Outsourcing Contract Deals Are Getting Smaller

Defense contractor BAE Systems’ recent agreement to outsource IT operations to provider CSC for another five years illustrates the changing nature of outsourcing arrangements. The deal, valued at $600 million, extends the IT outsourcing relationship the two companies began in 1994.

The most recent outsourcing deal between BAE Systems and CSC is valued at $600 million, less than one-third the size of a similar five-year deal struck in 2005. Companies don’t release details about such contracts so it’s impossible to know if the scope is comparable. Analysts say, though, that the decrease is emblematic of what’s happening across all outsourcing contracts.
“All deal sizes are declining,” said David Tapper, vice president of outsourcing and offshoring services at IDC.

The value of worldwide outsourcing deals has fallen over the past decade, according to Mr. Tapper. In 2005, the average deal size of the top 100 outsourcing deals globally was $680 million and in 2015, it fell to $392 million, he told CIO Journal. IDC has tracked the outsourcing market for more than two decades and maintains a database containing more than 60,000 deals.

CSC began outsourcing at a time when the margins were higher, there was less competition, less automation and less offshoring of work, said Bill Huber, a managing director of global outsourcing advisory firm Alsbridge, Inc. “As those deals came up for renewal, often they’d be re-priced at anywhere from 50% to 75% of the current deal value for those companies,” he told CIO Journal, Friday. Part of that decrease was due to increasing competition from global providers based in India and elsewhere.

Outsourcing companies such as CSC face a challenge when contracts come up for renewal in replacing the revenue they’ll lose. “It’s going to be hard to keep those same agreements at the same revenue, so they need to figure out a way to increase scope and provide other value-added services,” he said.

Because BAE Systems is a defense contractor and there are rules about where work can be performed, said Mr. Huber. There are also security controls about what can be automated and what can be moved to the cloud. “It’s a more limited group of providers who can do the service and it’s a higher cost to switch,” he said. That means that BAE Systems may not be seeing as steep of a savings as companies in industries that don’t have such limitations.

Both BAE Systems and CSC declined to comment.

BAE Systems first signed a 10-year $1.5 billion IT outsourcing contract in the UK in April 1994, CSC said in a May 2006 press release. Over that 10 years, the relationship was expanded to support multiple mergers and acquisitions in both the UK and the U.S.

Deals between the two companies forged since 2011 show a steady decline in total deal value. In May 2005, the two companies struck a five-year deal valued at approximately $1.9 billion. That included a full-range of IT operations from mainframe and midrange computers, servers and desktops to networking, Internet services, help desk, applications development and support and procurement services. In November 2011, the two companies said they’d signed a new 5-year-agreement worth up to $160 million per year, or $800 million total.

Under the new $600 million agreement, which expires in November 2021, CSC will provide a range of IT services including contact center, collaborative services, end user computing, mainframe, physical and virtual servers, storage and networking, project services and application maintenance and support. CSC said May 17 in a released statement.

With the new deal, CSC will deliver new efficiencies through automation. The provider will also introduce new capabilities into an expanded scope across infrastructure, applications and project services.

“We operate in a constantly evolving industry with a need to improve operational service and reduce operational expenditures,” said Allan Leggetter, IT director at BAE Systems in the released statement.

Outsourcing firms have begun to use software to automate repetitive tasks. This so-called IT robotic process automation market is expected to jump to $4.98 billion by 2020 from $183 million in 2013, a compound annual growth rate of 60.5%, according to Transparency Market Research.

A software bot costs about one-third the price of an offshore full-time employee, said Frank Casale, chairman emeritus of the Outsourcing Institute, who co-founded a professional association called the Institute for Robotic Process Automation. As labor arbitrage has run out of steam, automation is the next frontier for outsourcing companies that want to improve their profit margins.

Corporate customers will be expecting discounts too. “Firms expect to save 20% with automation,” said Mr. Tapper.

Source: blogs.wsj.com-Outsourcing Contract Deals Are Getting Smaller

ERP standardisation: hope becomes strategy

When I began my career in the ERP world 30+ years ago as an applications engineer, I was consistently baffled by the ubiquitous demand for customisation. What was so different, I wondered, about order-to-cash for a company that manufactured watches versus one that manufactured PC sub-assemblies? Why did the watch company think that their sales order process was so unique? And how did the PC company justify paying a team of Cullinet IDMSR programmers millions to develop a “better” mouse trap? After all, both companies had foundational processes related to bills of material, planning, purchasing and other business activities. I was always amazed that I could use the same software to provide a specific demonstration and even a proof of concept to different and clients in different businesses. We never modified anything. We demonstrated that we could design, deliver and support systems that met requirements and were ready made to manage a business.

