Inside Track | The view from inside outsourcing

Bedtime reading

Just found an interesting research piece from Research and Markets on the global water industry that comments on the activity and flux in the marketplace.

In a nutshell, it reviews the privatisation progress in the water and waste sector and describes the current position in pretty much every country. If you're suffering from insomnia, could be worth digging into the detail. But if the Ovaltine works, then stick to the summary at the beginning around the major movements. It references the sell off of Thames Water from RWE, and the Suez and Gaz de France announcement of their merger to create the second largest utility in the world.

Water boffins, enjoy.

"Join The Club"

There was another positive step forward for Xansa this morning with the news that we've won a major contract with the Government to establish and manage an Internet platform which will allow three central Government departments (Department of Health, Department for Education and Skills, and Directgov) – collectively known as 'The Club' – to deliver essential electronic services.

This is great news for us as it's a significant five-year contract, where we'll provide fully managed web and content management services to the departments. It's also great news for The Club as it provides improved services to the public at a reduced cost to serve.

What's particularly interesting to me in the Commercial world is the similar concept around shared services that the Club contract provides. The plan is that other Government departments will be able to 'join the Club' to share development, component reuse and so on, at a reduced cost and risk compared to reinventing the wheel with running their own systems. A similar concept to what I see emerging within, for example, the utilities space around the potential sharing of back-office services.

Lost online sales? Get back in the saddle

Apart from reminding my kids to make Mother's Day cards for my wife (obviously shows more intimacy than buying them!), I spent the weekend putting the finishing touches to my race-tuned Suzuki GSXR750 before I baptise it at Cadwell Park racetrack next month.

I've spent the long cold winter months up-rating the brakes, brake-lines, exhaust system, race clutch, tuning the carburettors and other bits and bobs that I hope will make it go faster than the others on the track with me. Consequently, I've spent a fair bit of cash on the beast and it occurred to me as I was totting up the bill that none of it actually involved me walking in to a motorbike shop.

In fact, all of the transactions were done online, typically late on a Saturday or Sunday night, and flawlessly delivered to my door 24 or 48 hours later. Convenience and cost were two of the obvious drivers for using www.bikebitz.com and other similarly wacky-named merchandising sites, but also because of the specialised nature of the some of the parts - my local bike dealer would only have to order in the red-anodised Goodrich brake hoses with alloy banjo nuts (!), so why pay him for doing so when I can go direct and save the time and cost?

My experience is, I am sure, fairly typical, and lends credence to the importance of the increasingly online world of retail. It also supports the argument that the 'traditional' retailers need to wake up to their website woes as covered in the analysis that we at Xansa have just completed and launched with Akamai, our partners in a 'multi-channel retail' proposition (in which we help retailers do more with their channels to market).

The study, conducted on our behalf by Verdict Research, involved interviewing 52 retailers and examined the performance of retailers’ online operations over the 2005 festive period. Crucially, it looks at the value of online sales lost due to website performance issues, and at the proportion of retailers having to employ costly alternative infrastructure.

While my experiences, as I've already said, were impressive (easy buying experience, quick delivery, accurate fulfilment, great products) - all of the sites I used were specialist 'online-only' retailers. None of them have costly retail outlets to staff and maintain.

Why is the Xansa/Akamai report important? Because online retailing is getting bigger all the time - in 2000, online sales accounted for just 0.8% of all retail sales. By 2005 this figure had increased to 3.1%, and we forecast that in a few years it will be nearly 7%.

Retailers need to wake up to the increasing importance of online as a channel to market and make it easy for consumers to purchase from them - ease, convenience, accuracy, speed - all are important factors to ensure a customer doesn't give up and go elsewhere. The research makes stark reading, with an estimated £84m worth of lost online sales due to problems with the 'online customer experience'.

Worse still, this is likely to be £226m during 2006 even using conservative growth estimates for online retailing. Of course, this isn't saying these sales just vanished: many would have gone to rival retailers, and some would have ended up trekking the high street. The point is simple - for those retailers affected, these were sales that could have contributed to their bottom line and could have made the difference between a profitable or unprofitable online operation. Personally, when I have bad retail experiences or customer service - whether these are online or in store, I tend to hold grudges - I often think twice about going back, and indeed often take my money elsewhere.

Rather than regurgitate the entire report findings here, click here for full details, or go to Retail Bulletin where it's also front page news.

The key issues are, perhaps not surprisingly, website underperformance and slowness, and website downtime. I also can't stand confusing web pages (I have a short attention span - it needs to be easy for me to buy!) or poorly designed ones. For me, these are all online versions of shoddy in-store customer service, and issues that retailers ignore at their peril.

Of course, I won't be thinking of any of this when the red lights go out at Cadwell next month.

North and South

Not surprising, I am afraid, to hear the news about Morrisons' write-off of £374 million 'cost of integration' following their takeover of Safeway and the conversion of 220 stores.

Their shares took a tumble today as a result, with Morrisons finding themselves in the unenviable position of being among the largest fallers of the day. Seems the market was unconvinced by their three-year plans to restore profitability. Ken Morrison was quoted as saying they are now planning to get back to basics and concentrate on the 'day job' – in effect he's got be talking about improvements in store performance, 'one store at a time'.

One of the analyst's I heard comment about this yesterday actually said that it was to do with the fact that the 'Northern Morrisons' didn't understand what to sell to the 'Southerners of Safeway' when they took them over, quoting that 'they started selling pasties and chips to the Southerners' and this was key to the downfall - not knowing their marketplace and customers.

