Outsource Issue 30 - (Page 100)

This issue: Vendor StrategieS Vendor StrategieS for improVing profitability It’s a challenging market, alright – so what are suppliers doing to maintain or even increase their profitability? In this issue’s exclusive report, NelsonHall’s Rachael Stormonth examines the steps providers are taking to stay ahead of the game – and what implications these strategies hold for clients… O ne of the key aspects of NelsonHall’s research into BPO and IT outsourcing markets is its continuous and comprehensive assessment of the vendor landscape, which many outsourcing buyers find invaluable in support of their sourcing initiatives. We look at vendors’ contract activity, financial performance, and portfolio development in terms of new partnerships, new offerings and M&A activity. We also interview vendors (and their clients) extensively to assess how they are performing against their corporate priorities and how their strategies are evolving – and of course we talk to them and to their clients. This article looks at some of the current trends in the strategies of outsourcing vendors operating in an increasingly challenging European market, and considers some of the ramifications for current and prospective clients. A Focus on ImprovIng proFItAbIlIty Unsurprisingly, the priority for most outsourcing vendors servicing more mature markets is to improve margins in an environment of flat or declining top-line growth. Vendors such as IBM have made it clear for some time that their top priority for the next few years is driving margin improvement. And the focus for Xerox Services has now shifted from driving top-line growth to offset revenue declines from its technology business to initiatives intended to get operating margins back to over ten per cent. Actions being taken, particularly by European- and US-headquartered majors, to reduce the cost of the workforce include: “Flattening the pyramid”, increasing the proportion of personnel at the lower levels For example, Capgemini is looking to increase the proportion of freshers in its workforce to 30 per cent. Reducing the number of management layers CSC, for example, is looking to take out $250-$300m in costs over the next couple of years by reducing the number of management levels in its organisation from 13 to seven, and increasing the average span of control. Accelerated offshoring for service delivery Taking the example of Capgemini again, it aims to have a headcount of ~80,000 in low-cost countries by 2015, up from 45,000 in H1 2012. The target is for personnel in its global delivery network to represent over 50 per cent of total headcount; onshore-based headcount will thus grow modestly, if at all, over the next three years. Capgemini’s targeted net addition of nearly 12,000 personnel per annum in its global delivery network over the next three years is a reflection of the increasing acceptance we have noted of offshoring by Rachael Stormonth is Senior Vice President, NelsonHall. She can be contacted at rachael.stormonth@nelson-hall.com or on Twitter at @rstormonth 100 ●● ● www.outsourcemagazine.co.uk http://www.outsourcemagazine.co.uk

Table of Contents for the Digital Edition of Outsource Issue 30

Peering through the fog
Who moved my world
Bringing on the beeb
Courting the commentariat
Everyone is responsible
Our survey says
Fast money
Smarten up
Seeing the biggest picture
NOA round-up
Embracing enterprise innovation
Customer matters
Application development outsourcing
India: rules for offshoring
Talent gap
The Professionals
Book learning
The outsourcing jigsaw
The legal view
Top ten
NelsonHall round-up
Spontaneity
Online round-up
The deal doctor
Inside source
The last word

Outsource Issue 30