Yet for some reason, when it came to actual implementation generic processes were regularly modified and engineered to accommodate “unique” business requirements. The attitude of the customer was, essentially, “I need it to do this because I need it to do this.” And this attitude enabled the systems integration industry to build an empire based on the misplaced desire to overcomplicate, modify and even redefine simple and proven processes. Several hundreds of MRP/MRPII and ERP providers clamored for business; waves of consolidation followed, and ultimately many pioneers and pillars of the solution world folded under the pressure. The consistent theme throughout was the cha-ching sound of cash being sucked into implementation, new technologies and (always) customisation. In the process, the idea of building consistent, foundational processes around buying materials, planning capacity, and selling and billing for products has fallen by the wayside.

Or has it?

Welcome, cloud. Hello, Anything-as-a-Service. Enterprises assessing new systems, technologies and capabilities are finding a value proposition fundamentally based on standardisation, best practices and high-value delivery. I’m seeing a rush to transition away from expensive, outdated, on-premise customised systems, especially when it comes to applications that have well-documented best practices to manage key parts of the business. Specifically, we’re seeing a huge shift to the cloud for specific capabilities like sales force automation and customer relationship management. Customers are still a bit hesitant to adopt the cloud for more traditional manufacturing, distribution and supply chain-type applications that support everyday critical operations, as scepticism persists regarding reliability, security and control. (That said, if a company is willing to run the life blood of their company, their customers, prospects and forecasts, as well as their people’s information in the cloud, then managing BOMS, inventory and schedules seems almost mundane.)

Alluring as the cloud’s and the as-a-service model’s benefits are, there’s a catch: most companies have customised systems to the point of no return. While an “all-in” approach is appropriate for many business processes, a wholesale rip-and-replace strategy is potentially catastrophic if something goes wrong. Another challenge is the basic reality that people don’t like change, and whatever the stated benefits of moving to the cloud, resistance in the form of “but this is the way we’ve always done it” is inevitable.

In light of these obstacles, for some, a transition to a cloud-based approach is best undertaken on a step-by-step basis, as part of a broader, long-term sourcing strategy. The strategy should be informed by proven and solid change management, governance and transition processes, effective communication and organisational design structures and a clearly-defined vendor management function. Partnering is also essential to successfully executing this level of major surgery. Here, the role of vendors must evolve from that of a customisation and maintenance shop to more of a collaborative integrator. SAP, for example, has defined a partnering model for customers seeking to embark on the “journey” from one environment to another.

Given how deeply ingrained and complex today’s existing systems are, that journey will be arduous for many. Those that get the move to a cloud-based architecture right and standardise even a few processes can expect to reap the benefits of streamlined operations, lower initial and ongoing costs, faster time to deployment and greater flexibility.

Source: outsourcemag.com-ERP standardisation: hope becomes strategy

Info security outsourcing is almost inevitable

Kris Budnik believes outsourcing information security is becoming more common because of a lack of access to in-house expertise.

Outsourcing the information security function is almost inevitable in the current business landscape.

This is according to Kris Budnik, MD of Slva Information Security, speaking at ITWeb Security Summit 2016, at Vodacom World in Midrand yesterday.

“We are starting to get used to outsourcing the information security function. There are many reasons for this but I think the biggest one is access to expertise. It is so hard to find security resources and it’s even harder to retain them.”

He said it’s difficult to find capable security people and the challenge is that it is also becoming increasingly more expensive.

“Daily I struggle to find security resources and I’m in the security business. It’s so difficult to put a good security team together, never mind finding the all-singing, all-dancing, Swiss army knife type of individual to fulfil the security function in the organisation.”

He said organisations need to understand how to deploy and when to deploy the relevant security team resource and also to acknowledge this is actually going to require a team – “you can no longer run security as a one man show”.

This is where outsourcing comes into play. However, he said there are many important things to consider when deciding whether to outsource the information security function. Issues to contemplate include how quickly the outsourced service will provide answers and how quickly security incidents can be identified and addressed.

“If the time-frame is longer than three months, then you are in the wrong direction. You need to expect fairly quick results or it’s not going to pay for itself.”

Keys to the kingdom

He said when debates over security outsourcing begin, invariably people argue companies can’t outsource because they are giving away the keys to the kingdom.

