Review 2007: Outsourcing

Outsourcing has become accepted as a standard part of every organisation's IT strategy. But thanks to the impact on staff and the continuing growth of offshoring, it remains a controversial topic.

Computing reviews the big stories in outsourcing in 2007 - who outsourced, why and where.

Click on the headlines to read the full story.

January

Co-op to extend outsourcing deal to build business

Co-operative Financial Services (CFS) is in the final stages of negotiating an extension to an outsourcing deal that will double the number of its external IT development staff.

CFS signed a £22m seven-year contract with Xansa in 1994 which has already been extended twice, most recently in 2003.

This latest extension, expected to be finalised in March, is part of a wider review of the Co-operative Group’s sourcing model, and will include the outsourcing of software development for Co-operative Insurance Services.

Value of outsourcing contracts shrinks

Outsourcing providers face increasing challenges in 2007, according to the latest Quarterly Index from outsourcing advisor TPI.

The final quarter of 2006 was the worst fourth quarter in five years in terms of the value of outsourcing contracts awarded. In addition, the value of contracts entirely new to the market - excluding the retendering of existing contracts - declined by eight per cent on 2005 levels.

The trend towards shorter and smaller contracts, and more specialist and single process deals, means that tendering activity nevertheless remains frenzied, with a record number of 350 contracts being agreed in 2006 – smashing last year’s 341, the previous record.

Kimberly-Clark signs five-year outsourcing deal

Kimberly-Clark, manufacturer of products including Kleenex and Huggies, has signed an IT applications outsourcing deal across its global operations.

The five-year deal covers its SAP and customised software applications such as strategic planning, product management, supply chain planning, sourcing, sales and marketing, data exchange, enterprise management and customer management.

February

Iceland signs £18m BT deal

Frozen food firm Iceland has signed a seven-year, £18m IT outsourcing deal with BT Global Services to reduce costs and move to a single voice and data network.

The contract is an extension of Iceland’s existing contract to manage its wide and local area networks, but includes new voice services.

Credit Suisse signs £578m IT deal

Investment bank Credit Suisse has signed a £578m partnership with BT and Swisscom for management of its global networking function.

The minimum five-year contract will include the transfer of 231 employees and 50 contractors and an option to extend to seven years.

Centrica outsources IT functions

Centrica has outsourced part of its IT infrastructure including its data centre operations and desktop support services, affecting more than 23,000 users.

The utility giant will transfer 230 staff to T-Systems, the managed services division of Deutsche Telekom, when it hands over responsibility on 1 March.

Currys and Dixons owner adopts flexible outsourcing

DSG International, owner of the high street electrical retailer Currys, is adopting a flexible outsourcing model to rapidly source IT support staff during times of peak demand.

The company has been trialling the OrderWork trading platform for IT staff, which allows skilled workers to be sourced quickly in rural and remote parts of the UK.

Firms fail to monitor outsourcing benefits

Many businesses do not understand the value of their outsourcing arrangements and are unable to quantify benefits, according to new research.

An international survey by consultancy KPMG found that 42 per cent of companies with outsourcing arrangements are not supported by a formal measurement framework.

Some 59 per cent of respondents only track benefits of IT projects at an elementary level, or not at all. And 72 per cent said they do not have the criteria to measure the success or failure of sourcing arrangements.

March

UK Visas sign £140m outsourcing deal

The government has signed a £140m outsourcing deal with supplier CSC to run the overseas visa application and issuing process.

Under the five-year contract, CSC will establish 15 visa application centres, as well as providing internet, email and call centres to a further 87 countries.

Lloyds TSB closes Indian call centre

UK bank Lloyds TSB will be closing its Indian call centre after implementing interactive voice recognition software which has reduced telephone enquiry numbers.

A spokesman for the bank told Computing the Indian call centre which was previously handling the overflow calls from Lloyds TSB’s 10 UK call centres was no longer needed.

Network Rail timetables key outsourcing move

Network Rail is planning to outsource significant parts of its IT infrastructure in a multimillion-pound deal.

The organisation will retain control only of services that affect its core business. It is to appoint a third party to manage enterprise operations, computer systems and network services at 1,200 sites.

