MCN Direct Newswire

Vol. 2 No. 23, 16 June 2003

This issue is sponsored by:

Epicor Software, M-Urge and The UK Consulting Industry 2002/3

This issue news

1. PwC sells BPO business to Exult
2. EDS and Fujitsu finalise consortium for MoD bid
3. IBM books $645 million paper deal
4. Accenture promotes BPO business
5. E-government costs outweigh savings
6. Further information - feedback/forward to a colleague/unsubscribe

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1. PwC SELLS BPO BUSINESS TO EXULT

PricewaterhouseCoopers has sold its international business process outsourcing (BPO) operations to human resource outsourcing specialist Exult in a $17 million deal.

Bowing to regulatory pressure to divest non-audit businesses, PwC has lost not only blue-chip BPO clients including Standard Chartered Bank, Tibbett & Britten, Grupo Algar and Safeway, but also 500 employees, of whom 350 are based in the UK with the remainder at service centres in South America and Eastern Europe, or PwC locations in Western Europe, Hong Kong and Singapore.

Richard Smith, a London-based PwC partner and global leader of BPO, said: "BPO has been a strategic service line within PwC for several years and the business has gained recognition as a leader in the BPO market. However, the demands of the regulatory environment have caused PwC to divest this business. We have selected Exult as the best choice to serve our key clients."

Despite the sale, PwC retains one international BPO contract, but declined to name the client. Smith's future is equally mysterious with PwC saying only that he will remain with the company and take on "a new role".

Exult, a leader in HR BPO for global 500 companies, claims the acquisition will be accretive to earnings from the beginning of 2004, and will deliver a significant revenue increase as the business includes contracts with remaining terms of 2-6 years and total scheduled revenues of $100 million.

In 2002, Exult reported a net loss of $10.6 million on revenues gaining 54% to $420.4 million. The company is based in Irvine, California and has client service centres in the US, Canada, Europe and India.

Exult founder, chairman and CEO Jim Madden described the acquisition as an "important milestone" for the company, adding: "This acquisition positions us to capitalise on market growth by giving us international expertise in HR BPO and affinity finance and accounting processes. It also gives us a group of deeply experienced multi-lingual outsourcing professionals and an expanded multinational infrastructure."

2. EDS AND FUJITSU FINALISE CONSORTIUM FOR MoD BID

EDS and Fujitsu Services have finalised the make-up of the Atlas consortium they have established to bid for the $8 billion contract to overhaul the Ministry of Defence's IT infrastructure (MCN Direct 2-20).

As well as the two main protagonists, the consortium contains LogicaCMG, General Dynamics UK and Cogent Defence and Security Networks, a subsidiary of US defence firm EADS.

Atlas is up against the Radii consortium of CSC, BT Government, Cap Gemini Ernst & Young and Thales UK; a consortium of IBM, BAE systems and Steria; and a group led by Lockheed Martin which includes HP, Unisys, Qinetiq, SAIC and Deloitte & Touche.

Besides these groups, the MoD is also believed to have received bids from smaller companies eager to win a slice of its 10-year Defence Information Infrastructure (DII) contract, which will provide IT services to 300,000 MoD staff at 2,000 global locations.

A shortlist of three to five preferred bidders is expected to be drawn up at the end of this month before detailed negotiations get underway later this year, ahead of a contract award scheduled for early 2005.

While the MoD will make no comment on the rival bidders, EDS and Fujitsu Services have the advantage of being incumbent suppliers for the contract that DII will replace and also claim they are the largest IT services suppliers to the ministry.

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3. IBM BOOKS $645 MILLION PAPER DEAL

IBM Business Consulting Services has won a $645 million, 10-year business transformation contract from Europe's third largest paper supplier, M-real.

Under the terms of the agreement, which is subject to approval from competition authorities, IBM will manage and improve the Finnish company's business applications, including SAP and Mill Execution Systems, and its technology infrastructure. Some 300 people will join IBM as a result of the deal, with M-real hoping for a 35% reduction in IT costs as the contract progresses.

Doug Hayhurst, global forest and paper industry leader at IBM Business Consulting Services, said the contract represents a significantly deeper business relationship than in traditional IT outsourcing, explaining: "M-real has an ambitious strategy of value chain mastery - understanding customers' and users' businesses and offering service solutions that improve their customers' competitiveness. IBM will be integral to implementing that strategy."

Veli-Matti Mynttinen, executive vice president and CFO of M-real, said: "We have chosen to partner with IBM because of its proven experience and capability in outsourcing and because of its extensive consulting expertise with the forest and paper industry - the latter enhanced by the acquisition of PwC Consulting last year."

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4. ACCENTURE PROMOTES BPO BUSINESS

Accenture is adding people power to its drive into the business process outsourcing (BPO) market, with the appointment of Mary Tolan, former group chief executive of resources, to the role of corporate development officer.

A 21-year veteran of Accenture, Tolan will focus her experience on new businesses grown either organically or through acquisition. She will report to Jack Wilson, chief executive of BPO, and is tasked to work with him and the BPO organisation team to increase Accenture's share of the market.

Tolan will continue to be based in Chicago, and will remain a member of Accenture's management committee and an executive officer of the company.

She has been replaced as group chief executive of resources by David Thomlinson, former head of the company's resources operating group in EMEA and Latin America.

Thomlinson will remain in the consultancy's London office, from where he will lead the $2 billion resources operating group, which comprises a global team of 11,000 professionals working in the energy, utilities, chemicals, forest products, and metals and mining industries.

Accenture chairman and CEO Joe Forehand praised Tolan's leadership of the resources operating group, adding: "At a time when outsourcing represents an increasingly significant part of our overall business, Mary brings to her new role expertise from successfully launching Accenture Business Services of British Columbia and CustomerWorks - examples of shared services businesses that we intend to leverage across other operating groups and industries."

5. E-GOVERNMENT COSTS OUTWEIGH SAVINGS

The cost of e-government will outweigh any financial savings it generates for at least a decade - with the need to maintain physical services for those on the wrong side of the digital divide holding down potential savings.

According to research from public sector IT analyst Kable, savings made from local and central government online services will be around $482 million in the 2005/6 financial year - the government's target for all services to be online - but spending on e-government in the year will be $2 billion.

"Plotting the e-investment against the increase in savings over the coming years shows that, on an annual basis, the savings may match the costs only by financial year 2012 - even this projection could prove to be optimistic," explained Karen Swinden, head of forecasting at Kable.

The company's report estimates that taxpayers will pay over $12 billion for e-government between 2001 and 2005, with local government spending $5 billion and central government spending over $7 billion. On an annual basis, spending is forecast to peak at $3 billion in 2003/4, falling to $2 billion in 2005/6.

On average, central and local government savings are expected to be $275 million a year and will come from e-procurement and a reduction in the need for staff and office space following the introduction of customer relationship management systems and the digitisation of standard processes.

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