“But you do that every day. Every time you go to a mall to do some shopping, who is looking after your security there? It’s not the mall, it’s outsourced. Your armed response at your house is an outsourced function. Many important things are outsourced to specialist organisations that have scale. So why can’t we do that in the corporate environment?” he argued.

He also pointed out that even independent directors sitting on company boards are technically outsourced service providers.

“It’s strange that somehow that is ok, but we are uncomfortable outsourcing the IT security functions of an organisation. We must remember there is also value in having that independent perspective.”

Budnik said if done right, outsourcing can lower costs, but if done badly it will become very expensive.

Measure it

He said once companies understand their in-house capabilities and capacity, they can consider the services they may wish to outsource – and there are many to choose from. These include application security testing and vulnerability management, secure Web gateway services, secure e-mail services and end-point protection.

“Security managed services are the quickest and most valuable service you can outsource.”

He pointed out many of these services can be more cost-effective and efficient if they are done through an outsourced group rather than in-house.

Budnik said there are many positives to outsourcing IT security, or at least portions of it, but in the end it is all up to individual organisations to make the decision based on their available resources

“A bad chief information security officer is worse than none at all.”

He did, however, advise against using the same service provider for outsourced management services and outsourced managed services, to avoid any conflicts of interest.

Budnik also warned against believing “brochure-ware” that is full of buzzwords but offers little value, and stressed how critical choosing an outsource partner is.

He said companies should not commit to long-term contracts with service providers, and vet them well by getting references and talking to existing users.

“At the end of the day, you outsource the activity but you still need to monitor effectiveness, so you need to be able to analyse what the service provider is doing for you.”

Source: itweb.co.za-Info security outsourcing is almost inevitable

What are the Challenges and Benefits of Outsourcing your Security Functions?

Information Security Buzz Expert Panel Question 

Gartner forecasts that the total security outsourcing market will grow from $14.1 billion in 2014 to $24.5 billion in 2019 at a compound annual growth rate (CAGR) of 14.8% — making it the highest-growing security services market. What are the challenges and benefits of outsourcing your security functions?

In simpler times, say, in 2009 or 2010, security technology approaches were clearly defined and primarily based on prevention with solutions like firewalls, antivirus, web and email gateways. There were relatively fewer available technology segments and a relatively clear distinction between buying security technologies and outsourcing engagements.

Organizations invested in the few well known broadly used security technologies themselves, and if outsourcing the management of these technologies was needed, they could be reasonably confident that all the major security outsourcing providers would be able to support their choice of technology.

As observed by Gartner, this was a market truth for both on-premise management of security technologies and remote monitoring/management of the network security perimeter (managed security services).

The increasing complexity of the threat landscape has spawned more complex security technologies to combat those threats. Thus, the importance of the “human element” is more prevalent in security management discussions than before. Today, the choices are either to procure security technology and deploy adequate internal resources to use them effectively, or outsource to a provider who is experienced with the selected technology.

Outsourcing security allows organizations to affordably leverage expertise that may not be available internally, but at the cost of losing control. Many providers offer cookie-cutter, one-size-fits-all solutions, which may not meet a specific enterprise’s needs.

A third option that is gaining increasing popularity is co-sourcing. In this model, the provider does the technology-specific heavy lifting and leaves a specific organization’s network independent, allowing remediation to be performed by the in-house team. Organizations can also customize the solution, and keep data on your premises.

Chief Information Security Officers are under pressure to demonstrate adequate risk management and accountability, and simply outsourcing cybersecurity to a managed security services provider won’t pass muster with the Board.

Source: informationsecuritybuzz.com-What are the Challenges and Benefits of Outsourcing your Security Functions?

IT Outsourcing Market Analysis, Trends, Size, Share, Investment Opportunities and Forecast to 2022

According to Stratistics MRC, the Global IT Outsourcing Market is accounted for $314.92 billion in 2015 and is expected to reach $481.37 billion by 2022 growing at a CAGR of 6.2% during the forecast period. Improved company focus, gaining access to exceptional capabilities and reduced costs are some of the major factors driving the market. Whereas, factors such as loss of control and reduced employee morale are hindering the growth of IT Outsourcing market.

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New market opportunities and trends with cloud computing and new business models are prompting the IT infrastructure outsourcing services market. Asia pacific and Latin America are expected to witness prospective growth due to expansion by multinationals into these regions.

