Steria: The French Connection - John Torrie
Euronext-traded Steria swooped for outsourcing firm Xansa in a well publicised £427 million deal last year, with Xansa’s market leadership in finance and accounting (F&A) and its offshore delivery centres being the major pull for France’s third largest IT services firm. British-owned Xansa is the UK leader in delivering finance and accounting services to major organisations like British Telecom, the BBC and the National Health Service.
It was also the first UK IT firm to get into India and had 5,000 staff based in centres there. Until recently, the French company has preferred to forge partnerships with Indian companies, due to its traditional focus on consulting, systems integration and infrastructure management projects, which are less compatible with offshore delivery models.
However, according to John Torrie, Steria’s CEO for Northern Europe, the company finds itself increasingly drawn into the IT-enabled BPO (business process outsourcing) space, combining the management of business process services (HR, F&A, life and pensions, customer service, etc) with the management of the IT applications they use, and indeed the underlying IT infrastructure and data centres. Steria’s need for both BPO and an enhanced offshore capability was compelling.
‘Optimised service provision across IT and BPO is increasingly making use of global delivery models, leveraging the best of on and offshore talent,’ says Torrie. ‘For example, our finance and accounting shared service delivers to multiple clients across Oracle and SAP platforms and brings together different mixes of local and offshore capability in a unique target operating model. This plays to a wide range or risk/reward scenarios we find across private and public sector organisations.’
Nearly 40% of Steria’s revenues come from the public sector, so the firm will also be looking to cash in on Xansa’s growing presence there. Its public-sector sales surged by 56% in the 12 months to April 2007 and the company has put pen to paper on lucrative deals with the UK National Health Service, the Home Office and the Cabinet Office, which adds to contracts with the Belgian finance ministry, the French ministry of economy, finance and industry and the UK national probation service. Commercial clients include AXA Sun Life, Barclays, Lloyds TSB, Experian, Lawson, and Royal Mail.
These helped the group to first quarter 2008 revenues of €439 million, giving global growth of 38%. They are healthy figures, but Torrie is keen to point out that Steria offers more to its BPO clients than simply a reduction in costs.
‘The work we’re doing now in BPO, finance and accounting is quite exciting,’ he says. ‘A well-structured, well-managed BPO stategy with strong governance and strong partnering between the client and supplier can dramatically change a company for the better. It’s not just about making savings. It enables the FD to take his or her focus away from transactional processing issues and place it on strategy and future direction. That said, the scale of the transactions we process across payroll and expenses, Procureto- Pay, Order-to-Cash, Account-to- Report, etc. do allow us to make a real difference for the finance function. For instance, in AP we’re processing over £36 billion payments each year. By analysing this spend, understanding how much of this is off-contract and how it is allocated amongst different suppliers and comparing terms, we arm the FD with the information and insight to optimise and streamline the process.'
'We’ve made great improvements to our clients’ working capital through enhancing systems and processes. And with over 2,000 people in our F&A teams, we deliver compliance to Sarbox and SAS 70 to give peace of mind.’
Steria is showing its strength against its established Indian rivals. In northern Europe, the group is engaged in the customer-facing public utility and telecom verticals, which require a full understanding of customer needs and local culture. None of the Indian IT service providers can adequately address that, despite having set up local subsidiaries. Additionally, Indian governments and public utility companies will often draw up clauses stipulating that only local companies are authorised to bid for their contracts.
Although some large economies, like the UK, have reached maturity in terms of offshoring to low-cost destinations like India and the Philippines, continental Europe is still reticent. The underlying reasons for this are commonly cited as strong worker unions, a risk-averse business culture and strong attachments to the local language. At best, companies in mainland Europe prefer to outsource their IT or build a working relationship with a local vendor. Even when they offshore, they tend to prefer a more costly captive model.
Steria avoids the bodyshopping model pursued by rivals like TCS and Infosys, preferring to offer integrated IT and BPO solutions and stopping short of billing clients by the hour. Its pricing is transaction-based. And pay-per-use, according to Torrie, is the nirvana for Steria. He says the company still runs payroll BPO on generic platforms with the goal of achieving standardisation and improved efficiency.
‘But I think finance and accounting still presents some challenges because of the level of interaction between the F&A platform and the customers’ other systems. In due course, we will develop more plug-and-play models that we can migrate our customers to over time.’
Torrie believes the most contentious issue in shared services, depending on the market, is to what extent the client chooses to run analytics on their database.
‘Imagine you’re running shared services for the police force,’ he says. ‘A series of discrete organisations, and they’re highly autonomous. The initial benefit of shared services for them would be reduced costs and the business value. But is anybody interested in the analytics we could run off that data, if it reveals that police force A pays four times more per year on the same supplies than police force B? It all depends on whether the organisation desires a community benefit, or wants you to stop at each discrete unit. It can be highly politically sensitive.’
However, Torrie insists that shared services represents good value for the tax-payer. ‘If you’re sitting at the centre of government and you want all your departments to be running as efficiently as possible, then it’s a welcome improvement,’ he adds.
Not all Steria’s BPO activity is offshore. The company generates more business from process engineering than from labour arbitrage, which Torrie describes as ‘just a feature of the market at this point in time.’ The labour arbitrage between India and the UK, he says, is not sustainable at its current level.
‘Inflation and attrition are running high. When China comes online with a new labour arbitrage argument, they will have the same characteristics as India now, with huge numbers of high calibre graduates churned out on an annual basis, highly skilled, multilingual, motivated and mobile.’
F&A providers are able to deliver value over an in-house operation because of the considerable overheads involved when a finance department chooses to go it alone. Also, because F&A is the core business of the provider it is able to bring wider best practice from across its client base and invest in latest technology and platform upgrades.
‘We’re starting to see our clients move from cost to value focus in second generation outsourcing deals,’ says Torrie. ‘And without being able to show innovation in F&A – we wouldn’t have won the BBC deal when they tested the market.’
‘After the implementation phase, we can use our consultancy skills and knowledge of specific industry sectors to return to our customers with better ideas,’ Torrie concludes.
‘The value delivered by BPO is not simply the ability to realise a step change in processing costs but to access ongoing improvements across multiple functions.’