Paul Pindar Q&A: Capita results demonstrate UK BPO success

Recession or not, business processing outsourcing companies are going from strength to strength

Pindar: "Number of clients that have taken services back in-house after outsourcing them would not cover the fingers of one hand"

UK business process outsourcing (BPO) specialist Capita Group saw its pre-tax profit for the six months ended 30 June 2009 reach £142m, up 18 per cent compared with the same period in 2008, with revenue up 11 per cent to £1.3bn.

Capita chief executive Paul Pindar reveals where the money is coming from and explains why the pace of growth in UK IT outsourcing is unlikely to slow down any time soon.

Computing: Like other outsourcing companies, Capita has done well this year. Where is the money coming from?
Paul Pindar: The £1.3bn revenue comes from ongoing contracts with our existing bank of around 20,000 customers, but we have earmarked a further £814m from new contracts that have not yet started so have not yet impacted our revenue line.

We also have a bid pipeline of £3bn, where we have been formally short listed by potential customers from an initial base of up to 40 suppliers and where contract negotiations are reaching the final stages, though confirmation can take anything up to a year.

Have you noticed any backlash against offshoring among UK organisations? We are a UK-based company with a focus on UK contracts. We have about 3,000 people in India now supporting our UK work, and plan to have around 3,700 by the end of year, with the additional staff primarily supporting the AXA contract [worth £523m alone over 15 years]. The rest of our staff are based in the UK and Ireland, with a small number in Holland and Luxembourg to support our Trust administration business. The large majority of our offshoring is based around our life and pensions organisation, and has been well received in the UK at this point.

Capita was formed from Chartered Institute of Public Finance and Accountancy – is its customer base still mainly in the public sector? The Capita Group did come out from local government origins in 1987, but our customer base is almost exactly 50 per cent public sector and 50 per cent private sector these days. The same ability to provide good quality services at a contractually lower price is equally applicable to both.

Competition is fierce with multiple BPO providers competing on lowest price - is there enough revenue to go around? Analyst firm Ovum estimated that overall market for BPO in 2008 was worth £94bn, with only six per cent of that outsourced at that time. So there is a massive market here and we see many opportunities on a five-year horizon.

Is lower cost IT service delivery still the definitive driver for BPO? A lot of our customers do want savings, that is certainly a key part of our offering, but they also want quality improvement and process change. A lot of what we do today is transformational change in the services we take over – refresh exercises that don't just deliver cost savings, but changes in the way they deliver business.

What other way is there for BPO providers to differentiate their business? Every contract we go into with a customer includes a definition of how we want things to be measured as part of the bid and tendering process. We provide a lot of management information to customers on a regular basis on a whole range of service levels, with some contracts reporting on 150 different services. We provide information on how and what we are doing, and where our performance is at any one time – it helps customer relationships enormously to establish that first.

Outsourcing has seen phenomenal growth over the past few years. Is this sustainable or will organisations start to take things back in-house? I have been in Capita for 21 years and the number of clients that have taken services back in-house after outsourcing them would not cover the fingers of one hand. Economies of scale make it incredibly difficult for them to do that from an infrastructure perspective.

It is always easy for the media to pick off where things have not gone well, but the vast majority of outsourced contracts are successful. We would argue that customers actually have more control over outsourced services compared to in-house equivalents because in-house services do not have a contract, or a service level agreement (SLA).

Capita has been on the acquisition trail recently: does it have other expansion plans beyond the BPO focus? We acquired both Carillion IT Services (CITS) and ABSNet in the past 12 months, so we are already strong in IT services, ranging from development and solutions architecture, to desktop support, call centre activities, telephony, networking and datacentre provision – pretty much every aspect of IT delivery.