Europe BPO/BTO overview 2003

European BPO/BTO MarketKent CooperManaging PartnerSynergenics Consulting Inc.

Paris

| SYNERGENICS CONSULTING INC.

Europe BPO Overview | 7 Feb. 2003 © Synergenics Consulting Inc. 2003

│Synergenics Consulting Inc.

What’s going on in European services…

Europe Overview | 7 Feb. 2003 © 2003 Synergenics Consulting Inc.

• Unprecedented price war, buyers’ market

• Many clients buying piecemeal projects (e.g. pilots) vs. committing to large rollouts; very few megadeals

• Razor-thin margins (negative PTI, GP ~ 5-8%); clients demand immediate cost savings

• Competitors (e.g. CGEY) importing labor from offshore to onshore for six-month periods to win deals

• BAFO must be first bid or you don’t even make the cut

• BTO/BPO only thing many clients want to talk about: “You are either in this business or you’re out of it.” (FSS)

EU Market Profile for BPO


• Gartner: BPO is fastest-growing component of services/sourcing market in Europe

• About 2-3 quarters behind US economy AND in BPO adoption

• UK is leading the way in BPO

• Getting overcrowded, overhyped, with many pretenders reclothing existing IT outsourcing as BPO/BTO

• Desperate market, streetfights over every deal; ripe for M&A, consolidation

• Pricing is Wild West, no rules, few sourcing strategies, all about cost reduction to client

• Indian players (mPhasis, TATA, Wipro) playing price game

• Overall European IT services 2003 growth: flat to 1-3 percent


Outsourcing Competitive Map -- 1999



1. IBM2. atraxis3. Perot

System4. Unicible5. EDS

1.EDS2. IBM3.CSC4. ICL5.CG

1.EDS2. IBM3.Andersen

(BPO)4. Indra5. Ibermatica

1. Roccade2. Origin3. IBM4. CG5. EDS

1. IBM2.WM-Data3.Kom.-data4.TietoEnator5.Sema

1. IBM2. Atos3. EDS4. Sema5. CG

1. debis2. Siemens3. IBM4. EDS5. Datev

1. IBM2. EDS3. Finsiel4. Siemens5. Getronix


Services Competitive Landscape WW


Business ValueBusiness Value

InfrastructureInfrastructureValueValue

ServicesSoftware

Hardware

TechnologyTechnologyValueValue



Services

Software

Hardware



BACK-UP


Services Landscape -- Yesterday

IT Focused Process Focused

Transform

Operate

Transformational IT Transformational IT OutsourcingOutsourcing

Business Business Transformation Transformation

OutsourcingOutsourcing

Traditional IT Traditional IT OutsourcingOutsourcing

Business Process Business Process OutsourcingOutsourcing

Effectiveness based services

Efficiency based services

Design/Build

Business Consulting Business Consulting ServicesServices

Integrated Technology Integrated Technology ServicesServices

Application Management Application Management ServicesServices

Business Consulting Business Consulting ServicesServices

Assistance services

Enter title here


│European Business Value Group

• Enter text here



Services

Software

Hardware


Deliver business value through process innovation, application enablement and integration

Enable business transformation through the running of advanced, optimized IT environments


Help clients architect and run their own infrastructure

Value must bridge technology and business

Client needs and readiness varies│Synergenics Consulting Inc.

ApplicationTransformation

Process Transformational Outsourcing

CostTransformation

EnterpriseTransformation through Outsourcing

Proc

ess

Cha

nge

Return on Investment



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Competitive Landscape - EuropeCATEGORY COMPETITORS READINESS

FOR BTORATIONALE

CONSULTANTSACCENTURE

CGEY

4

3

• Already active in BTO

• Strong consulting, change mgmt., • BPR skills, combined with BPO experience; C-level

relationships

PROCESS SPECIALISTS

ADP, HAYS (SCM, LOGISTICS, HR), ANDERSEN, WS ATKINS, (payroll,

benefits), Hewitt (payroll, benefits)

2

• Recognized for expertise in particular processes• Killer app could be gain/risk-sharing and financing to

BPO offer• Transformation/change mgmt. skills unclear

IT OUTSOURCERS

EDS/ATK

CSC, ITNET, Xansa, SBS

3

1

• Insight into BTO high from BPO delivery• Weaker than AC in consulting• Experience, ATK process expertise

• Not clearly positioned due to lack of process expertise; partnering seems best strategy

PURE-PLAY BPO VENDORS

Capita, Equant, Exult, Vertex, xChanging,

Teletec2

• Comprehensive view of process area and capabilities for transformation/mgmt.