FTSE firms exit service contracts

More than half of FTSE 350 companies have been forced to exit or renegotiate an outsourcing contract before the end of its term, according to research published this week.

The survey from law firm Addleshaw Goddard says poor service, lack of control and hidden costs are usually to blame for failing outsourcing contracts.

Southampton City Council signs £290m outsourcing deal

Southampton City Council has signed a £290m outsourcing deal with supplier Capita.
The contract covers the provision of customer services, IT, property and the administration of human resources, payroll, revenues and benefits, and procurement under a 10-year strategic partnership.

April

Co-operative Financial Services signs £100m outsourcing deal

Co-operative Financial Services’ (CFS) has finalised a multimillion pound outsourcing deal with Xansa, as revealed in Computing earlier this year.

The new contract is worth up to £100m over five years marks an extension of a 12-year partnership between the organisations.

FSA farms out IT in £80m deal

The Financial Services Authority (FSA) is outsourcing its IT infrastructure and service delivery to Fujitsu in an £80.8m eight-year deal to transform the organisation’s technology performance.

The deal, which includes a no-penalty exit clause after five years and £56.2m, is part of a larger IT transformation programme the financial regulator launched in August 2005.

Europe bucks outsourcing trend

The number and value of outsourcing contracts awarded in Europe rose in the first quarter of 2007, despite a global decline, according to research.

The total value of outsourcing deals in Europe increased by 67 per cent to €7.7bn (£5.2bn) compared with the same period last year, according to outsourcing adviser TPI’s Quarterly Index report.

But on a worldwide scale it has been the weakest first quarter in five years.

May

Tesco extends outsourcing deal

Supermarket giant Tesco has extended an £18m outsourcing contract with Xansa for application management, software development and consultation.

The outsourcing deal is intended to reduce the cost of core IT operations, allowing Tesco to focus investment on its retail offering and improving customer service.

Xansa will support Tesco’s critical systems, such as distribution, stock replenishment, products, pricing, and payroll systems, across the UK and Ireland.

Outsourcing deals crumbling due to cost reduction focus

Outsourcing deals are hitting the rocks because of many businesses' short term focus on cost reduction, according to industry experts.

Research by Compass Management Consulting reveals 65 per cent of all outsourcing contracts worth more than £20m unravel before running their full term.

Birmingham signs £142m outsourcing deal

Birmingham City Council has signed a £142m, 10-year deal with outsourcing firm Capita to transform its customer service operations.

The deal was awarded to Service Birmingham, a partnership between Capita and the council established to deliver IT transformation projects.

LSE brings IT services in-house

The London Stock Exchange (LSE) is bringing management of its day-to-day IT operations back in-house after completing a four-year technology programme.

But under a two-year contract extension with Accenture, signed last week, the consultancy will continue to handle new software development.

June

Global outsourcing arena heats up

Research released last week from sector skills body e-Skills UK echoes the common observation that UK IT graduates need more business skills, because lower-level technology jobs that do not require such expertise are being offshored, mostly to India.

But as the global market matures, the Indian IT industry is starting to face some of the same issues as its UK counterpart. There are already warnings that the subcontinent will face a talent shortfall in its technology workforce by 2010, although Indian IT trade association Nasscom says there is still time to avert a crisis.

Linklaters signs outsourcing deal

Law firm Linklaters has signed a multimillion-pound global outsourcing deal to help meet rising client demand.

The contract will see responsibility for Linklaters’ IT applications across 23 countries transferred to supplier Savvis, leaving solicitors free to focus on the needs of customers.

MPs raise concerns over BBC savings

The BBC substantially over-estimated the savings expected from outsourcing IT services to Siemens under a 10-year, £1.5bn framework contract, according to an influential group of MPs.

A Commons Public Accounts Committee report released today accuses the corporation’s management of giving its Board of Governors the impression when seeking approval for the deal that annual savings of £35m were guaranteed.

But first-year results for the contract provided savings of just £22m – 38 per cent lower than forecast – for work previously carried out by its own subsidiary BBC Technology.

July

China catching up in the outsourcing race

Chinese cities will overtake their Indian rivals as the top destinations for offshore IT delivery by 2011, predicts analyst IDC.

