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July 2010 Quick Hits - News, Trends & Analysis

More Outsourcing Business From The UK
The private sector has been in a downturn for the past 2 years, and IT directors have been creative at swinging the axe and reducing costs where possible. Now the same tough measures are being forced upon IT directors in the public sector. Due to the high unemployment rate, local government is trying to avoid going offshore for cost reduction, but rather create efficiencies through shared services locally. As commented on offshoring times "The current government's focus on giving greater autonomy to agencies is likely to mean that we see a range of public sector bodies within a local area working together towards common goals of reduced costs and economies of scale. Initially, non-core functions, including anything that's based on common off-the-shelf software, email and office applications could be brought under a shared service centre that can support multiple government departments. Among local authorities this can include processes such as revenue and benefit, payroll and HR functions, the Ovum analysts stated". There is a tremendous amount of waste currently, so it is about time that more shared services for back office functions are created, BPO vendors who can demonstrate best practices in those areas look set to gain billions of GBP in revenue between now and 2013.

First Outsourcing Deal In The World Gets Renewed
Back in 1988, when GM first outsourced IT to EDS, it was first deal of its kind, and it has since given birth to a $500BN a year outsourcing industry. It was recently reported that GM renewed a 5 year $2BN deal with their outsourcer HP (now owner of EDS). As commented on Sourcingmag, "HP said it will provide GM with applications and systems integration services, as well as network, workplace, and mainframe management services globally. Services include support for GM's OnStar in-vehicle communications service, which was also part of the earlier contract, Collins said. GM manufacturing software and infrastructure that HP will support include plant control and automation systems and manufacturing execution systems (MES), Collins said. HP will also provide GM with global service desk and site support services in more than 50 countries and languages, HP said. And the deal covers remote network management for data, network security, and videoconferencing services". It still amazes me that a company which has to focus so much on cost reduction is not willing to embrace a multisourcing strategy that introduces competition amongst 5-6 suppliers to lower the price of services, but I guess with all their other problems (healthcare costs, poor product lines, etc.) they do not want to introduce more risk across IT.

Outsourcing Trends In Europe
As commented on offshoring times, "A study report states that 60 percent of UK businesses are outsourcing more than they did two years ago. Some 61 percent of businesses are outsourcing IT requirements to local suppliers instead of overseas alternatives, with only 6.9 percent of business awarding contracts to the lowest bidders." In our experience, the lowest bidder rarely wins the outsourcing project - factors like people, quality of proposal, client referrals and technical strength play an important role. As for the recent drive to remain local, I believe this highlights a short term trend. Due to the recent job market lull, there are now plenty of local talented IT people available at reduced rates. However, once the economy picks up, they will be re-employed and companies will again need to offshore to sustain cost savings.

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