Some of the key players in the global IT Outsourcing Market are Infosys, iGate, HCL, Cognizant, CGI, Capgemini, Wipro, Unisys, TCS and ITC Infotech.

Browse the full report at

Scope of the report:

Security Types covered:
• Gain sharing
• Outtasking
• Co-Sourcing

End Users covered:
• Small and Medium enterprises
• Large Enterprises

Applications covered:
• Telecom and IT
• Retail
• Manufacturing
• Healthcare
• Government and Public Utilities
• Banking, Financial Services and Insurance (BFSI)
• Aerospace, Defense and Intelligence
• Others

Regions Covered:
• North America
o US
o Canada
o Mexico
• Europe
o Germany
o France
o Italy
o UK
o Spain
o Rest of Europe
• Asia Pacific
o Japan
o China
o India
o Australia
o New Zealand
o Rest of Asia Pacific
• Rest of the World
o Middle East
o Brazil
o Argentina
o South Africa
o Egypt

What our report offers:
– Market share assessments for the regional and country level segments
– Market share analysis of the top industry players
– Strategic recommendations for the new entrants
– Market forecasts for a minimum of 7 years of all the mentioned segments, sub segments and the regional markets
– Market Trends (Drivers, Constraints, Opportunities, Threats, Challenges, Investment Opportunities, and recommendations)
– Strategic recommendations in key business segments based on the market estimations
– Competitive landscaping mapping the key common trends
– Company profiling with detailed strategies, financials, and recent developments
– Supply chain trends mapping the latest technological advancements

Source: medgadget.com- IT Outsourcing Market Analysis, Trends, Size, Share, Investment Opportunities and Forecast to 2022

Outsourcing IT Infrastructure Management – To do or Not to do

The smooth functioning of IT infrastructure is the key to successful business operations. That’s precisely why most businesses focus on accomplishing 100% IT efficiency. But the process of maintaining computing infrastructure is not that easy isn’t it?

Optimizing, securing, managing and supporting the mission-critical infrastructure throws in a lot of challenges that include:

– Maintaining a scalable and secure computing infrastructure that minimizes costs and ensures service quality

– Hiring and retaining a team of well skilled IT professionals

– Providing an agile and flexible IT infrastructure that enables quick response to dynamic market demands

– Ensuring adequate bandwidth capacity and traffic loads to support mission-critical application environments

– Managing and controlling increasingly expanding infrastructure

– Managing best-in-breed service providers and product vendors.

Trying to fulfill to these demands, a vast number of businesses have met with non-accomplishment. Their IT infrastructure has failed to run smoothly and reliably 24/7 that has affected the performance and functionality and disabled businesses to seek and seize opportunities for moving forward.

Outsourcing IT Infrastructure Management

This common critical plight of ‘IT infrastructure management failure’ has divided the business world into two groups – advocates and opponents of IT outsourcing. However, amidst a big debate whether IT infrastructure is best managed internally/externally, a large section of businesses have gone ahead and partnered with professional technical support and maintenance service providers.

So what has been the outcome?

IT outsourcing has enabled businesses to tap into new technologies, expand skills, respond to market demands and deliver services and products quickly. The entire IT onus, ranging from data center operations to application development and desktop management has been shifted. The corporate professionals have got empowered to concentrate on key strategic initiatives and meet the companies’ other pressing concerns while the external partner takes care of the IT needs.

The news of the terrific outcome experienced by these businesses have spread like wild fire and fostered several others to outsource their IT infrastructure management too. As a consequence of which, the ‘outsourced infrastructure management services’ market has expanded to an unimaginable level.

Quoting the words of Vlad de Ramos – ”The total market for various outsourced infrastructure management services has grown up to $120 billion at present, according to Stephanie Overby’s piece for Chief Information Officers’ magazine. From network services, help desk support, server maintenance, and desktop management—there’s definitely been an upturn of offices farming out their infrastructure management necessities to outsourcing companies.”

So what factors have contributed to the stupendous growth of the outsourced infrastructure management services market? Let’s find out:

The benefits of IT application and infrastructure outsourcing are significant.

1. Focus on higher value responsibilities

Managing the infrastructure system is a time-consuming task. And things become more challenging when the business is fast-growing and new areas get added into the operations. Managing all the core competencies along with IT infrastructure becomes taxing. Often the focus on operational activities takes away the focus from infrastructure management necessities.

Having an infrastructure management partner enables businesses to comfortably hand over all the IT tasks while they concentrate on developing operational strategies.