Well, as a Southerner who likes the odd pasty and chips I have to disagree. Perhaps I'm missing the point, but surely the reason is simple – post-acquisition or post-merger integration is very hard to get right. It demands strong change management and a clear strategy – history is littered with case studies. The 'back to basics' message is the right one to restore confidence.

The 'North-South' divide was also quoted again yesterday, but this time in the context of water shortages. The hosepipe bans (and potential forced metering) being set by some of the water companies in the south (Thames, Southern for example) are a far cry from the over-abundant supply available to Yorkshire Water customers.  In fact the Radio 5 coverage I listened to included a poll of customers in the north being asked if they'd mind the south taking the excess supply from the north.  Surprisingly, everyone interviewed said yes.  A magnanimous gesture indeed, but then considering some parts of Essex are now apparently dryer than the Gobi Desert, a gesture worth having. If only water could flow uphill as well as down dale.

Les Dawson, CEO at Southern Water has been interviewed in Utility Week - note their website appears under development at the moment) this week talking through his view on Southern's challenges and the challenges of the water companies in general – an interesting read.

One thing he doesn't mention is the idea I heard on Five Live this morning as a wacky way to overcome the water shortage – tow icebergs from Greenland or the Arctic to near shore UK and all of our woes will be over. Hmm.

Of course the basic issues remain for the water companies – stop or reduce leakages in pipes and  reservoirs, and focus on this before looking for alternative sources.

Costly to do of course, which is why part of the answer has to lie in freeing funds from non-core back office activities – funds that can be spent where they are most needed. I still like the idea of an iceberg sitting outside Portsmouth Harbour though…

High street under the spotlight

I notice that the newspapers are carrying more stories this week on the bids that private-equity consortia are making on high street retailers – the latest one being the bid for Kesa Electricals (they own the Comet stores and were part of Kingfisher until 2003) by a consortium apparently led by KKR and (possibly also) Permira. (Covered in lots of papers naturally, but the Business Telegraph page is concise).

These are pretty significant deals – this latest one apparently around £1.7bn – and hot on the heels of the rejected bid for HMV (also by Permira) this week.  One thing's for sure – the market likes the optimism from the PE firms as shares in retailers strengthened, presumably because of expectations that more take-over activity is on the way – it was also only recently that House of Fraser was in the sites of Apax Partners. Kingfisher shares became the best performer in the FTSE 100 this week. And of course Archie Norman and John von Spreckelsen (former CEO of Somerfield) are setting up separate buy-out funds to take on companies in distress – presumably retailers as their primary targets.

It'll be fascinating to see when and where this will all end – it seems to be a pretty congested marketplace. It'll also be interesting to see where the primary focus of post-acquisition activity will be… Shaking up the management teams one assumes.

Check out the Retail Bulletin website which is a useful round up of all things retail.

The start of the season

I got so hooked on doing the Nasscom blog  a few weeks ago that I found myself waking up at 1am in my hotel room in India to do another posting on something that I'd forgotten to comment about earlier in the day.  Sad I know, but true.

I've decided to keep my addiction going by setting up an all new blog to comment on 'stuff' – mainly related to the commercial sector that I run for Xansa – goings-on in retail, utilities, logistics, telco – but also, no doubt, about anything that I feel worth probing or commenting on.

Talking of which...

It was great to see Renault triumph once again http://www.renaultf1.com/en/ at the opening Grand Prix in Bahrain on Sunday. An example of tactical genius from the team around the pit stop 18 laps from the end of the race which saw Fernando Alonso sneak ahead of Schumacher – and then some stunning driving to stay ahead under severe pressure to the end of the race.

It was also great to see Xansa's logo on the side of the car for the first time after having viewed the mock-ups and the launch of the new car pre-season.

Nothing like the buzz of seeing it for real, in the heat of battle in the first GP – particularly as they won. We continue to progress well through our first year as Renault Formula 1's official 'software services partner' and our team is growing both in the UK and in India as we undertake support of RF1's software systems. 

Long may RF1's success continue (and yes, I am looking forward to attending a race or two this year)... Incidentally, take a look at the RF1 blog for insight into the team and their progress.

About me

Nigel Kirkham has spent the last 20 years advising clients and managing businesses. His experience includes 14 years with KPMG Management Consulting in a wide variety of consulting and managerial roles, and 8 years with Xansa where he is currently Sector Director for a major part of Xansa’s business. His current clients span Xansa's full service offerings from IT services and ITO to Business Process Outsourcing. His consulting experience has been spent in a wide variety of client sectors including banking (investment and retail), utilities, retail, government, telco, logistics and transport. He has set up and run businesses for both KPMG and Xansa, and has full P&L responsibility. 

Nigel has significant experience of working overseas, including running Xansa’s consulting operations in North America (based in New York), and establishing and running KPMG’s consulting business in the Lower Gulf area of the Middle East (based in Abu Dhabi). His consulting experience is around managing change, and he has worked with many of the largest organisations in the world. He is also a regular speaker at business conferences, has been a Programme Board member of the DIA (Drug Information Association) and has had many articles on “managing business change” published. 

Nigel was born in London in 1960. He has travelled widely, both with work and for pleasure, and spent a year travelling around India, Pakistan, Turkey and Nepal, where one of the highlights was trekking to the base camp of Annapurna in the Nepalese Himalaya.