In the press this past week we see that the UK Government will make the process of procurement fairer and easier. It has long been obvious that outsourcing deals in the public sector have almost exclusively been awarded to large outsourcing providers, as they are the only ones that can afford to undertake the exhaustive tender process.

Even though thorough consideration of all providers and a complete background review must be conducted in any outsourcing process, the amount of public sector red tape that must be tackled by service providers often hinders smaller specialised business, leaving just a select few, usually large firms, to tender.

This also means that suppliers who are investing such time and money in the tendering process will be inclined to agree to SLAs that may not be cost-effective in the long run just to ensure they secure the contract and recoup some of their tendering costs. This inevitably leads to outsourcing disaster and ultimately costs both parties.

In short, introducing a fairer and accessible tendering process coupled with good procurement procedures may be a crucial key to ensuring future successful outsourcing deals within the public sector.

Industry chat is awash with talk of how organisations can actually measure the impact of outsourcing on their bottom line. Outsourcing is all well and good and everyone knows that it’s supposed to cut costs and improve quality. But unless the results are carefully assessed, claims like that are spurious.

The NOA has just completed a piece of research on Business Orientated Metrics, otherwise knows as BOMs. They are real measures of the business impact of outsourcing, as opposed to what we call “output orientated metrics” which measure the operational efficiency of outsourcing. Typical BOMs might include: reductions in error rates; employee satisfaction; levels of absenteeism etc.

The NOA research, which was conducted by outsourcing analyst firm, NelsonHall, found that only 18 percent of organisations use BOMs, as opposed to 70 percent that use output metrics. But the number using BOMs is due to double in the next two years, as organisations wake up to the benefits of considering outsourcing in the wider respect of the business.

Whilst in the early days of outsourcing, companies were blinded by cost savings, they seemed to lose track of how it should be measured. BOMs are the industry’s answer. It will be interesting to see how outsourcing measures up.

New research from Datamonitor has found that Green IT has moved to the forefront of the corporate agenda. The adoption of eco-friendly computing is fast emerging as a priority for technology decision makers and this will only rise further as the government considers implementing legislation to make going green an obligation.

The outsourcing industry has been watching with interest the developments in the Sky and EDS case. The results of the court case will have wide reaching implications for the industry as a whole. So what’s all the fuss? In a nutshell, Sky is seeking £709 million in damages from IT services company EDS, for allegedly acting “dishonestly” when pitching for a £48 million contract to build Sky a new CRM system back in 2000.

Sky claims the system had multiple failures, which have resulted in a huge loss of sales, hence the mammoth claim. The nub of the issue is the liability cap within the contract. The cap means that EDS is liable for losses only up to £30 million, should anything go wrong. Obviously, the cap pales into insignificance when compared to the huge sum that Sky claims to have lost.

Sky is calling into question the validity of the liability cap. Why should Sky suffer this massive hit to its profit line and have to carry the consequences when it says the damage was caused by EDS? Its justification is its claim that EDS over promised on the contract, promising things it knew it was unlikely to deliver and then hid behind the protection of a liability cap.

Whatever the outcome, there are already lessons to be learned for suppliers and customers alike. Suppliers should know that they should never over promise on a contract, despite the fact they are eager to win the business and possibly someone’s commission is at stake. Customers should actually understand what they want and be careful with promises made upwards, maybe a career/promotion at stake? Both sides should make sure that all of these promises are carefully documented in the contract and form the basis of the solution, service level agreements and key performance indicators. In major contracts of this size it might be prudent to employ an independent third party to verify the solution and deliverables!

Until then, we will wait to see how it unfolds, but there can never really be any winners as both companies have lost out already.

One story that gained a huge amount of national and international attention has been the news of the disruption to Egypt’s telecommunications network. Damage to two underwater cables in the Mediterranean Sea has slowed Internet connections throughout the Middle East and in parts of Asia to a crawl.

Research from industry skills body e-skills UK has found that IT students have fallen 50 percent in the last five years. The lack of skilled UK IT staff means that 140,000 new recruits need to be found in order to satisfy demand.

At present the IT industry is struggling to recruit the next generation to the profession, as the ‘nerdish’ image of an IT worker puts off many youngsters from entering the industry. The IT industry may rectify this image but this is a long term project. So how can the IT skills gap be plugged in the shorter term? One solution is outsourcing and/or offshoring.

Companies need to fill the gaping hole at the lower-skilled end of the industry immediately. By choosing an offshore supplier, companies can employ low-cost specialists to carry out work that they can’t complete in the UK. The high end management work tends to stay in the UK.

