IT on Auction Block

You think youve had rough days? Howd you like your IT department to be put up for auction? Thats whats happening to the BBCs 1,400-person IT subsidiary in the United Kingdom. The idea of an auction sounds harsh, but its actually a process not unlike that of any U.S. company selecting an outsourcing partner and transferring data centers and IT workers to it. The difference is that the BBC, as a taxpayer-funded entity, must go through a public bidding process to effect the transaction.

The unit on the block is called BBC Technology Ltd. It handles IT for the BBC and has developed products used by other companies, including ESPN, DirecTV and National Public Radio in the United States. The unit earned 19 million pounds of profit for the BBC last year.

So why get rid of it? In a word, inefficiency. Substantial layoffs were on the, horizon, according to a BBC statement. Now the BBC is trying to find a buyer it can work with as it buys back IT services, worth $3.6 billion over 10 years, from the unit. "What [BBC Technology] needs to move forward is more cash—more money for the development of the product set. BBC is publicly funded for programming but not for technology," said John Varney, chief technology officer of the BBC. Varney said a major outsourcer could save the BBC $40 million to $50 million per year. A stipulation is that the winning bidder cannot move more than a small number of jobs offshore.

Analyst: Offshoring Is Good for You

TowerGroup said offshore outsourcing by financial services companies will rise by 34 percent annually, from $1.6 billion this year to $3.89 billion in 2008. So pervasive is the trend that the question is not whether you do it but how, said Virginia Garcia, an analyst at TowerGroup. "Firms that dont view offshore outsourcing as an opportunity to do more, not less, are missing the boat," said Garcia. TowerGroups position is not unlike that of Information Technology Association of America: Savings from offshoring will enable investments and hiring elsewhere in the company.

The idea of addressing offshore outsourcing as an opportunity should include selling the idea to the company as a whole. "Financial services firms are sort of shooting themselves in the foot right now," said Garcia. "Theyre trying to keep things quiet. Its the wrong strategy. Companies absolutely have to talk to their employees. [The companies] need to control the message. Its not ill intention on their part. The story is on Page 1 of a very long book. The complexity, the teething pain, is all very normal." Her thesis, that offshoring is no longer a cost-driven, bottom-line necessity, shows that thinking about offshoring has matured considerably. "Now its about freeing up the backlog of IT projects. The value is moving from bottom-line to top-line revenue growth," she said.

Still, Garcia urged caution in handing customer-facing workers to outsourcers. Its probably better to start in back-office functions and then move to the customer-facing ones, she said, recalling Lehman Bros. recall late last year of its help desk operations from India-based Wipro.

Out and About

Garcias advice is going unheeded in some quarters. IBM will buy for $170 million Daksh eServices, an India-based company specializing in call center services. The Daksh deal follows an IBM accord with Bharti Tele-Ventures, an Indian telecommunications conglomerate, under which IBM will perform business transformation outsourcing services for Bharti. Bharti and IBM will jointly develop and market IT and telecom solutions and services in India. In addition, Bharti will become a preferred supplier of India telecom services to IBM.

In addition, IBM said it signed an agreement with Schlumberger to buy the companys Business Continuity Services unit for an undisclosed amount. SBCS has 40 recovery sites worldwide. IBM said it will add more than 10,000 recovery seats configured as financial trading rooms, call centers and workplaces. Finally, India IT services company Infosys Technologies announced that it had $1.06 billion in annual revenue for the fiscal year ended March 31, surpassing $1 billion for the first time. The companys profit rose 30 percent, to $285 million.

Stan Gibson can be reached at stan_gibson@ziffdavis.com.

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