Substantial investment in infrastructure, internet connections, technical skills and improved English language skills will result in China moving ahead, says IDC’s inaugural Global Delivery Index report.

But India is unlikely to give up its crown as the offshoring destination of choice easily, with new figures showing its IT software and services market has exceeded expectations to grow by more than 30 per cent in the past year.

European outsourcing on the rise

More European firms are turning to outsourcing, with a 78 per cent year-on-year increase in major new deals worth more than €40m in the first half of 2007.

But globally, outsourcing contracts increased just six per cent, and there was a 50 per cent downturn in new deals in the US to only €6.3bn in value, compared to €12.4bn for the same six-month period in 2006, according to consultancy TPI International’s latest Quarterly Index report.

New European deals account for over half (54 per cent) of new outsourcing contracts signed worldwide, against 32 per cent last year and a five-year average of 38 per cent.

AstraZeneca takes the outsourcing medicine

Pharmaceutical giant AstraZeneca has signed a $1.4bn (£700m), seven-year global strategic outsourcing agreement with IBM to provide IT infrastructure services to operations in 60 countries.

IBM will provide a single global technical infrastructure, including server and storage hosting, service desks, PC management, network and communications services, including email, and computer operations support.

Philips signs global outsourcing deal with Infosys

Royal Philips Electronics has signed a multimillion-dollar outsourcing contract with Infosys Technologies.

Under the terms of the multi-year deal, Infosys will handle financial services and process purchasing orders for Philips, and 1,400 staff will transfer over to the supplier. The Bangalore-based IT business will also gain three shared service centres based in India, Poland and Thailand.

CSC lands contract with NASA

Computer Sciences Corporation has signed a $597m (£289m) deal with the US space agency National Aeronautics and Space Administration (Nasa).

The supplier will support the Advanced Supercomputing Division at Ames Research Center in Silicon Valley and provide computer research to the agency's Center for Computational Sciences at Goddard Space Flight Center in Maryland.

August

Network Rail signs outsourcing deals

Network Rail is outsourcing large chunks of its technology infrastructure to suppliers Computer Sciences Corporation and Specialist Computer Services.

The organisation, which owns and operates the nation’s rail infrastructure, announced earlier this year that it would outsource IT services unrelated to its core operations across more than 1,200 sites.

The decision is part of a review into IT services at Network Rail designed to improve services and reduce costs.

Reuters signs £500m deal with Fujitsu

Reuters has signed a £500m 10-year outsourcing deal with Fujitsu to transform the companies' network infrastructure.

The contract includes provision of IT services and support to 17,500 employees based in 100 countries. The Japanese company is the prime contractor in a consortium including Dell, Satyam and BT that will work to modernise Reuters internal network.

Small firms say outsourcing costs too much

Technology outsourcing is too expensive for most small and medium-sized businesses (SMBs), according to analyst Datamonitor.

Only a quarter of the 500 SMBs surveyed had invested in outsourcing deals, and 60 per cent said they could not imagine their IT services ever being handled by an out-of-house company.

Nearly a fifth (17 per cent) did not even know that it was possible to outsource IT management.

BT lets £128m outsourcing deal

BT has signed a £128m, six-year deal with IT service provider Xansa for finance and accounting processing.

The contract builds on a 20-year partnership which includes management of the telecoms giant's UK operations for finance and accounting (F&A), transaction processing, ledger and payroll services.

September

Offshoring trend hits high-end skills

BT’s plans for a research base in China are the latest evidence that the trend for offshoring is affecting high-level skills, say experts.

The telecoms giant announced last week that it is to open a facility in Shanghai, expected to employ up to 20 staff by the end of the year.

IBM, Microsoft and Cisco already have high-end research and development centres in emerging economies.

Government outsourcing to rise to £100bn

Public sector IT outsourcing will grow by £26bn to £100bn by 2013, with services to the citizen alone worth £56bn, according to researcher Kable.

The value of services to government will also rise, from £33bn to £44bn in the next five years, says the Public Sector Outsourcing report published today.

October

Offshoring changes the recruitment landscape

UK technology jobs are becoming less technical as emerging economies increasingly absorb development roles, according to the latest research.

The number of software development roles in the UK has dropped from 34 per cent of IT jobs to 29 per cent in the past year, says the report from ReThink Recruitment.