• Often partner with IT outsourcers (Xchanging/CSC, Vertex/CGEY)


Accenture Profile│Synergenics Consulting Inc.


• 1Q03 expecting 1-6% revenue decline w/w, double-digit decline in outsourcing.

• Q1 “Win Fund” in place … and working.

• Accenture believes that BTO is a $100B market; BTO seen as firm’s key driver to growth, esp. in EMEA.

• No longer taking illiquid securities as payment from clients, partners.

• Move to equity-based comp plan causing some “rising-star” attrition.

• Continuously increasing offshore capability - plan to increase by up to 30%.

• Germany is worst performer, although govt. strong. Govt. is hottest sector(key UK BPO recent win, others in pipeline).

• Key outsourcing clients: Sainsbury’s, Thames Water, British Gas, Groupama, Belgian govt., RCI, Exel, C&W, Nat’l. Assembly of Wales

EDS Profile│Synergenics Consulting Inc.


• Identified Europe as its major growth market.• Private pricing strategy for Europe: win at almost any cost, including

no-profit deals in exchange for share. Public: focus is profitable growth, not growth at any cost.

• Major restructuring in Europe just launched.• Renowned for public sector work in UK (e.g. DWP, MOD), but over-

dependent (45% of EMEA revenue).• Not yet articulated BPO strategy.• Legacy/IT infrastructure view of BPO.• Sales pipeline for the next 12 months is estimated to be roughly

$1308M (~ 111 deals worth over $250M, ~ 25 deals over $1B).• Sample clients: RBOS, Alliance & Leicester, BT, Reuters, BBC, Inland

Revenue, European Parliament



Competitive Profile By ProcessProcess Accenture EDS Other

F&A• Deals with BP, C&W (foot

in door at several others, e.g. Iberdrola, ENEL)

• Strong in payments processing

• ACS strong in healthcare claims processing and public sector

HR

• ePeopleServe JV with BT in 02, now rebranded as Accenture HR Services

• Strong eLearning offering with Indeliq

• Strength in cost-reduction through transaction processing, vs. higher-value transformation work

• ADP strong in payroll• Hewitt is leading HR

and benefits outsourcing

• xChanging, Exult strong in UK

Procurement (Indirect)

• Strength is procurement consulting, rather than outsourcing

• Strong presence• ATK strong rep. in

sourcing

• Ryder integrates supply chain, dist., and transportation offerings

TechnicalSupport

• Uncertain if deal with BellSouth is yielding

• Aggressively increasing offshore investment

• Offshore tech support• More investment this

year

• CSC has strong offshore programming, IT, help desk capabilities


Top processes outsourced in 2001

Administration

HR

Supply Chain Management

Finance and Accounting

Sales, Marketingand Customer Care

Payment Services

Percent 0 5 20 25 3010 15

Note: Number of respondents = 77Source: Gartner Dataquest (January 2002)



Client key selection criteria for BTO providersTrack Record

Business Process Knowledge

Vertical Market Knowledge

Technical Expertise

Available Resources

Decreased Time to Solution

Cultural Fit of IT Services Vendorwith Customer

Total Solution

Low-Cost Provider

Knowledge Transfer

Partnerships and Alliances

Global Reach

1 2 3 4 5




Primary decision makers for BTO are C-level


CIO(2%)

CFO(33%)Vice President

of Business Unit(14%)

Function Head(9%)

CEO(30%)

CxO/COO(12%)



The top three barriers in business process & industry-specific services are: 1) security, 2) viability of provider, and 3) external access to mission-critical databases

Bus. process & ind.-specific services UK Ger Fra Ita USConcerns about security in a shared environment #3 #1 #2 #2 #2

Viability and stability of provider #2 #3 #1 #1Uncomfortable giving access to mission-critical databases #1 #1 #3 #3

External provider not as responsive as internal

Loss of internal expertise #2 #1

Difficult to clearly demonstrate ROI

Fear of losing control

Clients want to begin with non-

core processes



Cost savings is the overriding benefit for infrastructure and management services adoption in UK, Germany, and France. For Italy, it is greater ROI.

