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Back-office outsourcing met with skepticism

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IBM Global Services' attempts to extend its outsourcing reach beyond its clients' IT infrastructure, and into its back-office departments such as finance and accounting, have been met with skepticism from fast food giant McDonalds. The resistance highlights some of the major issues facing IT services companies trying to establish themselves in new outsourcing areas.

Speaking at a business process outsourcing conference in New Orleans, the head of McDonalds' shared services unit, Jerry Calabrese, said it had turned down IBM to outsource its finance and accounting functions, and it had regretted employing them to benchmark its processes.

He said: "IBM wanted to send 70% of our finance and accounting work offshore, and we decided that it was not worth the risk. Finance and accounting is still new to IBM, there is no proven history there yet." According to Everest Group, IBM has 31.7% of the nascent finance and accounting outsourcing market, a figure inflated by a small number of large deals such as one with BP, which it inherited through its acquisition of PwC Consulting.

Everest Group believes that IBM Global Services currently has only six of the 86 major F&A outsourcing contracts that it has tracked over the past seven years. This is in contrast to its dominance in IT outsourcing, where IBM Global Services secured 21% of major contracts tracked by ComputerWire in 2003.

Like most companies considering a major outsourcing initiative, McDonalds decided to benchmark the costs of its existing processes to test whether it would reap any significant cost savings by handing them over to a third-party services provider. But Mr Calabrese advised an audience of finance department leaders that they should seek independent help in this area.

"Choose someone who will not get one more cent after the study is done. When IBM were brought in to benchmark the study, it immediately brought suspicion within our organization that their numbers were simply to be used as the basis for a pitch. I would recommend getting an independent study. We got no best practices from IBM and we got nothing from them that we could leverage," he said.

Mr Calabrese's comments are indicative of the problems that some of the large IT services companies are having in attracting major BPO clients. Hewlett-Packard has yet to announce a significant BPO contract win, despite having a network of global shared services centers.

Source: ComputerWire/Datamonitor

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