2. Reduced Costs

Now this is a no-brainer!! Its simple math that hiring an external partner to handle the company’s entire infrastructure is less expensive than employing a team of full-time IT professionals. That’s the reason it’s deemed best for all fast-growing small and medium-sized businesses that grapple with finances.

SMBs can hire any renowned IT infrastructure management company and outsource all IT tasks at a reasonable cost. Going forward, they have the ease to pull back contracts from the partner and switch to another. Dealing with a permanent team of IT professionals is never the hassle for them.

3. 100% IT efficiency

Collaborating and partnering with an IT infrastructure management company ensures on-time support and prompt resolution of the most complex server and application problems. These companies have in-depth knowledge on the latest technologies and services in the industry and provide scheduled updates for security patches, antivirus, spam protections and network security.

Resultant of which, the IT system becomes robust and powerful in the long run. The business experiences high uptime with great redundancy and disaster recovery capabilities.

4. Smooth tackling of IT challenges

Businesses are often required to have multiple integrations, consolidations and changes in their IT infrastructure. Now, while this is quite troublesome for any business to solely handle, working with a company that offers reliable IT infrastructure management services make these tasks super easy.

Possessing in-depth information, these service providers precisely know the tricks and methods to handle all the IT challenges and render maximum value and minimal risk to the business.

5. Improved agility

In the present hyper-competitive landscape, it is imperative for every business to have “speed to market” and agility to respond quickly to dynamic opportunities. And both these factors can only be realized when the business brings in the services of a reliable IT infrastructure management company.

That is because in comparison to in-house IT team, outsourcing providers offer better support to quickly implement new developments within the business.

IT Outsourcing – Step towards Operational Efficiency and Excellence

Every business is dependent upon its applications and infrastructure components: servers, network, and security. Outsourcing IT Infrastructure management with a trusted provider ensures strategic effectiveness as well as cost efficiency. It puts the management professionals in a better position to give attention to operational areas, align IT with business objectives and optimize processes and acquire new capabilities.

Statistics also show that businesses who partner with an IT management provider are better at capitalizing on the market changes than others. That is because they get to use their IT partner’s economies of scale, high performance, and enhanced service delivery to address most urgent issues and bring in innovation and significant change.

Already, more than 50% of businesses have acted boldly and taken the leap to IT outsourcing. When will you??

Source: customerthink.com-Outsourcing IT Infrastructure Management – To do or Not to do

Are you paying too much for outsourced resources?

Many companies in mature, offshore, FTE-based outsourcing environments experience substantial bloat. From our knowledge of our clients’ situations and our research for companies seeking objective data to help them determine the return on investment in outsourcing, it’s clear that many companies today are paying too much for the resources. And they’re blissfully unaware of the outsourcing bloat — which means that they are paying for 30 percent or more of FTEs than they need. Moreover, they don’t have visibility into what could be done to rationalize the bloat. This is a significant problem.

The outsourcing bloat grows in two dimensions: (1) paying for too many FTEs and (2) paying too much per FTE. The problem has an even bigger impact when you consider that outsourced FTEs will cheerfully respond to system problems, but not address the underlying issues which cause them. Our observation is companies that have fixed underlying systemic problems are operating with 30 to 40 percent fewer FTEs.

We’re finding this situation across most of the industry. Every company is different; but if yours is in a mature FTE-based outsourcing situation, there’s a good chance you have substantial FTE bloat.

The problem is exacerbated in that companies are paying more than market rate. Here’s why. Typically, when a company signs an outsourcing contract, a cost-of-living (COLA) adjustment is applied, which ratchets up the cost. But over the last three years, market costs for these services have been dropping between one and three percent a year. Yet the COLA has been going up between three and five percent a year.

Companies sign a COLA agreement because they believe they want to retain the people. But even if this is the aspiration, most companies experience significant churn in the offshoring factory model. So they’re paying for something they’re not getting (retention of people) and also paying higher costs even though the provider’s costs aren’t rising. Although wages are increasing in India, wages for the freshers (the people coming out of college) haven’t been increasing, and that’s often the resources the customer pays for as the provider’s model is to keep lower-priced people doing the work.

Finally, rupee depreciation is a factor. Since the customer pays for more resources than are necessary, this offsets the depreciation impact on the provider’s rates.

My advice: If your company has a mature, FTE-based outsourcing relationship, you need to take a close look at it for possible bloat. Obtain objective market data to help you determine whether you’re paying for too many resources and too much for those resources.

Source: CIO-Are you paying too much for outsourced resources?