As skills move to low labour cost areas, the UK has to react by developing the skills and competencies necessary to develop new products, designs, technologies etc. so UK companies can create more value. This means better education, training and in particular entrepreneurship.

The UK often tends to develop a mix and match solution or no solution at all. British workers should be educated and employed to take the highest level UK IT jobs. Outsourcing or offshoring can only account for a percentage of the lower skilled work and training / educating the next generation will ensure that the skills gap can be gradually narrowed.

“I think there is a world market for about five computers.” Thus predicted (allegedly) Thomas J. Watson, then chairman of IBM.    

The technology market is no less swamped with vapid (and sometimes plain wrong) predictions now than it was then. However, as all our readers and members can appreciate, the NOA would never make spurious claims or predictions that are no less than 100 per cent accurate. On that note, we’ve got a couple of ideas of what might (or will) happen in 2008: 

2008 will see the looming credit crisis lead to an upturn in outsourcing. The downturn in the economy and possible recession will see increasing numbers of C suite executives view technology and outsourcing as solutions to the need to slashoverheads and minimise any negative impact on the bottom line.  

During 2008 organisations will start to look beyond India for offshore provision due to the climbing attrition rate and rising Indian salaries. Organisations will look for alternatives to India that offer suitable mixtures that enable closer proximity/cultural awareness along with the right pricing options.  

Recent NOA research suggests that many organisations have had problems with offshore captive operations. They have underestimated costs, time and effort required, particularly in acquiring the right people and keeping them. As labour costs rise and the challenge of virtualisation (especially for ITO, see below) through 2008 it will become harder and harder for captives to compete with true outsourced suppliers. 

In 2008 we will see the actual delivery of virtualisation, grid computing and thin client services, which may initially reduce the number of ITO contracts as internal IT groups look to this technology to solve cost and delivery problems. However, the transition from client server applications to “virtual” may be more problematic and costly than expected, whereas outsourcing suppliers have the expertise, skills, models and tools that will allow them to offer these services effectively and cheaply.   

Outsourcing really is an ever changing market, from HR to admin to call centres there is nothing that can’t be outsourced. If it makes business processes cheaper and more effective, then why not?

However, it would seem that most companies, though talking about knowledge processing outsourcing (KPO), actually have no idea what it is. Everyone knows what business process outsourcing (BPO) is, so why is it so hard for companies to figure out what KPO is?

BPO has been a popular outsourcing process for quite some time now, therefore, as with all business functions, it has to evolve. The most commonly used definition of KPO is the outsourcing of a process that will have a direct impact on high level processes within the businesses – domain level processes and business expertise that will add value to a business.
For example: Pharmaceutical companies have been developing drug research using KPO for years and through this have developed products at a much faster pace and at a much cheaper rate. Market research uses KPO by outsourcing areas where technology can significantly improve the research process.

Similarly smaller firms can also benefit from KPO as they are cost effective and remain within the budget constraints faced by smaller organisations. In effect this reduces the gap between the small and large - another leveling effect similar to the internet.

A less common definition of KPO is transformational business process outsourcing. This involves a company outsourcing a function in order to utilise the supplier’s specialised knowledge to improve it. The difference here is instead of being a core process – as above – this could be any BPO that the end user wants the supplier to transform.

With so many companies unaware as to what KPO is, a single common definition would be helpful. Transformational BPO is actually an entity in itself, so the outsourcing of core functions like R&D is becoming established as the definition of KPO. Now all companies need to go and do is to practice it!

We recently attended the NASSCOM Animation and Gaming conference in Mumbai and some interesting topics came up. Firstly, NASSCOM appears to want to expand India’s outsourcing capacity from predominantly IT to more value-add functions - animation and gaming appears to be one area.

This is not revolutionary – India has been talking about moving up the value chain for several years – but to see it in practice is impressive. However, there are some issues that India has to deal with. The availability of skilled creative professionals is somewhat limited.

India’s USP is executing the mechanical processes involved in the development of animation and games - something which has a strong correlation with its credentials in the software sector generally – rather than the more creative element. This is something that India will have to develop in order to implement a full managed service outsourcing solution in the animation and gaming industry.

Let’s get one thing straight, India, currently at least, is not a big market for animation and gaming - the infrastructure (lack of it, that is) and general cultural attitudes to gaming (from parents) means the market is small and will grow slowly. However, the very fact that India is moving into these markets and up the value chain does provide an interesting look into the outsourcing crystal ball.