April 2011
Outsourcing – Do you believe all you read in the press?
For good or bad, media coverage of outsourcing has increased; it is up 177% in the last quarter. So why the increase?
Well this is not all down to one single theme; in fact the top two areas of coverage are the impact of outsourcing in the public sector and Cloud computing – two very different topics.
Richard Holway has recently commented in the media:
‘The acceptance of cloud-based software delivery in the form of SaaS (software as a service) and PaaS (platform as a service) is redefining the shape and structure of the software industry irrevocably. By the end of the decade, we expect that cloud-based packaged software will represent nearly 30% of all UK software spend, leaving the market for legacy ‘on-premise’ products in irreversible decline.’
The media coverage itself has been mainly neutral and focused on cost savings. The most negative press has been focused on job losses which have quite frequently been linked with the public sector press coverage.
The theme that has hardly appeared in the media is ‘green’ and there has been very little coverage of the economic impact of outsourcing or the value/benefits gained from it.
The main driver and inhibitors for outsourcing
Global savings are still the primary driver based mostly around business process outsourcing.
Other key drivers are improving the customer experience and getting more from existing customers via back office standardisation and front office improved customer service.
The main inhibitor remains business uncertainty with 19% of organisations still undecided about whether to proceed.
The main conclusions that we at Grange take from this is that, in the current tough market conditions, outsourcing is something that should be on all CIOs agenda, even if it is only to market test the cost base of IT in your organisation or the delivery mechanisms used, as in the case of Cloud. The ultimate goal, as always, is to improve IT quality of service and value for money for your customers.
IT industry update
European IT industry acquisition activity remains high; the number of deals in January and February 2011 were in excess of 480 and the emphasis of those deals has been on the price-to-earnings ratio rather than the price-to-sales ratio, suggesting that quality rather than growth is the renewed focus.
Outsourcing industry update
The outsourcing sector remains buoyant with a number of significant deals announced this year.
The UK’s Department for Work and Pensions (DWP) has terminated it’s multi-million pound desktop support contract with Fujitsu, awarded in February 2010. Press reports (e.g. in The Register) suggest HP, which lost the contract to Fujitsu just last year has been asked to cover the DWP’s desktop needs in the short term.
Gas and electricity supplier EDF Energy is to outsource much of its IT support for service desk and desktop services to Capgemini in an initial 3 year contract worth up to £100m. The main objective of the outsourcing deal is to improve the quality of IT support services for EDF Energy’s UK business, making them more consistent and standardised. The outsourcing arrangement will result in some of EDF Energy’s IT staff - as well as some staff from its current IT suppliers - moving to Capgemini, most of whom will be based in the UK.
HP Enterprise Services UK Limited has announced that Centrica plc has signed a seven-year outsourcing services agreement worth more than £247 million. With the new agreement, HP will enable Centrica to move to a utility-based private cloud computing environment that will support Centrica’s change program, improve speed of deployment, help lower costs and support the company’s environmental objectives.
Dell Services has announced it has signed a six-year IT outsourcing contract with leading pan European travel company TUI Travel PLC. Deploying managed infrastructure services, Dell Services will utilise its IT Infrastructure Library (ITIL)-based best practices and systems as well as cloud-based asset management capabilities to help TUI Travel boost cost savings and productivity.
Grange update
The buoyancy of the outsourcing sector is reflected in increased activity for Grange in outsourcing advisory services. We are working on a number of outsourcing deals involving service desk, data centre hosting, desktop and infrastructure services, application development and support.