Out with the old
Outsourcing was once a rarity but recession has transformed this. David Arminas examines how Ireland, once reluctant to adopt outsourcing is changing its tune and growing its outsource market.
Times were good for businesses up to August 2008. There were few better European places in which to do business than the Republic of Ireland. The economy was quickly expanding, employment was low, people were consuming and restaurants were full. Generous tax allowances were encouraging overseas firms to set up shop, which they did in great numbers.
But Irish businesses were still careful about their outsourcing. Simply put, there was no perceived need to go through the aggravation of tendering, contracting and then watching over a service provider. There was enough money in the budget for most organisations to hire their own staff to do the jobs. This meant landing an outsource contract, not just FM but in for other services such as IT, was a tough nut to crack, according to Gary Harrold, chief operating officer for Swiss Post Solutions which set up a business in October 2008.
An Post, Ireland’s state-owned postal services provider — announced that it was seeking around 1,200 redundancies within three years, including 250 at its Dublin headquarters
But crack the nut they did. Clients include Microsoft and HSBC. But it’s been a particularly concerted effort to get where they are, he insists.
“Up to August 2008 there was an understanding by some Irish businesses that outsourcing might be useful to their bottom line, but these firms were a minority,” he says. “Funds and staff resources were readily available.”
A 3.5m investment by outsourcing firm Abtran, supported by Enterprise Ireland, will create 300 new jobs in Cork
It was a familiar scenario that had played itself out in the UK a couple years before. But that was about to change.
“After the global meltdown in September 2008 a number of interesting things unfolded,” he explains. “Large organisations started to use the general financial meltdown as an excuse to off-load staff and facilities to third parties. Leading large organisations no longer had capital to invest internally yet remained committed to maintaining their market leadership. This could be achieved only by outsourcing non-core areas.” The in-house IT system was the first icon to be destroyed.
IT outsourcing
Small companies, especially the more technically savvy ones, understood you needn’t necessarily own an IT system. So they began to embrace IT outsourcing in varying degrees, such as through the SaaS and IaaS models. Software as a service, the SaaS model of software deployment, is where a provider licenses an application to customers for pay-as-you-go, on-demand use. SaaS software vendors may host the application on their own web servers or upload the application to the consumer device, disabling it after use or after the on-demand contract expires.
At the other end is IaaS, or Infrastructure as a Service, where complete IT packages are brought into to a business from outside. Rather than purchase servers, software, data centre space or network equipment, clients instead buy those resources as a fully outsourced service. The service is typically billed on a utility computing basis and amount of resources consumed, and therefore the cost, will typically reflect the level of IT activity. Resistance to outsourcing was originally felt most acutely within Irish-owned financial services companies, construction-related companies, some US-based pharmaceutical multi-nationals in Ireland that had to adhere to global policies and government organisations due to staffing issues. But IT outsourcing helped to start the ball rolling.
Generally, lead times from proposal to implementation of a contract are longer; clients believe that they must own the process — the touch-feel-see mentality remains in Ireland. It’s that well-known issue of ‘not letting go’. This could mean that when a service provider is eventually appointed, their job is not straightforward. The client may tend to micromanage and hinder the service provider’s ability to quickly make decisions in the best interest of their client.
The mailroom gateway to more business
Most of Swiss Post Solutions’ clients are FTSE 250 and the firm has gone into Ireland with them as they expand. They are looking to work with more and more single-source providers who have the same global footprint as them. So if they expand into Ireland, then Swiss Post Solutions goes along as the outsourced FM provider for reprographics and mail. This is the case with Northern Trust, Microsoft and HSBC. There is also a trend where some clients are asking Swiss Post Solutions if it can manage the entire FM services supply chain for them. For example, if Swiss Post is handling mail, it might be they can also manage the supplier of digital services and the reprographics. The mail room is becoming the gateway for entry to other FM contracts. But this sort of outsourcing is in early stages in Ireland. Firms must demonstrate that they have good base and are committed to the Irish economy.
There also remains a mixture of monopolies and duopolies within some sectors. So there is still a belief by some people that the state or the monopolistic organisation will automatically and unquestionably know what is best without consulting the open market and hold a competition.
Also, Irish businesses will most likely consider a one-stop shop approach to outsourcing, thereby limiting the number of potential providers. However, for inbound service providers such as Swiss Post Solutions there remains some very positive aspects, not least generous tax incentives for foreign direct investment. There are also an increasing number of good data-centres and which also don’t have to adhere to stringent anti-terrorist laws such as the US Patriot Act or UK Anti-Terrorism Act. Under these acts, the data centre must allow police or government access to information, in particular correspondence such as e-mails, and this could make potential outsource clients wary of committing themselves.
In the future, a big driver for outsource growth will be the “green agenda” and corporate responsibility, says Harrold. “For most companies virtualisation of IT servers and any positive ways to reduce the carbon footprint that can be delivered by outsourcing will be actively pursued.” Expect to see this gather pace by the end of this year and into early 2011.
Print management is already a growing area for outsourcing, especially where the service provider can supply MFP units, or multi-function peripherals. What most people would call ‘the printer’ can now perform several duties — print, document scan, photocopy, fax and even send e-mails.
But Harrold believes there will be strong growth for true document processing outsourcing as entire business processes are transferred to the outsourced provider.
“Another area of growth is transactional processing as part of the overall accounts payable/accounts receivable process. This is being driven by EU initiatives where already e-invoicing is mandatory in some countries. Overall, traditional postal volumes are decreasing in favour of electronic delivery.
The continued roll out of broadband, especially 4G technology with its ultra high-speed broadband delivery, will aid outsourcing. Companies downsizing in premise and staff numbers will look to outsource providers as they lose space to make room for in-house equipment and also internal people skills to run the systems.
