believe, to build stronger and longer-lasting relationships in this world. Innovation in the constructing and transacting of outsourcing deals has been driven out of late. Comparing “apples with apples” is a sure-fire way of rapidly reaching the lowest common denominator; there is no room for innovation, for imagination, for passion. The process becomes the outcome and we – the consultants, advisors, service providers and clients – are all the worse for it.

So let us change in this current “war”; this current recession, to build wiser, more informal and ultimately more imaginative relationships that extend and expand the horizons that our shared world of outsourcing can embrace.

Lies, damned lies and politicians

July 5, 2009

There is a conspiracy in the UK between politicians. No surprise there, you might think; but this affects us as individuals, companies and the outsourcing market generally.

The conspiracy revolves around the number ten.

Whilst the Conservative Party has admitted that its spending cuts will amount to an across the board ten per cent, it says that it is using Labour’s figures to calculate this. Labour in its turn, says that it will not cut but will go for “zero per cent growth”!

They know, we know, and they know that we know, that this is complete obfuscation. Labour is terrified of the results of the comprehensive spending review (CSR10) due next year; which is why its trying to avoid doing it. CSR10 will indicate that UKPLC is effectively bust. We’re not going to be talking about ten per cent cuts, its going to be between 25 and 30 per cent.

So, what to do? Governments of both political colours have already tried a technology-led approach to cost-cutting which involves re-platforming, undertaking business process reengineering to deliver efficiencies in operational departments enabled by the new systems.

An alternative is to outsource back office functions to deliver savings in technology, finance and accounting, human resources, procurement etc. However, with the CSR10 time bomb waiting to go off, this shaving the parmesan approach is now completely untenable. As a result, government must seek new ideas to transform their operating model from undertaking the whole range of services that they perform today down to a core of commissioning, policy, strategy, budgeting, and compliance.

This approach allows a fundamental redesign of how citizens receive their services. In the process, administrative and personnel costs can be drastically reduced.

Some departments and local government authorities favour the “grand outsource”, where everything that doesn’t fall into the commissioning and strategy unit, is outsourced to a single company, which sub contracts work out, and is the legal entity responsible for the risk associated with delivering those services. Examples of this include Essex and SouthwestOne.

I believe that this kind of approach is ultimately doomed to fail, as this requires one company to take the entire risk, both financially and to its brand, on to its balance sheet.

The answer, I think, must respresent a transformation; a step change, a fundamental rethink of the way in which the government interacts with its citizens, becoming much more agile in response to changing citizen demands, spending money on high impact services and redesigning how more traditional services are delivered so as to improve asset utilization and minimise overheads.

The government must immediately maximise the proportion of budget spent on direct service provision and optimise its activities to minimise administration costs. In so doing, it can minimise the impact on citizens in terms of number and quality of services available, without need for significant increases in tax.

Postscript: I wrote this blog on 4 July (happy Independence day to American readers). The headline article in the UK Sunday Times today (5 July) quoted Whitehall (civil service) sources:

Secret “doomsday” plans for 20% cuts in public spending are being prepared by senior civil servants, who fear politicians are failing to confront the scale of the budget black hole.

So, I’m not that far out…