Capgemini set for £245m deal

Capgemini is the preferred bidder for a five-year IT partnership with the Learning and Skills Council (LSC) worth up to £245m.

Details of the deal are expected to be finalised by the middle of next month and transition from LSC's existing technology suppliers to go ahead from January.

Green aims drive outsourcing

Technology outsourcing is set to rise if business is landed with the financial burden of compliance with environmental regulations.

Shifting the responsibility for energy costs to the IT department can already consume the entire annual IT budget, according to a report from analyst IDC published this week.

Bank regulations boost outsourcing

Compliance with incoming European financial rules has boosted banks' outsourcing spend by nine per cent this year.

And Markets in Financial Instruments Directive (MiFID) projects will lead to on-going growth into 2008, according to research from Pierre Audoin Consultants.

Carphone Warehouse signs £100m IT deal

Carphone Warehouse has signed $200m (£98m) deal with supplier Patni to develop the technology of its telecom and retail operations.

The services will be delivered across all European locations by global consultants and delivery centres in India.

UK leads £3.8bn outsourcing drive across Europe

UK companies are leading the growth of outsourcing across Europe, contributing 36 per cent of the 84 deals signed during the second quarter of 2007.

Major contracts across the period were valued at a total of €5.4bn (£3.8bn), an increase of €1bn (£698m) over the 65 projects from the same quarter last year, according to analyst Forrester Research.

November

Marks & Spencer outsources IT network

Marks & Spencer (M&S) has awarded supplier Logicalis a four-year, multimillion-pound outsourcing contract.

Logicalis will improve the performance of the retailer's IT network, while supporting the deployment of new IT services.

Thomas Cook signs Accenture for £192m outsourcing deal

Thomas Cook has signed a $400m (£192m) outsourcing contract with Accenture to provide infrastructure support over a 10-year period.

Under the terms of the deal, Accenture will deliver a range of back-office services to the travel operator, including network management, financial administration and SAP-based enterprise resource planning.

Royal & SunAlliance signs 10-year outsourcing contract

Royal & SunAlliance (R& SA) is outsourcing its IT and printing operations in a 10-year, £92m deal with T-Systems, the IT arm of Deutsche Telekom.

T-Systems will take over two print facilities Liverpool and Bristol and will take on 63 R&SA employees.

Insurance firm cancels £160m EDS contract

Liverpool Victoria (LV) is terminating a £160m, 13-year outsourcing deal with EDS after only four years.

The deal, covering an extensive transformation programme, was signed in 2004. But from next March it will be replaced by up to five smaller partnerships working with an in-house team.

Prudential signs £722m outsourcing deal

Prudential has signed a £722m, 15-year contract with Capita under which up to 3000 staff will transfer to the outsourcer.

Up to 1750 UK Prudential employees and 1250 Mumbai-based staff are affected by the deal, which covers a range of services including customer service and IT support.

December

Virgin Media signs £98m network outsourcing deal

Virgin Media has signed a five-year, £98m managed network contact with BT.

The arrangement will see BT Wholesale manage the operation and maintenance of Virgin's fixed-line voice switching network, along with a number of existing support contracts.

Virgin, whose network supports around 20 per cent of all UK landline connections, will transfer 184 staff to BT as part of the agreement.

Europe's offshoring to skyrocket

European offshore IT spending is to grow 60 per cent in 2008, compared with a rise of 40 per cent in the US, according to analyst Gartner.

But companies moving technology services abroad are often challenged by the task of determining which country would best host their operations, says the study.

Multisourcing: using the world's talents

Outsourcing has become such a part of everyday business vocabulary that it is easy to overlook the extent of its development. From its beginnings in big, typically broadly-scoped contracts that were often awarded to a few key providers, users now face more choice than ever before.

Such increased competition naturally results in a higher level of market knowledge and raised expectations, leading many major businesses to look beyond traditional sourcing relationships and a more evolved form of procurement - multisourcing.

Merck opts for offshore outsourcing

Merck & Co has signed a long term, multimillion-dollar deal with Cognizant, the Indian IT and outsourcing specialist.

Cognizant will provide a full range of services to the pharmaceutical giant, including IT infrastructure management and business process outsourcing.