Infrastructure and management services UK Ger Fra ItaReduction in costs #1 #1 #2

Greater ROI #1

Will not be limited by current IT capabilities #3

Gain e-business expertise without adding IT staff #3

Allows focus on 'core' business #2 #2 #3Utility pricing model allows orgs to pay for what they use #1 #2

Highly scalable #3

Reduce complexity in e-business infrastructure #3

US#2

#3

#1

#3



Key messages from clientsCriteria for selecting provider…

– Access to world-class skills and capabilities

– ETE solution– Track record– Ability to change the

culture of the organization

– Flexibility to adjust to marketplace dynamics

– Relationship built on trust

How we measure success…

– Cost efficiencies / return on investment

– Delivery of world-class capabilities

– Establishment of a partnership

– Solve problems before we bring them to your attention (proactive, creative)

– Vendor employees and our employees are indistinguishable …


Market Growing Rapidly│Synergenics Consulting Inc.

AmericasEMEAAP

Source: Gartner Dataquest's “Outsourcing Forecast Update: Feeling the Pain” July, 2002

The global market for BPO

is forecast to grow 10%annually from $124Bin 2000 to $180B in 2005

* Includes business process, application management, and infrastructure management

0

50

100

150

200

2000 2001 2002 2003 2004 2005


UNITED KINGDOM



• Europe’s third-largest economy

• Leading BPO adoption• EDS, AC, IBM, CGEY, Atos Origin

(KPMG) biggest services players

• Largest base of BPO players (Vertex, Exult, Xchanging, ITNET, Capita, Equitant)

• Traditional launching pad for US firms entering European market

FRANCE



• Europe’s second-largest economy

• Extremely rigid employment laws

• CGEY (home), EDS, Atos Origin, IBM, CSC major players in IT services

• Xchanging on the ground

• Gradual deregulation in comms = scandals (France Telecom, Vivendi)

GERMANY



• Europe’s largest economy, world’s third largest; sleeping giant

• Worst economy since 1993

• EDS, SBS, TS, Datev major players in IT services

• T Systems looking for services partner

• Xchanging on the ground in Frankfurt

• Huge industrial base and FS base

• Extremely rigid employment laws, Workers’ Councils, demands creativity for BPO play

• Utilities deregulation (RWE, AWD, e.on)

UK and Ireland BPO PLAYERS



Company Comments

CAPITA REV: ~ £1.2B; S&L gov’t., education strength, UK/Ireland only

EQUITANT REV: NA; Dublin HQ; OTC specialty, MSFT, HP key clients; partner with HP for online transactions; UK/Ireland primarily (Stockton, CA office)

EXULT Ltd. REV: ~$400M. ; London is European HQ; HR specialty; Scotland call centre; BP, Prudential, BofA, Unisys key clients

ITNET REV: ~ £200M; BHAM-based; S&L gov’t., FS strength, some travel and transport; UK/Ireland only; stated intent to grow Europe through acquisition

VERTEX REV: ~ £500M; clearly a/the leader in UK; just acquired 7C ops in UK and India; claims top European BPO share at 59%, top UK govt. BPO share @ 58%; key relationships with CGEY and EDS; trying to crack US market

7C ACQUIRED BY VERTEX 12/02

XANSA REV: ~ £600M; in trouble; former FI Group, bought Druid for too much, negative growth, multinational presence, transformation strategy, strong vertical expertise, 2000+ layoffs this week

Buy or build … or both?


• Acquisition(s) mean immediate pipeline, all-important vertical/local expertise

• Best targets are in UK – what about France & Germany?

• Start in UK – establish front office, buy/build pipeline, buy/build/integrate sales force(s)

• Acquisition(s) bring cultural risks and challenge of cultural integration – takes time and great care

• Synergizing offerings -- takes time

• Branding challenges on continent

• WIN ASAP – deals on the table now


Gartner BPO advice to European clients…


“Gartner believes that the best way to avoid problems is to consider ESPs [enterprise service providers] that have an established track record of BPO success and can provide a list of reference customers, or demonstrate a solid commitment to the BPO model as a part of their business.”


“Business Process Outsourcing in Europe: What You Should Know”

Gartner Research Note COM-17-2725


Utility computing and BPO: What clients in Europe are saying• We want to start with non-core processes.• (Some are saying: “Give me a better process.”)• We want a migration plan for movement from today’s

environment to a pay-as-we-use public-utility model.• Infrastructure offerings are an important foundation, but real value

comes through applications and business processes.• Pricing and metering should be based on business metrics (#

of coffees sold, number of people finding jobs, etc.). Pricing needs to be fair, transparent, consistent, easy.

• SLAs should be tied to true business performance metrics at user level. Start with application-performance metrics and shift away from SLAs about technical metrics.



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Europe according to CNN



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CONTACT


KENT COOPER

PREDICTIVE HEALTH INTELLIGENCE LLC

[email protected]

+1.615.410.1542

Europe BPO/BTO overview 2003

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