Outsourcing (part 1): Ireland wises up

7 May 2003

The standard outsource pitch is disarmingly simple. It goes like this: a business will become more efficient by concentrating on core competencies – usually the things that made the business successful in the first place – while offloading other activities to a trusted third-party service provider.

It doesn’t require much analysis to realise that this is a sound bite, glossing over difficulties about downsizing and trust, to name but two. It also prompts some serious internal soul-searching about what an organisation might class as its core competencies in the first place.

On top of this is the evolving role of outsource specialists, and the grey area of managed services which could cover anything from cleaning company cars to managing a virtual private network.

To confuse things further there is the local side of the story. There is a perception, largely rooted in a Cap Gemini Ernst & Young survey from 18 months ago, that the Irish business community is wary of IT outsourcing because of concerns over security and a loss of control.

Bringing the argument up to date, Accenture’s business development director, Stuart McLaughlin, argues that outsourcing has been more prevalent in Ireland than many people may have realised.

“I take issue with those who say the Irish market is reluctant to outsource, although it clearly isn’t as mature as in other markets such as the UK. Take-up has been slower but there are recent examples that are starting to push it forward.”

He cites the application arrangement between his own company and the Revenue On-Line Service and the more recent move by Excel to outsource its entire Dublin financial services operation effectively creating 140 new Accenture staff.

Hewlett-Packard (HP) is another company that would beg to differ with the notion that Ireland is stuck in a rut. “What we have achieved recently will create a sea change in an awful lot of minds. It will change the market dynamic completely — ‘a rising tide lifts all boats’,” says Tom Carson, country manager for HP services. “We have a 20-30pc market share of the service business, but the significant figure is that we have grown 400pc in the last 12 months.”

The bullish talk and strong figures stem from high-profile deals such as the Bank of Ireland’s decision to outsource all of its IT management, shifting over 450 employees in the UK and Ireland to HP. The contract is believed to be worth close to €80m over a four-year period and is one of many recent examples that suggests outsourcing is gathering pace.

What has prompted the sudden activity in Ireland? McLaughlin sees an obvious factor. “Outsourcing is a valid strategy at any time but it’s a strategy that does particularly well when markets are difficult. If you look at its global history it has thrived in downturns, which is why it has taken until now to take off in Ireland,” he says, referring to the ailing health of the Celtic tiger.
This validates the argument that companies primarily look to outsourcing as a way of saving money. “If an organisation is being entirely honest with itself, when things are going well there is not a 100pc focus on the cost base,” says McLaughlin. “Conversely, when things are more difficult there is a 100pc focus on the cost base.”

The conclusion is obvious: “In the current economic climate there is more of an imperative in organisations and among senior managers to look at alternative strategies.

As further evidence of the link between the tech recession and outsource adoption, he cites a recent Gartner survey on IT spending among companies. One of the few areas where expenditure was on the increase was in outsourcing.

HP’s Carson sees a more subtle synergy between outsourcing and the business landscape. “It’s counter cyclical,” he says. “In a downturn people look at outsourcing as a way of reducing the cost base and driving efficiencies. They look at it for lots of very immediate reasons. In times of growth, outsourcing provides the leverage and scalability. The relationship means different things in different business cycles.”

It also means different things in different markets. McLaughlin argues that in Ireland’s case many companies struggle to think beyond web hosting and data management when it comes to outsourcing.

“Partly because of the massive boom and subsequent bust that happened in the data centre environment, a lot of people automatically associated outsourcing with data centres and managed services. They weren’t looking at the application management, shared services or back office opportunities. Again, this is starting to change.”

By Ian Campbell