Businesses realise benefits of outsourcing

There’s an opportunity for shared-services providers to move up the value chain.

Phil King
Head of shared-service centres
Atos Origin

Think of UK shared-services centres and you’ll likely think of big-name blue-chip advocates, among them BAE Systems, Unilever and Tesco.

Certainly, business in the UK is undergoing an outsourcing boom.

Operations, IT, procurement, human resources (HR), treasury and legal – you name it, an external specialist can provide it.

Cost savings

In the private sector, the trend to outsource back-office operations is long established.

We have very strict requirements with regard to the security, reliability and international reach of our hosting provider.

Dave Burwell
IT director
Allen & Overy

“It takes transactional processes out of the front line, frees up front-line professionals, saves costs and brings economies of scale,” says Phil King, head of shared-service centres for IT company Atos Origin.

Increased security

But companies that make use of these centres are noting side benefits, too, including risk management.

In January, Allen & Overy, one of the world’s largest law firms, outsourced its IT networks, document management and accounting functions under a five-year contract with Savvis.

Allen & Overy IT director Dave Burwell cited one reason for the move being the firm’s desire to “move [its] data centre away from risk”.

“We can't afford to have loss of service,” he said.

“By the very nature of our business, we have very strict requirements with regard to the security, reliability and international reach of our hosting provider."

Public-sector driver

Efficiency is another driver for outsourcing and nowhere is it more high profile than in the public sector.

The 2004 Gershon review of public-sector efficiency envisaged a slimmed-down public sector that would save £15 billion (US$26 billion, €21 billion) annually.

The sector has already made significant progress in outsourcing transactional functions.

HM Prison Service will in 2006 pool its HR, financial and procurement services in a centre in Newport, South Wales.

In March, London-based Fujitsu Services signed a £185 million, 15-year deal to provide HR services to the Northern Ireland Civil Service.

The value chain

Also driving the shared-services sector is an emerging trend for globalising companies to move some more complex services closer to their customer base.

US engineering firm Cummins, for instance, organises all its HR, finance and IT functions for Europe, the Middle East and Africa in the UK, at a centre in Darlington.

According to the National Outsourcing Association (NOA), firms that once moved services out of the UK – for example to India – will in 2006 bring them back home, with global delivery models driving offshore suppliers to open European centres or acquire European services companies.

King argues that a high-quality labour force in the UK – with industry-leading staff retention rates in Wales – and low costs are encouraging firms to locate their shared-services centres in the UK.

“One of our clients moved some basic functions to India but brought more sophisticated processes, such as budgeting and forecasting, to the UK.

“There’s an opportunity for shared-services providers to move up the value chain,” he says.”